Waste Management, Inc. (WM) Q1 2013 Earnings Report, Transcript and Summary

Good morning, my name is Kimberly and I will be your conference operator today. At this time, I would like to welcome everyone to the Waste Management First Quarter 2013 Earnings Release Conference Call. (Operator Instructions) After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to Ed Egl, Director of Investor Relations. Thank you. Mr. Egl, you may begin your conference.

Thank you, Kimberly. Good morning, everyone, and thank you for joining us for our first quarter 2013 earnings conference call. With me this morning are: David Steiner, President and Chief Executive Officer; Jim Fish, Executive Vice President and Chief Financial Officer; and Jim Trevathan, Executive Vice President and Chief Operating Officer. David will start things off with a summary of the financial results for the quarter. Jim will cover our revenue growth including price and volume trends, operating costs and the financial statements. We will conclude with questions and answers. During our statements, any comparisons, unless otherwise stated, will be with the first quarter of 2012. Before we get started, let me remind you that in addition to our earnings press release that was issued this morning, we have filed a Form 8-K that includes the earnings press release as Exhibit 99.1, and is available on our website at www.wm.com. The Form 8-K, the press release and the schedules to the press release include important information that you should refer to. During the call, you will hear a certain forward-looking statements including our outlook for 2013, which are based on current expectations, projections, estimates, opinions or beliefs about future periods. Such statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of those risks and uncertainties are detailed in today’s press release and in our filings with the Securities and Exchange Commission, including our most recent Form 10-K. Additionally, during the call David and Jim will discuss our earnings per diluted share, which they may refer to as EPS or earnings per share on an as-adjusted basis. Our EPS, net income and income from operations margin have been adjusted to exclude items disclosed in our earnings press release that management believes do not reflect…

Thanks, Ed, and good morning from Houston. We had strong first quarter results and see momentum growing in our business as we start the year. Our focus on improved pricing, cost controls and capital discipline are reflected in our results and should improve throughout the year. Our traditional solid waste business continued to improve driven by our Collection line of business, which saw the first year-over-year increase in margins and income from operations since the fourth quarter of 2011. We achieved the savings from our restructuring plan as SG&A costs improved from 2012 and we also saw significant improvement in our free cash flow. For the quarter we earned $0.40 per share, an increase of over 5% from the same quarter last year. These results are right in line with our internal expectations and give us a strong start toward achieving our full year targets. Looking at our yield in the first quarter of 2013 we saw the positive impact of our pricing program. Pricing discipline drove our yield to 1.4% from our Collection and Disposal operations. This is the highest yield since the fourth quarter of 2011, and we’ve seen yield improve sequentially for three consecutive quarters. If you adjust for our South Florida waste-to-energy plants, we achieved yield of 1.6%. We achieved core price of 3%. This is similar to the first quarter of 2011 but an uptick from midyear and higher than the current CPI. Our price rollbacks are at the lowest level we’ve seen since 2007 and have improved for five consecutive quarters, without a noticeable uptick in our churn rate. Both commercial and industrial new business pricing exceeded lost business pricing for the first time in four quarters and our churn improved sequentially. All of these positive factors contributed to the yield improvement in each…

Thank you, David. I will begin by expanding on David’s discussion of yield and volume in our various lines of business, and then we’ll talk to our other big initiatives of costs savings and capital discipline. Revenue for the first quarter increased by $41 million or 1.2% from the prior-year period. We grew revenue in spite of tougher winter weather and lower recycling commodity prices when compared to the first quarter of 2012. The revenue improvement was driven by positive yield on acquisitions. Yield on our collection and disposal operations grew 1.4% in the first quarter, in line with our expectation of 1% to 1.5% for the full year. Our yield growth for the first quarter of 2013 would have been 1.6% after adjusting for the change in pricing at our waste-to-energy plants in south Florida. This is the third consecutive quarter of sequential yield growth and demonstrates our commitment to price improvement. Combines internal revenue growth from yield in our collection businesses was 2.2% in the first quarter with 3.5% growth in industrial, 1.9% growth in residential and 1.8% growth in commercial. This is the highest yield for the residential and industrial in two years and the highest commercial yield since the first quarter of last year. In the landfill line of business we achieved MSW yield of 1%. However, the combined landfill yield was negatively affected by C&D and special waste. Overall, landfill yield was 0.1%. Moving to volumes. Internal volume growth was negative 0.4% in the quarter but a positive 0.8% when you adjust for the two fewer work days in 2013. The growth was primarily driven by an increase in recycling volumes, landfill tons, and the industrial line of business. Specifically in the landfill business, C&D volumes grew 14.6%, influenced by Hurricane Sandy. Special waste volumes…

(Operator Instructions) Your first question comes from the line of Adam Thalhimer of BB&T Capital Markets. Adam Thalhimer – BB&T Capital Markets: Hey, good morning, guys. Nice quarter.

