Friday, October 30, 2009

Waste Managment Q3

Waste Management came out with earnings last Thursday which were better than expected. They posted earnings of $277 million compared to $310 million in Q3 2008. This represents a 9.5% decrease which management has attributed to lower prices for their recycled materials. To counteract the lower prices in recycled materials and lower volumes, management has enacted cost cutting measures which include freezing salaries, and cutting jobs which will save an excess of $120 million. This is on top of the restructuring of the company which I mentioned when I pitched it would save them $60 million per year. The cost cutting measures can be seen by WM’s drop of 14% in revenue, while only a 9.5% decrease in profits.

Management has said that they expect this is the bottom for the company, and they are optimistic about the future and an increase in recycling prices and volumes in garbage hauling. Recycling prices have improved every quarter and have risen 80% since their lows in January.

Moving forward I agree with management’s outlook. As we come out of the recession we should see a return of companies disposing of trash in the frequency before the crisis, and a further rise in recycling prices. Prices for collection and disposal rose 2.9% and it is expected the WM will keep prices up even though volumes are decreasing. Management has stated before they would rather keep prices steady and lose customers that go to cheaper trash haulers, than keep prices low and become less profitable. Management has taken successful steps in their cost-cutting measures, and I believe they will continue in the future.

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