WM Pricing Spineometer: 5 of 5 Vertebrae

WM (nee Waste Management), a waste collection, recycling, and disposal company, had a positive FY 2023. Revenue rose 4% to $20.4 billion and earnings before interest and taxes rose 6% to $3.8 billion over last year.

A review of WM’s 4^th Quarter 2023 earnings call on 13 Feb 2024, and associated financial reports, provided insight regarding the importance of pricing on performance. (Author’s Note:  I served as a systems designer on a Waste Management national accounts pricing and contract management information technology project in the late 1990’s.)

Across the team, WM executives exemplified a strong understanding of the importance of pricing and price capability to investors.

In the earnings press release, James C. Fish, CEO of WM, stated, “In 2024, we anticipate our financial performance to be driven by disciplined pricing, enhanced operational efficiencies, prudent cost management, and contributions from our investments in our recycling and renewable energy businesses.”  These sentiments were repeated in multiple claims throughout the earnings call.

Jim Morris, COO demonstrated an awareness of the importance of price and customer retention stating “Our pricing programs continue to be focused on striking the right balance between maximizing customer lifetime value and increasing price to recover higher costs. Our full-year churn rates remain at the lower end of historical range at about 9%, and the year-over-year improvement underscores our consistent delivery of quality service to our customers. Looking ahead to 2024, we anticipate sustained momentum in our disciplined pricing programs to result in core price between 6% and 6.5% and yield approaching 5%.”

These comments and other issues provide guidance on the pricing capability needed to navigate WM through its pricing challenges:

1. Industry benchmarks suggest between 40 and 200 individuals at WM would be dedicated to pricing.
2. Given the long-term nature of many of WM’s contracts, it would be expected to see WM use some form of indices for pricing in many instances. The nature and choice of indices need to be constantly managed, thus greater pricing scrutiny may be beneficial.
3. Transactional pricing would of course benefit from pricing guidelines that deliver a target, expected, and poor price range for every negotiation and bidding situation, especially given the public tender nature of much of WM’s business.
4. WM is engaged in recycling, including the recycling of gas, including contracts for the sale of natural gas emitted from the landfills it manages. This nascent market is likely to be going through market fluctuations and therefore requires greater pricing attention.

Research into the investment by Waste Management in pricing yielded encouraging results.  Well over 100 professionals identified pricing or revenue management as their core responsibility.  Titles ranged from leader, analyst and manager to director and vice president.  Responsibilities expanded beyond pricing and contract management or program management to include machine learning, data science, and quantitative analysis.

Given the importance and capability of pricing at Waste Management as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of March 2024.

Waste Management Pricing Spineometer: 5 out of 5 Vertebrae.

WM (Waste Management, Inc.) rose from 187 the day prior to their earnings call to 203 one week later. FY 2023 revenue of $20.4 billion with an 18% operating margin and P/E ratio near 37.

For FY 2023, a 1% improvement in price would yield a 6% improvement in operating profits holding all else constant at Waste Management.

(Compare and contrast this rating with their industry peer, Republic Services. https://wiglafjournal.com/republic-services-pricing-spineometer-5-of-5-vertebrae/)