Good morning. Thank you. Adam Thalhimer – BB&T Capital Markets: With regards to the Q1 CapEx, do you still forecast CapEx for the year of $1.3 billion to $1.4 billion?

We do. CapEx for the quarter was a good story for us and we managed it closely. We have cut back on several categories of expense, specifically landfill capital and landfill gas energy, OGG, a couple of those categories, but really probably categories that we’ve trimmed back than not. The one category we have not touched as we’ve said in the past was going to be fleet, and we really didn’t touch that for the first quarter but we still think we’re on track to finish where we expected, which was in that $1.3 billion to $1.4 billion range. Adam Thalhimer – BB&T Capital Markets: Okay. And then, David, as you look at the business as a whole, like you said, some of the volume and pricing metrics are as good as you’ve seen since 2005. How do you think that will trend as we move through 2013?

Look, we always say it every year in the first quarter that the first quarter generally isn’t very indicative of how the year turns out because you haven’t seen seasonality kick in and so we saw some great statistics on both yield and volume in the quarter but we’re certainly not ready to declare victory for the year until we see how the second quarter plays out. We’ve got a lot of things that we’re doing in the second quarter from a yield perspective. We need to see how that plays out. Generally our rollbacks are lower in the first quarter than they are in the second quarter so we need to make sure that we continue to manage those down. And so we saw some good numbers. I wouldn’t call them great but we’ll wait and see how the second quarter plays out before we make a call on the full year. Adam Thalhimer – BB&T Capital Markets: Okay. Thanks very much.

Thank you.

Your next question comes from the line of Michael Hoffman of Wunderlich. Michael Hoffman – Wunderlich: Good morning, David, Jim, Jim. On the volume, on the 80 basis points, how much of that is share gains on a year-over-year basis versus true growth of volume in the waste generated?

I don’t think, Michael, that we’re seeing any particular share gain. The only place where we may be seeing some share gain is at the landfill where, as you know, we’ve used our Oakleaf acquisition to bring in those vendors haulers into our landfill. And so obviously that volume’s got to come from somewhere. And so we saw some, as you saw, we saw some good volumes at the landfill. On the collection side, look, you all know that the game we’re playing is not a market share game. The game we’re playing is a yield game and so I don’t think we gained any market share and I wouldn’t expect to see us gain any market share during the course of the year. Michael Hoffman – Wunderlich: Okay. And then I think I picked up the explanation for the weaker gross margin is mix and then labor and cost increases. Is that accurate? Your gross margins are down sequentially and they’re down year-over-year and you pick up, make up the difference in G&A. Is that because of Greenstar and then wage increases?

Yeah, I would say largely because of two things: Greenstar where we added about $25 million in revenue and $24 million in costs and we’re well on the way of pulling some of that — trimming some of that cost out. So that was a big driver of it. Michael Hoffman – Wunderlich: Okay. And then can you share with us, on automation, how do you sort of characterize where you are on having automated the residential fleet and the opportunities for those kind of ongoing productivity gains? What percentage of the fleet is automated today? And if you looked out three to five years, where do you think that target is?

Michael, this is Jim Trevathan. We’ve executed the onboard computers in roughly 90% of our fleet. That’s the first part of the process. You’ve heard Dave in the past and all of us say there are three parts of that. First is putting the technology in the truck. The second part is a standard process and then the third part is just execution from a management accountability perspective and we have rolled out that process to 4 of our 17 areas. We’ve touched in the last few weeks a couple of more areas. We’re very early in that process, Michael, of rolling that out. It will be over a two-, three-year period that we get the value but you’ll see it over time each month and each quarter as we execute the service delivery optimization. Michael Hoffman – Wunderlich: Okay. And that’s a point I’d love to focus a little bit on. I mean, this is a big positive. It gives you a place to turn productivity on a continual basis for several years so it’s an angle on that and turning the capital smarter. So if you framed — it’s early inning so we’re sort of in the first three innings of this and so you’ve got a lot of the game left to play? Is that how to frame it?

