Waste Management’s Innovative Plan for Its Future

Despite being a capital-intensive business, Waste Management (WM 0.84% ) is a company that investors might want to keep on their radar. In this clip from “3 Minute Stocks Updates” on Motley Fool Live, recorded on March 30Motley Fool contributors Toby Bordelon and Rachel Warren discuss Waste Management’s financials, sustainability initiatives, and its plans for the future.

Toby Bordelon: I’m not going to talk about earnings. What I want to do is go through some slides from a recent investor presentation they did on sustainability. You think of Waste Management as the trash companies, the recycling company. Clearly, sustainability is part of what they do. The more sustainable they can be, that goes directly to the core of their business; recycling. Let’s take a look at what they’re doing. You can see here from this first slide, and again, this is from an investor presentation they did earlier this year. You can get the full deck on their website to check that out. What I want to just take away from here is just the number of recycling facilities and landfill to energy facilities, 138, 144, respectively compared to their total number of landfills, which is 255. They’re doing a really good job here in terms of the relative ratio at which they have facilities that can either recycle or convert trash to energy there. You see some other numbers there you can take a look at. Then, here’s some of their sustainability goals. This is what they are trying to do in terms of both recycling in general and their own business, the people. I’m really interested about the people part. They want to get 100% of their employees to have a living wage by 2025. Arguably, they should have that already, but hey, good to see them working in that direction. Increasing diversity at workforce. Also, trying to get to 50% alternative fuels for their vehicles. With renewable natural gas, they want to convert 70% of the entire collection fleets for alternative fuel vehicles, 100% renewable energy at their sites, which is really interesting, by 2025. They’re doing a lot there. Some recent highlights in 2021, they have a new renewable natural gas facility in Texas that they just opened. They are investing $ 100 million in materials recovery facilities to expand that business. They plan to pay 100% of their employees ‘and dependents’ tuition for certain college degree programs, which is cool to hear. They opened a new corporate HQ in Houston, which is LEED Version 4 Platinum core certified and Shell certified. This is the first in the US, so that’s nice to see. They have a new Chief Sustainability Officer, Tara Hemmer, first person in the industry to hold that title. A lot going on there. You can quickly see here, just reducing landfill emissions is a big goal of theirs as they move forward, reducing fleet emissions all over the place, getting those emissions down from their trucks. Here we have, just so you can get a big picture of all their facilities all over the place. You see me here up here in Reno. I don’t know if you can see that. We have a single stream in a commercial recycling facility here. I know Brian Withers looks like he’s got a single stream facility near him. Rachel being in Europe, not a Waste Management customer unfortunately. But, you can see that they are at a leader in recycling. Love what they’re doing here.

Rachel Warren: It’s interesting. This is not a company that I was familiar with until it brought you up. One thing I’m wondering, it seems like Waste Management is doing a lot of really great things. One thing I noticed when I took a quick look at the company’s balance sheet was, while it’s noting really high revenue and net income growth. It is also carrying a lot of debt. In fact, the company had total liabilities of about $ 22 billion on its balance sheet at the end of last year. Does that concern you at all as an investor?

Bordelon: It’s nothing I’m actually too worried about, honestly. It’s something you want to watch, but it is inevitable for a business like this. It’s just very capital-intensive. You think of all the vehicles they have, hundreds of facilities, recycling, landfills, energy facilities. This takes a lot of capital to build and to buy, and so you’re just going to see debt on the balance sheet. That’s just how it works, but it’s manageable for them. Their interest expense last year was $ 365 million versus an operating income of almost $ 3 billion. Definitely within the manageable range, not a concern right now. They are slowly bringing down that long-term debt. They paid off half a million or so last year. I think it’s OK for now, but it is something you want to watch.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and making decisions that help us become smarter, happier, and richer.

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