Waste Management 3Q seen hit by falling volumes

HOUSTON - Waste Management Inc., the nation's No. 1 waste hauler, reports earnings for the third quarter before the market opens Thursday. The following is a summary of key developments and analyst opinion for the period.

OVERVIEW: Waste Management has been hit by the recession as businesses cut costs by disposing of trash less frequently. It also has been affected by another recent problem: falling natural gas prices that have pulled down electricity prices.

The company's Wheelabrator Technologies plants convert municipal solid waste into electric power, which are commanding lower prices.

Waste Management said in early September it expects earnings to be reduced by about 4 cents per share in the second half of 2009 due to continued weakness in energy prices at some Wheelabrator plants. Earlier, the recession began taking a toll on Waste Management as business customers cut back on garbage removal and less construction site debris hauled away due to declining construction.

Waste Management also has been hurt by a deterioration in the market for recycled materials as some paper manufacturers use fewer recycled materials in their pulping process.

BY THE NUMBERS: Analysts, on average, expect earnings of 53 cents per share on revenue of $3.07 billion for the quarter, according to a Thomson Reuters survey. That would be down from 63 cents per share on revenue of $3.53 billion in the same quarter of 2008.

ANALYST TAKE: Raymond James analyst William H. Fisher said the industry has kept prices up despite the most severe landfill declines in 20 years.

"While pricing will hopefully remain a driver, a key component of an earnings turn will be a recovery in landfill volumes, with their high incremental contribution margins," he said in a recent client note.

However, near-term he said Waste Management's shares will be relatively stuck in a narrow range due to lower natural gas prices and volume.

Goldman Sachs analyst Richard Skidmore said in a recent client note that the waste industry is stabilizing "as volumes turn less negative and pricing discipline continues."

However, volume is not expected to grow until early 2011, he said. Solid waste volume should be "less negative" through this year's second half and the first half of 2010 "before turning positive" in the second half of next year, he said.

WHAT'S AHEAD: Waste Management is investing in a waste-to-fuel conversion technology that makes high-octane fuel from grass clippings, discarded food and other organic waste. It has joined refiner Valero Energy Corp., which invested in Terrabon LLC in April.

In addition, a subsidiary said Tuesday it has acquired a medical waste business as the company seeks a larger share of the growing industry.

STOCK PERFORMANCE: Shares rose 7 percent during the quarter ended Sept. 30, less than half the increase of the Standard & Poor's 500 index in the same three months.

(This version CORRECTS SUBS final graf to correct end of quarter to Sept. 30 sted June 30.)

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