I think that’s exactly right, Michael. I think we’re in a couple of innings of the game, although we’re far along with the direction of the process, the execution is what is in the early stages. Michael Hoffman – Wunderlich: Okay. And then same thing on CNG? As I recall, you’re about 11% of fleet today. What’s the practical limit of what you can take the fleet to?

That’s a great question. Look, we’re going to take it everywhere we can with the fuel differential that we have, we’re going to take it everywhere we can, and basically what that comes down to is where do you have the massive trucks where you can have a fueling station. And so early on in the game, we’re building our own fueling stations where we have enough trucks. I would expect as you see CNG become more and more popular for over the road vehicles that there’ll be an infrastructure built out for CNG. So I would think, Michael, that over time we’re going to be able to convert the whole fleet. But over the next five years it’ll probably go at about 1,000 trucks a year. Right now we are at about 12.5% on the fleet. And so we’re going to — 90% to 95% of the trucks we’re going to buy every year are going to be CNG and we’re going to have to find a way to get to those areas that are more rural, sort of the one and two and three-truck operations to make sure that we can move them to CNG but I would tell you, Michael, that I think we can get to 90% of the fleet in the next few years. Michael Hoffman – Wunderlich: Okay. And then one last question. Working capital, I assumed you were going to have working capital benefits for the first quarter and I think you should be able to manage to a net neutral for the year given the bonus cash payment issue in this year. Is that a good way to think about working capital for 2013?

I think, Michael, we knew this was a headwind coming. We’ve talked a lot about it. We saw the headwind in the first quarter on the working capital side. we’ve got some work to do as we’ve talked about in prior quarters on managing things like DSO so that will help us out and DPO as well, but certainly we knew that we were going to have that big working capital headwind in the first quarter and I think we did a decent job of overcoming it. Michael Hoffman – Wunderlich: Okay. Thank you very much.

Thank you.

Your next question comes from the line of Al Kaschalk of Wedbush Securities. Al Kaschalk – Wedbush Securities: Good morning.

Morning. Al Kaschalk – Wedbush Securities: My first question is can you explain how two extra days of work goes from a negative 40 basis points of volume to positive 1.2?

It’s actually positive 0.8. Al Kaschalk – Wedbush Securities: Well, the delta of those is 1.2. You’re correct.

Yeah, the delta is 1.2. You’ve got two extra work days where you are not taking in landfill volumes, you’re not sending off roll-off trucks so I can’t tell you the specifics of how our accounting department computes that but it’s basically the effect of having two days where you’re not sending trucks out on the road and you’re not taking in landfill volumes or transfer volumes. Al Kaschalk – Wedbush Securities: Okay. Second, can you remind us what the SG&A goal for 2013 is? I forget if we’re talking gross dollar savings or margin savings but could you reiterate what your outlook is based on please?

Yes. So what we said in February was that we would be flat year-over-year in absolute spend and an improvement of 10 basis points. We’re still on track to do that. And keep in mind, there’s a fair amount of headwind that we’re — compensation-related headwind that we’re kind of fighting against there in order to remain flat but we still are confident that we’ll hit our targets.

And importantly, Al, the point is that — the good news is that when we did the reorganization and we talk about $130 million in savings, about 90% of that is SG&A, so a little bit over $100 million in SG&A. So cash-wise, we’re going to save that $100 million to $130 million of SG&A but we give it away on the accrual side for compensation. So from a cash point of view, we put those dollars in the bank. From an earnings point of view, it stays flat. Al Kaschalk – Wedbush Securities: Okay. And maybe my last and then sort of a clarification, but first the clarification. Can you just confirm that your tax rate is still 35% for the full year? Because it looks like there was a little benefit in the quarter. But secondly, this cost concern obviously that I’m expressing leading to lack of margin expansion, particularly on the EBITDA, it seems to be still be a struggle for 2013, yet you’re talking about getting price in a market where volume arguably is modestly up on some acquisitions. So I’m just trying to see how those things work together and drive EBITDA margin up from what looks like probably a low for the year here? But the math just doesn’t seem to hang together right now, David.

