Despite a challenging macroeconomic environment, Waste Management, Inc. (WM - Free Report) reported strong third-quarter 2016 results with GAAP net income of $302 million or 68 cents per share, compared with $335 million or 74 cents per share in the year-ago quarter. The year-over-year decrease in earnings, despite higher revenues, was primarily attributable to higher operating expenses during the reported quarter.

Adjusted earnings for third-quarter 2016 were 84 cents per share, which comfortably beat the Zacks Consensus Estimate by 4 cents.

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Quarter Details

Revenues for the reported quarter increased to $3,548 million from $3,360 million in the year-ago quarter. The year-over-year rise in revenues was driven by accretive acquisitions net of divestitures, and an increase in volume and yield in its collection and disposal business. Revenues exceeded the Zacks Consensus Estimate of $3,332 million.

Internal revenue growth from yield (for collection and disposal operations) was 2.1% in the reported quarter, up 30 basis points year over year. Core price (including price increases and fees, other than the company’s fuel surcharge, net of rollbacks) was 4.7% in the reported quarter, up from 4.0% in the third quarter of 2015. Average recycling commodity prices improved 13.6% year over year, while recycling volumes increased 0.9%.

Revenues from the company’s Collection business increased to $2,254 million in the reported quarter from $2,157 million in the year-ago quarter. Landfill revenues improved to $831 million from $781 million in the prior-year quarter. Recycling revenues increased to $325 million from $297 million, while Transfer revenues were up by $38 million to $397 million.

Adjusted operating margin in the reported quarter improved to 18.8% from 17.9% in the year-ago quarter, due to stringent cost-management efforts. Adjusted operating EBITDA increased $71 million year over year to $1,002 million.

Balance Sheet & Cash Flow

Cash and cash equivalents were $30 million at quarter end with long-term debt (less current portion) of $8,829 million.

Net cash from operating activities for the first nine months of the year was $2,207 million compared with $1,972 million in the year-ago period. Capital expenditures in the first nine months of 2016 were $962 million versus $864 million in the year-ago period.

Free cash flow was $428 million in the third quarter, compared with $358 million in the year-earlier quarter, bringing the respective tallies for the first nine months of the year to $1,277 million and $1,222 million.

During the quarter, the company returned $182 million to its shareholders through dividend payment.

WASTE MGMT-NEW Price, Consensus and EPS Surprise

WASTE MGMT-NEW Price, Consensus and EPS Surprise | WASTE MGMT-NEW Quote

Guidance Revised Up

With strong yield, volume, and cost performance, the company revised its 2016 adjusted earnings guidance to $2.91 per share, up from the earlier range of $2.83 and $2.86. Free cash flow is expected between $1.6 billion and $1.7 billion.

Waste Management currently has a Zacks Rank #2 (Buy). Some other favorably ranked stocks in the industry include Republic Services, Inc. (RSG - Free Report) , Accenture plc (ACN - Free Report) and Carbonite, Inc. (CARB - Free Report) , each carrying the same Zacks Rank as Waste Management. 
Republic Services has a long-term earnings growth expectation of 8.7% and is currently trading at a forward P/E of 23.5x.

Accenture has a long-term earnings growth expectation of 10.1% and is currently trading at a forward P/E of 19.5x.

Carbonite has a long-term earnings growth expectation of 30.0% and is currently trading at a forward P/E of 111.1x.