STEPHEN SINGERHARTFORD, Conn. (AP) ¿ Waste Management Inc., the nation's largest garbage collector, said Wednesday its first-quarter profit fell 36 percent on restructuring and other costs and as the recession cut prices of recycled goods. The Houston-based company said in February it expected a weak first quarter. With building activity down sharply, less construction trash is carted from work sites. And as people shop and eat out less, restaurants and small businesses are generating less garbage, requiring fewer trash pickups. Meanwhile, declining markets for recycled materials hit Waste Management particularly hard. Waste Management posted net income of $155 million, or 31 cents per share, down from $241 million, or 48 cents, in the first quarter of 2008. For the quarter ended March 31, revenue fell 14 percent to $2.81 billion, compared with $3.27 billion for the period in 2008. Excluding charges of $53 million, or 11 cents per share, for restructuring and dropping the use of SAP software, earnings would have been 42 cents per share, edging past analysts' average expectations of 41 cents per share.
Shares fell 4 cents to close at $26.94 in Wednesday trading. Less than 5 percent of the $456 million decrease in revenue was from solid waste collection and disposal, the company said. The rest was due to the recycling business, fuel and energy and non-operational items including foreign currency translation and one fewer work day during the first quarter. Waste Management, which as an industry leader is expected by analysts to keep prices from falling as trash volumes decline, said it increased income in its trash collection and disposal despite reduced volumes. Waste Management reported that revenue from trash volumes fell 8.1 percent in the quarter. However, adjusting for the effect of one less work day, the decline was 7.4 percent, steeper than the 5.9 percent drop in the fourth quarter of 2008. Analyst Michael E. Hoffman of Wunderlich Securities said the results were "very positive." "They produced price in the face of down volume," he said. Trouble in the recycling business due to falling prices for corrugated and office paper and newsprint was expected, Hoffman said.
"We all know it will be down a lot," he said. CEO David P. Steiner said deterioration in the market for recycled paper, newsprint, metals and other materials lowered Waste Management's profit by 9 cents per share in the quarter. The company expects a negative year-over-year impact from recycling operations of 15 cents to 20 cents per share for 2009, most of which is expected to be in the first half, Steiner said. The price of recycled materials soared before the start of the recession in December 2007 and began falling last year along with the economy. Recyclable materials such as corrugated paper, office paper, newsprint, plastics, glass and metals are less in demand as end users ¿ for example, paper manufacturers using recycled paper in its pulping process ¿ struggle with their own shrinking markets and cut back on buying recycled materials. Volumes are still down from last year, but domestic markets are growing slowly and export demand has started to return, a spokeswoman for Waste Management said. Fiber ¿ everything from fine office paper to newsprint to cardboard ¿ and plastics are gradually rising in price and volume. Aluminum and steel prices remain low, she said.
WM Recycle America, a subsidiary of Waste Management, handles more than 5.5 million tons of recyclables each year in its 109 plants, the company says. Steiner said Waste Management is revising its recycling business with customers such as large companies and municipalities. New contracts will include a fee to cover processing costs and return on capital, he told investor analysts in a conference call. When recycling prices rise, Waste Management will share a portion of the higher revenue with customers, he said. Wunderlich's Hoffman said the new business model makes sense. "Doing that is very pragmatic," he said. "You model your business around a reasonable rate of return, give up some upside and protect yourself in a downturn. That's actually not a bad strategy."