Yeah. I guess I would say on the operating cost side, and we talked it a little bit last quarter, that we knew we had some things to work on. We have been working on them and shown some real progress specifically on things like maintenance cost where we’d been seeing some pretty big year-over-year negatives. We’ve started to turn that corner. Keep in mind that operating expenses, while they were up $43 million, we talked a bit about Greenstar and Greenstar added kind of a disproportionate amount of that with $25 million in additional revenue and $24 million in additional OpEx. And right now we’re in the process of paring that back, so I think the operating expense story, while we still note there’s work to be done, is improving.

Look, Al, the simple point is that when you look at our full year you’ve got yields that we expect to continue to maintain at that 1% to 1.5% level, and we’ve talked about the pricing programs. We don’t expect to lose a significant amount of volume from the pricing programs, yield is the primary driver of margin; well, it has been for us for a number of years. On the cost side, we’ll continue to manage those SG&A costs. You should see the volumes uptick in the second and third quarter with seasonality, and then finally we had 70 basis points of headwind from recycling in the quarter, and you see that abate in the back half of the year. So I’m not sure what kind of math you’re doing, but my math tells me that we’re going to have a pretty good second half of the year. Al Kaschalk – Wedbush Securities: Great. My math does the $25 million of revenue and cost from Greenstar doesn’t translate into the — doesn’t explain the sequential difference in gross margin. And that’s...

Well, look, we just bought Greenstar, and it takes you some time to get those costs out. And so that’s another — that’s going to be another positive for recycling in the back half of the year; you’re going to be able to consolidate the facilities and lower the SG&A at Greenstar, which is going to be another benefit for the back half of the year.

Yeah. One last point there, Al, and that is that I mentioned in my prepared remarks, but we did have about $22 million in really unexpected expenses. I mentioned the true-up accrual related to the 2010 to 2012 long-term incentive comp plan. It really wasn’t assumable at the beginning of — or at the end of the year, so we ended up taking it in 2013, but it’s really related to 2012. And of course we weren’t expecting the bad debt hit that we took with Puerto Rico. We expect to recover that, so there’s some cost there that really we regard as not recurring. Al Kaschalk – Wedbush Securities: Great. Thanks a lot, guys.

No problem.

Your next question comes from the line of Joe Box of KeyBanc Capital Markets. Joe Box – KeyBanc Capital Markets: Hey, good morning, guys.

Good morning, Joe.

Good morning. Joe Box – KeyBanc Capital Markets: Quick question for you on the free cash flow side. If you go back to 2007, it looks like free cash flow into 1Q has averaged about 20% in the full year. Granted it’s been volatile, but this quarter it came in at about 30% of your full year guidance. Can you talk to this? And then maybe note if there’s anything outside of working capital of CapEx that could potentially detract from some of the momentum you’re seeing?

I think you kind of hit it on the head there. There was a working capital component to that. Aside from that, I wouldn’t say there’s anything unusual there. I think we’re pleased with the capital expense management that we’ve been working on and that has provided a benefit. So I would say there’s not anything usually surprising there to us.

The other thing I’d say, Joe, is you can’t discount the effect that Jim and Jim have had on maintaining our capital discipline. I mean, they’ve done a phenomenal job down to the dollar of making sure that we don’t spend the capital until we make sure the EBITDA comes in. Traditionally in the past, we’d see a lot heavier CapEx in the first couple quarters from pent-up demand from the prior year, and so you’d see the CapEx sort of come out of the gate pretty strong. This year Jim and Jim have managed that very closely to say, look, we’re not going to spend the capital in the first half of the year until we make sure that we can hit our cash flow target and once we do that, then we can try to get to that $1.3 billion to $1.4 billion in capital. But you can’t discount the amount of work that those two guys have done managing our capital at the beginning of the year. Joe Box – KeyBanc Capital Markets: Understood. Thanks. The rollbacks look pretty good in the quarter. Two questions there. How do the rollbacks actually compare relative to a normalized environment? And then what do you think is really different in the market that allowed for the lower rollbacks but yet no change in churn?

