First Glance at This Holding's September Quarter

As we get ready for one of the last trading days in October and the start of Big Tech earnings after Tuesday's market close with results from Alphabet GOOGL and, to a lesser extent, AMD AMD, let’s share some thoughts on Waste Management’s WM September quarter earnings beat ahead of its 10 a.m. ET conference call and some interesting thoughts about rate cut expectations for the balance of this year.

Waste Management

Waste Management reported September quarter earnings of $1.96 per share compared to the $1.89 consensus and $1.63 posted in the year-ago quarter. The drivers behind that beat continue to be the same ones that have allowed the company to deliver better-than-consensus bottom-line results over the last several quarters — revenue growth and margin expansion fueled by pricing and tight cost control. Revenue for the quarter rose 7.9% year over year driven by core price of 6.5% and management now sees 2204 revenue up 6.0%, a nudge higher than its prior call for a 5.75% increase. Factoring the September quarter performance, management also lifted its adjusted EBITDA forecast for this year to $6.5 billion, the upper end of the previously shared $6.375 billion to $6.525 billion range.

On Tuesday morning’s earnings call, we’ll learn about the benefits versus costs for Waste’s continued rollout of automated trucks as well as the integration of modest nip and tuck acquisitions so far this year and the planned acquisition of Stericycle SRCL later this quarter.

We’ll also be interested in comments about pricing and margins as the company starts to lap core strong core price realization. Waste benefitted from core pricing that rose 7.3% year over year in the December 2023 quarter and 7.2% in the March 2024 one. What we learn on that front may influence margin and EPS expectations over the coming quarters

Rate Cut Expectations

In Friday’s Weekly Roundup and Monday's Daily Rundown video, we discussed why the string of recent data showing a vibrant economy could lead the Fed to underwhelm the market’s rate cut expectations over the next several months. When asked about the prospect of two more rate cuts this year at Saudi Arabia’s Future Investment Initiative, not a single executive in a panel — that included the heads of Goldman Sachs GS; Morgan Stanley MS; Standard Chartered Plc (STAN); Carlyle Group, Inc. CG; Apollo Global Management APO; and State Street Corp STT — raised their hands. Most of those folks see one more reduction by the end of 2024.

It's always nice to have others, especially from those firms, support our thinking, but we also recognize the data coming this week, especially the ones for October jobs data, have the potential to shift rate cut expectations one way or another. Wednesday morning’s ADP Employment Change report and the 115,000 jobs it is expected to show were added during October kick things off.

Should that be the reported figure, it would be a noticeable step down from the 143,000 jobs ADP found were added in September and reaffirm the expected drop in Friday’s October Employment Report. The current consensus figures for that barometer on job creation is 123,000 jobs, less than half the number created in September. Such a drop for Friday’s October Employment Report seems a bit extreme, given what we saw in the Flash October PMI data.

The consensus October jobs figures argue in favor of expected 25 basis-point rate cuts next week and again in December but should the jobs market surprise meaningfully to the upside as it did in September, we are likely to see rate cut expectations between November and June soften further. That is one of the reasons why we are continuing to stick with the Portfolio’s position in the ProShares Short S&P 500 ETF SH into that report and next week’s Fed meeting.

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At the time of publication, TheStreet Pro Portfolio was long GOOGL, WM, MS and SH.