UPDATE: Waste Management 4Q Net Drops 29% As Revenue, Margins Fall
February 12 2009 - 1:00PM
Dow Jones News
Waste Management Inc.'s (WMI) fourth-quarter net income dropped
29% on lower revenue and margins, and demand crumbled in its
industrial and recycling businesses.
As such, the nation's largest garbage hauler and landfill
operator announced plans to cut more than $100 million in annual
costs from streamlining field operations, cutting corporate staff
and freezing salaries.
A spokesperson said the company will be cutting around 1,000
positions from its 46,000-strong work force.
Analysts have expected waste fundamentals to remain positive
this year, citing favorable pricing and lower fuel costs. Still,
the sector isn't recession-proof and could be hurt by weak volumes
and lower recycling-commodities prices as the downturn
continues.
Chief Executive David Steiner said Thursday the majority of
Waste Management's business, from commercial and residential
customers, is "recession-resistant," though a sharp decline in
demand led to "greatly reduced" volumes and "steep" price declines
in its more economically sensitive industrial and recycling
businesses.
With the economic downturn lowering prices of assets, Steiner
said, the company is looking for acquisitions in the new year. On a
conference call, he said they are interested in additional
opportunities in solid waste, and said medical waste "would be an
area where we would be looking to make opportunistic acquisitions."
Also, "we're going to be looking at waste-to-energy opportunities,"
he added.
The industry has turned to acquisitions to expand and create
efficiencies amid modest revenue growth. The sector has gone
through several waves of consolidation as larger companies buy up
regional operators, though some acquirers have had difficulty
integrating and managing their operations.
Analysts expect Waste Management to be interested in purchasing
some of the $500 million of assets that have been put up for sale
as part of the merger agreement between Republic Services Inc.
(RSG) and Allied Waste.
Steiner said that the company hasn't taken a hard look at those
assets yet and assured investors that they "will not make any
acquisitions that would jeopardize our strong balance sheet or our
credit rating." That was threatened last year through its effort to
acquire Republic Services in an attempt to stop Republic from
acquiring Allied Waste.
The garbage hauler's fourth-quarter profit was hurt by 8 cents
from deterioration in the recycling-commodities markets. A 15-cent
to 20-cent impact is expected in 2009, most of it coming in the
first half of the year.
Waste Management reported fourth-quarter net income of $218
million, or 44 cents a share, down from $309 million, or 61 cents a
share, a year ago. Excluding pension impacts in the latest quarter
and prior-year gains, earnings fell to 49 cents from 54 cents.
Revenue decreased to $3.1 billion from $3.4 billion.
Analysts polled by Thomson Reuters had projected per-share
earnings of 48 cents with $3.2 billion in revenue.
Operating margin fell to 14.8% from 17.1%. Revenue from
collections, its biggest business, dropped 5.4%, while the much
smaller recycling business recorded a 37% slump. Landfill revenue
slipped 6.7%.
For 2009, the company said it expects to generate between $1.3
billion and $1.4 billion in free cash flow.
Waste Management shares rose 1.2% to 28.80. The stock is down
13% over the past 52 weeks.
-By Shirleen Dorman, Dow Jones Newswires; 201-938-2310;
shirleen.dorman@dowjones.com; and Kejal Vyas; 201-938-5460,
kejal.vyas@dowjones.com