This is the lowest rollback percentage that we’ve seen in a number of years and that’s a tribute 100%, it has nothing to do with the market. It has 100% to do with our folks out in the field and our sales department. When we saw the rollback numbers starting to bump up the last couple years, we decided that we needed to get to our folks at the save desk and get them some training to make sure that we maintain the pricing discipline. And I will tell you: it was shocking to me that they were able to do it so fast and so effective. It’s truly a tribute to our training department, to our sales department. Joe Box – KeyBanc Capital Markets: And then, David, just a question on landfill pricing. Could you just put some color around what percentage of your overall landfill business could be eligible for the 5% to 7% increase? And then maybe just talk about the cadence of the rollout, given I’m sure a lot of it is contractual?

Yeah, exactly. About 90% of the volumes coming into our landfill are under contract, and so 10% are spot, and so you’ve hit the nail right on the head. We generally on the commercial side, we generally have sort of standard three-year type contracts. On the landfill side, it’s a lot different. Those contracts can range anywhere from short term to one year to long periods of time. And so generally we’re going to have to wait for those contracts to come up before we can manage the price. But we’d expect to see as far as the percentage that comes up under contract, I think the average life of the contract is three to four years, so we’d expect to see 25% to 33% of the volume affected each year. Joe Box – KeyBanc Capital Markets: Great. That’s helpful. I’ll leave it at that. Thanks.

Thank you.

Your next question comes from the line of Alex Ovshey of Goldman Sachs. Alex Ovshey – Goldman Sachs: Thanks. Good morning, guys.

Good morning.

Good morning. Alex Ovshey – Goldman Sachs: On the pricing side, when you initially provided your outlook for the year at the end of the fourth quarter of 1% to 1.5%, were you expecting to implement the 2% environmental fee surcharge potentially higher pricing on the landfill side? Or does that now present upside risk to your pricing outlook for 2013?

Yeah. When we developed the plans for the year we looked at it from a core pricing point of view, not from the new fees. So the new fees just recently went in. We’ll know at the end of the second quarter how they’ve been received by the market, but no, we did not have that built into the plan at the beginning of the year. We looked at it as the way that we’re going to guarantee that we hit the plan, right? I mean nothing ever goes like you plan during the year, and so from my point of view on the yield side if we can overshoot the target, it gives us a better chance of hitting our goals. Alex Ovshey – Goldman Sachs: Okay. Thanks, David. And I think I heard you say on the recycling side that perhaps there is some risk that the total impact on the business from the commodity side this year maybe be a little bit more than $0.02?

Yeah. Alex Ovshey – Goldman Sachs: And I’m just curious what the driver, why you think that you potentially expect OCC prices to soften in the back half of this year?

Yeah. Not so much soften, but maybe not strengthen as much as we expected. But what you’re seeing right now is a little bit of unsettled nature in the commodity markets, both domestically and internationally. And so basically right now the pricing is pretty much playing out as we expected it for the year, but you do have some unsettled nature in the Chinese markets and in the domestic markets that make me worried that there’s more downside risk than upside benefit, right? And so right now we’re right where we thought we would be, but I would just say there’s a little more downside risk than upside benefit at this point in time. Alex Ovshey – Goldman Sachs: That makes sense. And then my last question is on cap allocation. If you hit your free cash flow target you should have a lot more free cash flow then what they expect the dividend payout will be in 2013. Can you just talk about what the appetite for share buyback current is?

Yeah. Absolutely. When we look at our capital allocation plan, I don’t think our capital allocation plan has ever changed since I’ve been here. Basically what we’ve said is that we’re going to continue to return cash to our shareholders through the dividend, and we would expect to continue to increase that over time. We’re then going to take excess cash and use it for share buyback and paying down debt or acquisitions as they become available. So you’ve got obviously the dividend is sacrosanct and we don’t expect that to ever go away. In fact, we expect to continue to increase it over the years as we continue to increase free cash flow. And so you’ve got these three other components of acquisitions, of debt pay down and share repurchases, and in the past one has been more important than the other. And at times it’s been acquisitions, at times it’s been share repurchases. Right now I would say that we have our focus a little bit more on paying down debt, and then if we have excess cash we would then move more toward buying back shares. What I’d like to see us do is generate enough cash to where we can pay down a little bit of debt, and then we’ve talked about doing the free cash is $1.1 billion to $1.2 billion without divestitures. And if we can generate some cash from divestitures, I would love to be able to at least buy back enough stock to offset dilution for the year. Alex Ovshey – Goldman Sachs: Got it. Thank you.

