Blog Post

Recycling Slump Eats Into Waste Management's Sales

Good times or bad, the trash still needs to be picked up. But as Waste Management Inc.’s (s WMI) earnings report showed this week, the business of managing waste and recycling isn’t exactly recession-proof. The slowdown is hitting its recycling business particularly hard.

Waste Management said its revenue in the last three months of 2008 fell 7.5 percent to $3.1 billion vs. the $3.2 billion forecast by analysts. Net income excluding one-time items (such as a $13 million charge for backing out of union-sponsored pension plans) totaled 49 cents a share.

Recycling revenue, at $192 million, was down 37 percent from a year ago and 44 percent lower than the previous three months. CEO David Steiner explained there was not only less paper and other material being recycled, but less demand for recycled goods overall:

The sharp decline in economic activity in the fourth quarter did cause further volume declines in our more economically sensitive industrial collection, transfer and recycling businesses. Recycling commodity revenues were affected by both steep price declines and greatly reduced volumes as a result of the lack of demand for these commodities. We expect volumes in these economically sensitive lines of business to remain soft in 2009.

Revenue from trash collection was $2.1 billion, down 5 percent on the year and 7 percent from the previous quarter. Commercial customers such as restaurants and retail shops are needing fewer pickups and the slowdown in home and office building means less hauls from construction sites.

One relatively strong area was the company’s subsidiary, Wheelabrator, which saw revenue rise 5 percent to $229 million (although down 7 percent from the previous quarter). Wheelabrator builds incinerators near landfills, burns discarded wood and tires as well as coal, and sells the power to local communities. “Other” revenue, which includes the sale of methane from its landfills to power generators, rose 19 percent, to $51 million.

Shares of Waste Management are down 12 percent this year, and the stock might have fallen further on the earnings report had the company not announced efforts to cut costs. Those cuts are likely to come from the weaker-performing segments, such as recycling, leaving Waste Management an even more old-school answer to the country’s waste than it already is.