WM CEO Jim Fish: Investors should look at WM as a stock to buy and hold indefinitely

Key Concepts:

• Forever Stock: A stock that performs well consistently and can be held indefinitely.
• Tuck-in Acquisitions: Smaller acquisitions that complement the core business.
• EBITDA Margins: Earnings Before Interest, Taxes, Depreciation, and Amortization margins, a measure of profitability.
• Gross Margins: The difference between revenue and cost of goods sold, as a percentage of revenue.
• Headwinds: Factors that make it more difficult for a business to grow or be profitable.
• SG&A: Selling, General, and Administrative expenses.
• Municipal Solid Waste (MSW): Common everyday trash or garbage produced by homes, schools, and businesses.
• Construction and Demolition (C&D) Debris: Waste materials generated from construction, renovation, and demolition of buildings and structures.
• Landfill Airspace: The available capacity within a landfill for waste disposal.
• MSAs: Metropolitan Statistical Areas.

1. Company Performance and Financial Highlights

• W.M. (formerly Waste Management) had an excellent quarter, exceeding expectations for both revenue and earnings.
• The stock jumped over 3% due to the strong performance and positive guidance.
• Healthcare solutions EBITDA margins improved by 170 basis points.
• Gross margins were raised across the board.
• The core business is driving gross margins, with pricing and cost control on operating expenses and SG&A performing well.

2. "Forever Stock" Designation

• CEO Jim Fish describes W.M. as a "forever stock" due to its consistent performance over the past decade.
• The company aims to be a stock that investors can buy and hold indefinitely.

3. Acquisitions and Business Strategy

• The acquisition of Stir Cycle was highlighted as a successful move into healthcare solutions.
• The aging population is a secular trend that W.M. is capitalizing on through acquisitions like Stir Cycle.
• The healthcare solutions business provides a natural hedge against fluctuations in other sectors like recycling.

4. Recycling Business and Commodity Prices

• W.M. has mitigated the impact of commodity price fluctuations in the recycling business.
• Contracts are structured to protect the company from significant peaks and valleys in recycling markets.
• The growth of other business segments, such as healthcare solutions, provides a hedge against recycling market volatility.

5. Economic Indicators and Business Segments

• The garbage business provides insights into the overall economy.
• The residential business is driven by population trends rather than economic factors.
• The commercial and industrial segments, along with landfill activities (MSW and C&D), are closely tied to the economy.
• Construction and demolition business is improving sequentially each quarter, indicating economic strengthening.
• June was the strongest month of the quarter in the C&D segment.

6. Regional Performance: California

• The California business performed reasonably well, with a positive impact from wildfire cleanup efforts.
• W.M. participates in cleanup efforts after natural disasters, acting as a partner to affected communities.

7. Regulatory Environment

• Increased regulatory requirements can benefit W.M. to some extent.
• W.M. self-regulates above the minimum standards, making it easier to adapt to new regulations.
• However, regulations that lead to landfill closures would negatively impact the company.

8. Landfill Airspace and Competitive Advantage

• The entire industry faces declining landfill airspace availability over the next 15 years.
• W.M. has a competitive advantage due to its well-located landfills in major MSAs and longer landfill lifespans.
• W.M. has the best located landfill in nine of the ten biggest MSAs in the United States.
• Approximately 400 landfills are expected to close in the next 15 years.

9. Notable Quotes

• Jim Fish: "I think it's a stock that performs well quarter in and quarter out, year in and year out. And I would tell you over the last, you know, decade or so we've we've done exactly that. So I think investors should look at it as a stock that you buy and hold indefinitely." (Regarding W.M. as a "forever stock")

10. Synthesis/Conclusion

W.M. delivered a strong quarter driven by its core business and strategic acquisitions. The company's diversified operations, proactive risk management in recycling, and advantageous position in landfill airspace contribute to its stability and potential for long-term growth. Jim Fish's perspective suggests a positive outlook on the economy, supported by the improving construction and demolition segment. The company's ability to navigate regulatory challenges and capitalize on secular trends positions it as a "forever stock" for investors.