Now by the way, we do have $500 million of authorization for share repurchase during the year, but again, we certainly don’t expect to exercise that till later in the year. Again, as we see how the cash flow plays out; I talked about it from Jim and Jim’s perspective on CapEx. I would say the same thing about share buybacks. Once we see how the year’s going to play out and if we can put some divestiture cash on the table then we’ll start looking at trying to offset that dilution. Alex Ovshey – Goldman Sachs: Makes sense. Thanks.

Thank you.

Your next question comes from the line of Bill Fisher of Raymond James. Bill Fisher – Raymond James: Just had a quick. On the regulatory fee you’re implementing, is that separate from the environmental surcharge? And basically if so on say a commercial contract, can you put it on an existing contract or do you have to kind of wait till the contract re-ups?

Yes. It is in addition to the environmental fee. I mean it’s basically a different — it’s basically a different animal from the environmental fee. The environmental fee has to do with maintaining our landfills and maintaining the environmental compliance with our landfills. This has to do with the very high regulatory fees and taxes that we pay to manage our landfill, our disposal network. And as far as the commercial question goes, we are able to put that in through contracts and obviously there are some contracts like national accounts and some things like that, that we can’t but our standard commercial contract, yes, we can put that in and we’re in the process of doing so. Bill Fisher – Raymond James: Okay. Great. And then actually you partially answered this, in the review of capital spending, it sounds like with the restructuring you did, there’s more benefits to that going through it. But can you touch on, like I said, it sounds like the fleet spending is going to be healthy this year. Can you touch on some areas where we see reductions? Because your overall target should be down?

Yeah, I mentioned a couple of them, Bill, but one that I didn’t mention was recycling. Obviously spending money on Greenstar has provided some of the growth in recycling so we expect we won’t spend the type of capital that we had originally anticipated or that we spent last year on recycling. Landfill capital, we’re taking a very close look at landfill capital and I mentioned asset rationalization and a part of that process is looking at where we have landfill capital spend that we don’t necessarily need to spend. And then landfill gas to energy is an area that we have trimmed back so there’s several. As I mentioned, there’s probably more areas that we’re trimming than holding off. Bill Fisher – Raymond James: Gotcha. And could you actually sell some of the — if you decide some of the landfills aren’t meeting the returns, could you obviously sell some of those landfills? Or mothball them?

I guess you could. you can do any number of things with them and we’ve looked at whether we should keep them open, whether we should ask for expansions once they come to the end of their current sell lives. So there’s a couple of different options. We have actually at several landfills even reduced service pretty dramatically, which is kind of a lesser form of asset rationalization. So there’s a couple of different options. Bill Fisher – Raymond James: Okay. Great. Thank you.

Your next question comes from the line of Hamzah Mazari of Credit Suisse. Hamzah Mazari – Credit Suisse: Good morning. Thank you. David, the first question is just on pricing strategy. Maybe at a high level you could talk about how this strategy differs from what you’ve done in the past, maybe the pricing gate ? You’ve always talked about being aggressive on the landfill. How is this different? Maybe talk about it at a high level how this strategy is different than the last few years?

Clearly the amount of focus that we put on it is dramatically different than last year’s as well as the dollar amount, the gross dollar amounts are much different. On the commercial line of business, we’ve walked a number of you all through what we call the pricing waterfall because on our commercial line of business we can’t price increase all the customers. Some customers are in franchise markets where they go by CPI and so when you look at what we’ve done on the commercial line of business from a price increase point of view, the actual number is about 8%. And so you’re pushing 8% price on the commercial customers that you’re allowed to push price on that’s a pretty aggressive number and frankly it’s a number that we need to be even more aggressive with. And so, I think the focus is that certainly changed, the gross dollar amount has changed. But I would tell you, maybe the biggest change from over the last few years is that we have so much better data on how it’s working and so much better training on how we can manage the roll backs. And so we’ve gone through every aspect of our pricing program, and again, it’s a tribute to our folks out in the field, and to our sales and pricing department. They’ve basically shored up every piece of the pricing department. Look, I’ve been here 10 years. We know how to do price increases. What we’ve gotten better at is doing surgical price increases, and keeping those price increases. So I expect to see that continue to improve over the next couple of years. Hamzah Mazari – Credit Suisse: Got you. And then, on the sale of non-core assets, I assume that’s early in the process, and how aggressive or passive are you being there? Has that number gone up since last quarter? You know, you mentioned some lands fills there, you’ve mentioned Puerto Rico maybe. Just starting to get a sense of where you guys are in that process.

