Why Waste Management Stock Is in the Dumps Today

Waste Management (NYSE: WM) reported second-quarter results that fell short of Wall Street expectations. Investors are moving on, sending shares of WM down 6% as of 10:45 a.m. ET.

Pricing drives revenue increase

Waste Management, which is rebranding itself as WM, is the nation's largest provider of collection, recycling, and disposal services for residential, industrial, and municipal customers. The company earned $1.69 per share in the second quarter on sales of $5.4 billion, falling short of Wall Street's estimates for $1.83 per share on sales of $5.43 billion.

Revenue was up 5.5%, fueled by a 6.8% increase in core pricing and an uptick in the value of the company's recycled commodities available for sale. Collection and disposal volumes declined by 0.3%.

Post-earnings, WM raised its full-year guidance for adjusted operating earnings before interest, taxes, depreciation, and amortization ( EBITDA ) and free cash flow by $100 million. WM continues to consolidate the industry, in the quarter closing deals in Long Island, Florida, North Carolina, and Arizona. It also has a deal in place to acquire medical waste specialist Stericycle for $7.2 billion.

Is WM stock a buy?

The bottom-line numbers disappointed investors, but the quarter was largely business as usual for WM and a reminder of the consistency this business provides. So far in 2024, net cash from operating activities has increased by 21.6% to $2.52 billion and WM is putting that cash to work on expansion.

The issue is that WM is in a cyclical industry: Waste volumes tend to move with economic activity. With that in mind, the downtick in collection and disposal is a worrisome sign. Should that trend continue in the quarters to come it will be hard for WM to rely on pricing power to continue to fuel revenue growth. The added uncertainty that comes with the Stericycle deal is likely also pushing investors to the sidelines.

For long-term investors there is a lot to like about WM, but the near term is full of uncertainty. Those willing to stomach volatility could see this as a buying opportunity.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy .