Earnings Reports (Feb 12th-16th)
Taking a Look at Quarterly Earnings for Waste Management (WM) & STAG Industrial (STAG).
1. Waste Management (WM)
Waste Management reported a solid performance for the quarter and year end December 31, 2023, beating expectations on across the board.
Quarterly Highlights:
Revenue Growth: WM saw a 5.7% increase in total company revenue, reaching $5.2B, driven by a core price increase of 7.3%.
Operational Efficiency: The collection and disposal yield was 4.9%, with volumes increasing by 1.1% (1.9% on a workday adjusted basis), contributing to an operating expense improvement of 240 basis points to 60.3%.
EBITDA Growth: Adjusted operating EBITDA surged by 14.7% to $1.56B, with a record adjusted margin expansion of 240 basis points to 29.9%.
Shareholder Returns: WM returned $593M to shareholders through $312M in share repurchases and $281M in cash dividends.
Annual Performance:
Sustained Revenue Increase: For the year, revenue grew 3.7% to $20.4B, with the core price increase contributing significantly (7%).
Enhanced Operational Margins: Collection and disposal efficiency improvements led to a 70 basis points improvement in operating expenses as a percentage of revenue, landing at 61.7%.
EBITDA and Margin Expansion: Adjusted operating EBITDA for the year grew 7.0% to $5.9B, with a margin expansion of 90 basis points to 28.9%.
Capital Returns: The company significantly rewarded shareholders, returning $2.44B through share repurchases ($1.3B) and cash dividends ($1.14B).
2024 Outlook:
Revenue and EBITDA Projections: WM anticipates revenue growth between 6% and 7%, with adjusted operating EBITDA expected to range between $6.27B to $6.42B, reflecting about $450M increase at the midpoint.
Investment and Capital Allocation: Planned capital expenditures range from $2.2B to $2.3B, with an additional $850M to $900M for high-return sustainability projects. Free cash flow, before sustainability investments, is projected to be between $2.75B and $2.95B.
Shareholder Value Focus: The company intends to increase the annual dividend by $0.20 per share to $3.00 and has refreshed its share repurchase authorization to $1.5B, expecting to repurchase $1B in common stock in 2024.
Sustainability and Growth Investments:
WM is advancing its sustainability portfolio, with a focus on renewable natural gas projects and recycling assets expected to deliver strong economic and environmental value. The company forecasts a total investment of $2.8B to $2.9B in these areas from 2022 to 2026, aiming for significant EBITDA contributions by the end of 2026.
My Take
This quarter has been exceptionally strong for the garbage company, driving shares up by nearly 6% over the week. This surge in stock price reflects the market's positive reaction to their performance. I am increasingly optimistic about the company's future and their strategic investments aimed at growth and expanding market presence. At this moment, there are no significant negatives to highlight regarding the performance or outlook.
However, I want to draw attention to the analyst price targets (PTs) and ratings. In my view, investors should approach these assessments with caution. My perspective is that such analyses can sometimes veer into market manipulation, a practice that has persisted for many years. My stance is due to a recent downgrade from Citi, labeling the company as "overvalued" following the outstanding quarterly results. Despite this, my confidence in the company remains unshaken, and it continues to be a key holding in my portfolio. I am even planning to increase my investment throughout this year.
2. STAG Industrial (STAG)
STAG Industrial announced its Q4 2023 and full year end results December 31, 2023, marking a period of strong performance and growth for the company. Bill Crooker, President and CEO, highlighted the exceptional results achieved in the fourth quarter, noting record figures in Cash Rent Change and Same Store Cash NOI. Crooker expressed optimism for 2024, with the company well-positioned for both internal and external growth opportunities.
Financial Highlights for Fourth Quarter and Full Year 2023:
Net Income: The fourth quarter saw net income per share increase to $0.23 from $0.17 in the previous year, with annual net income for 2023 rising 8.2% to $192.6M
Core FFO: Core Funds From Operations (FFO) per diluted share grew by 5.5% in the fourth quarter to $0.58, and by 3.6% annually to $2.29.
Cash NOI: Cash Net Operating Income (NOI) for the fourth quarter was up 10.0% to $143.1M, with a 7.2% annual increase to $550.9M.
Same Store Cash NOI: Increased by 6.8% to $127M for the quarter, with an annual increase of 5.6% to $496.7M.
Cash Available for Distribution (CAD): Grew by 1.3% in the fourth quarter to $87.2M and by 5.4% annually to $361.3M.
Operational Highlights:
Acquisitions and Dispositions: Acquired two buildings totaling 398,433 square feet for $48.7M and sold one building of 146,740 square feet for $8.7M in the fourth quarter.
Leasing Activity: The company commenced leases totaling 2.6M square feet, achieving an Occupancy Rate of 98.2% across its total portfolio and 98.4% in its Operating Portfolio.
Capital Markets Activity: Raised $41.8M through its ATM offering program in December, with subsequent actions raising an additional $22.1M post-quarter.
Looking Forward:
As of February 12, 2024, STAG has addressed 68.7% of its expected new and renewal leasing for the year, covering 9.2M square feet and achieving a Cash Rent Change of 29.5%. The company's strategic acquisitions, robust leasing activity, and successful capital markets engagement underscore its strong positioning for sustained growth into 2024.
STAG plans to further discuss these results and provide updates on acquisitions, operations, capital markets, and corporate activities in a conference call scheduled for February 14, 2024.
This reorganization provides a streamlined overview of STAG’s financial and operational performance in 2023, alongside forward-looking statements regarding the company's growth prospects and strategic direction.
My Take
STAG’s performance this quarter demonstrates the resilience and strategic acumen of well-managed REITs, especially in a challenging high interest rate environment. As a commercial real estate advisor overseeing multiple industrial properties, I can attest to the robust demand for industrial real estate, which remains one of the hottest sectors in the market. Currently, the primary challenge facing the industrial sector is not demand but supply; there simply isn't enough available inventory to meet the market's needs. Despite initial concerns about navigating the new real estate landscape, STAG has impressively managed its acquisitions and dispositions, showcasing its strategic execution capabilities. Based on this quarter's solid results, STAG will continue to hold a prominent position in my portfolio, with plans to increase my investment throughout the year.