Yeah, we had about $30 million of sales in this quarter. I will tell you, Hamzah, that we talked about the bad debt in Puerto Rico, that certainly has an effect on whether we can sell those operations or not. And then, the other non-core assets in the oil and gas arena, you’ve seen a little bit of volatility in oil prices, and so I would say from the beginning of the year, I still expect that we’ll sell some of that, but we’re not going to put that into the bank. And so, I would say that we might be a little less optimistic on the sales proceeds that we’ll get from non-core divestitures, but again, we’re going to hit that $1.1 billion to $1.2 billion in free cash, and so those dollars for us are just excess dollars that we can apply to returning to our shareholders. Hamzah Mazari – Credit Suisse: Okay, and just a last question on the waste-to-energy business, is this a growth business for you guys anymore? A few years ago, you were trying to throw capital at that business, or is this just a disposal mechanism for you guys, and energy prices are sort of optionality? How should one think about this business?

Yeah, I mean, clearly the growth in waste-to-energy is going to be overseas. I would say that as far as our Chinese operations, we’re certainly the leading American company in China, maybe the leading non-Chinese company in China. And there is absolutely no doubt that we are the leading American company in Europe and in Great Britain where the bulk of the growth is occurring. So I will tell you, our waste-to-energy folks have done a phenomenal job of developing relationships and winning bids overseas. Domestically, you’ve got a little bit of growth but you don’t have nearly the kind of growth domestically that you’re going to have overseas. So basically, I think you’re exactly right. What you see domestically is that it’s a play on natural gas and electricity prices and then the growth will come from overseas. Hamzah Mazari – Credit Suisse: Great. Thank you. Sorry, go ahead.

Domestically also there’s a bit of growth from things like metals recovery and special waste as well, which we think is a nice market for us. Hamzah Mazari – Credit Suisse: Got you. Thanks a lot.

Thank you.

Your next question comes from the line of Corey Greendale of First Analysis. David Warner – First Analysis: Hi. Good morning. It’s actually David Warner for Corey. In your Q4 filings you actually quantified the volume impact of Sandy. Do you know what that was in Q1? Or if you don’t have that handy, whether that was larger than Q4?

No, it wasn’t larger than Q4. It was roughly $2 million, $2.5 million. David Warner – First Analysis: Okay. And you’ve talked about pushing through price increases on your recycling customers that are underwater. Can you give us a sense of the number of customers you have there or the proportion that are significantly underwater and where you are in the process of getting them back to profitability and what you see in terms of churn with those customers?

Yeah, we’re early enough in the process that I couldn’t give you an exact percentage of how many of them are underwater. And about 50% to 55% of those customers are actually under contract so it’s a little bit harder to move them. And so the BIP process I snot going to be an event. It’s going to be a journey. But I can guarantee you that our recycling team is focused on it. They made some good progress in the first quarter and I’d expect that momentum to build over the next few quarters. David Warner – First Analysis: Okay. And could you give us an update on special waste and drill cuttings, anything materially different from Q4 that you’ve seen there?

Yeah, we’ve seen that business continues to grow. The energy business is a nice growth business for us. We’ve seen an uptick year-over-year of — we’re still in the probably 40% growth range year-over-year. And we would expect to continue to grow that business not only in the existing shale plays that we’re in but in some of the other shale plays that we’re not. David Warner – First Analysis: Thank you.

Thank you.

Your next question comes from the line of Stewart Sharp of S&P Capital. Stewart Sharp – S&P Capital: Good morning. Thank you.

Good morning. Stewart Sharp – S&P Capital: Could you just add a little more color on the percentage of glass recycling and surcharges? And how much comes from glass? And also just generally C&D waste market? And if you see that improving as the housing market is now improving? That’s basically it.

