issued a warning that another round of accounting problems discovered in an internal review are "likely to have a material unfavorable impact" on its third quarter and year-end 1999 numbers.
These problems could force the company to take a charge of up to $1 billion against its third-quarter earnings,
The Wall Street Journal
reported today. The company declined to comment on the size of the charge.
This warning comes on the heels of earlier accounting problems, two other profit warnings earlier in the year, management turnover at the highest levels and an insider trading scandal. The company previously took a $3.5 billion pretax charge in 1998 to clear up accounting problems prior to its merger with
USA Waste Services
Investors sold off Waste Management's stock today, with the shares down 1 3/16, or 7%, at midday to 15 5/8, after falling more sharply earlier in the day. The stock is down more than 70% since July, when the latest round of problems became public.
The Houston-based company decided to release the warning today because "we had arrived at a point in our review where we were receiving preliminary information. Having the information available obliged us to disclose it even absent specifics, in order to keep investors fully informed," Bill Plunkett, a spokesman for Waste Management, told
The bad news was not unexpected. Two weeks ago, Michael Hoffman, an analyst with
Credit Suisse First Boston
who has a buy rating on the company, speculated that "in all probability, a charge or reserve adjustment will result" from the company's comprehensive review of its accounts, begun on Aug. 16.
Stewart Scharf, an equity analyst with
Standard and Poor's
who has an avoid on the stock, also felt that "based on recent events, you have to expect almost anything." Though he acknowledges that the company's new leadership, led by interim chairman Ralph Whitworth and interim CEO Robert S. (Steve) Miller, are "making a genuine effort to turn things around," he emphasizes the company has a long way to go before it regains investor confidence.
Hoffman sees one of the main issues at hand as "management and controls." That does seem to be the issue that everyone is focusing on now. The search for a CEO is "active and ongoing," according to Plunkett, the company spokesman. But, asks Scharf, "Who is it going to be? What type of person will it be? What can he do to deal with day-to-day operations in different regions and different operations? That will be a major factor in the direction of the company."