Sure. The C&D market actually in the first quarter was very good for us. We don’t expect that to slow down. In fact you saw some still saw some winter weather in the first quarter and the first few weeks in April, so we’d expect to see that continue to be strong throughout the year. With respect to glass, the issue that you have with glass is that it more than any other commodity it hurts your equipment, right? As you process the glass it puts a lot of wear and tear on the equipment. So there is no — we look at a uniform processing cost for materials that go into our recycling plants, but there really is no uniform cost for recycling materials, because different materials are handled different ways, whether they’re in dual-stream or single-stream plants. And the glass would be by far the most cost intensive to process at our facilitates. They create the most wear and tear, and it’s just harder to process. On top of that, there aren’t very many markets for the glass, so in many cases we actually have to pay to find a market for the glass. So that drives a significant amount of the lack of profitability in our recycling operations. What’s going on with our recycling team right now is they are basically doing a clean look at recycling and saying in a low-commodity environment, when do we need to do? It’s pretty simple to say that we need to go back and manage rebates. That’s easy. But what else can we do to change the dynamics in the recycling industry so that we can get the return on capital on a more steady basis and not go through the volatilities of commodity pricing? And one of those factors is finding a solution for glass, whether it’s having a surcharge for glass, or finding better outlets for glass, we need to do something to make sure that we’re recovering that money. What we’re looking at right now is a glass surcharge, so that for folks who want to maintain glass as part of their recycling program, and most municipalities do, we’re going to have to charge — we’re not going to charge a flat processing fee for the glass. We should charge a higher processing fee because of the wear and tear on the equipment. So that’s basically what’s going on. But with the recycling team, they have started to doing a soup to that review how do we not only improve profitability in a low commodity priced environment but how do we also try to reduce some of the volatility that we see. David Warner – First Analysis: And what’s the percentage of recycling is?

The percentage of glass, I’d be guessing but it’s probably 30%, when it look at it by weight, for us it is the second largest commodity we have by weight after fiber. David Warner – First Analysis: Okay. Thank you very much.

Thank you.

Your next question comes from the line of Barbara Noverini of Morningstar Barbara Noverini – Morningstar: Hi, good morning.

Good morning. Barbara Noverini – Morningstar: So, I just wanted to revisit the EMP sector one more time. Are you guys equipped to offer a hauling servicing for ethane drilling sites or is this mainly leveraging land cost of especially permitted south near the act of shale plays?

I guess, it’s somewhat dependent on the side of the sale but we’re certainly equipped to handle the hauling services, probably our biggest play is in Marcellus up in Pennsylvania and we handle quite a bit of hauling there of solids, also of waters as well. So, we’re part of the differentiation for us has being able to provide a full perfect solution which includes hauling, disposal, industrial services and similar smaller items. Barbara Noverini – Morningstar: Got you. When you think about the business, you deal with the great discount by percentage, what’s collection versus disposal?

Well, it does differ by size but still hard to break it down. And some of these sites are seeing rig movements for example, Marcellus is seeing a lot of rigs moving over next door to Utica and across the United States over the Bakken. So, in places like Eagle Ford we’re not doing as much hauling because we don’t have hauling operations in close proximity so most of our revenue in the Eagle Ford comes from handling of solids into our landfills. But in places where we have hauling operations in close proximity to a drill site, we’re doing a lot of hauling of solids. Barbara Noverini – Morningstar: Got you. That’s very helpful. Thank you.

Thank you.

We have no further questions at this time. I will now turn the call back over to David Steiner for closing remarks.

Thank you. On a final note, we have a proud member of our family that we want to recognize. Ricky Glover is a highly respected driver in our South Carolina operations. He’s been providing excellent and safe service to our customers for 15 years. Ricky’s daughter is Candice Glover, one of the final four contestants on American Idol. Candice has come out on top of thousands of contestants to reach the final four. And recently she performed a song that other judges on American Idol called the best performance in the history of the show. So, on behalf of Waste Management’s 44,000 boys I want to say go Candice. And we all want to wish her the best of luck tonight as she continues her quest to be the next American Idol.

Thank you for participating in today’s Waste Management conference call. This call will be available for replay beginning at 1 pm Eastern Standard Time today through 11:59 pm Eastern on Wednesday, May 8, 2013. The conference ID number for the replay is 26989631. Again, the conference ID number for the replay is 26989631. The number to dial for the replay is 800-585-8367, 855-859-2056 or 404-537-3406. This concludes today’s conference call. You may disconnect.