Waste Management 3rd-quarter profit sinks

Waste Management Inc., the nation's largest trash hauler, said Thursday that third-quarter profit sank, despite rising prices for recycled commodities and cost-cutting.

The recession has hit the Houston company as businesses cut costs by disposing of trash less frequently and prices for paper and other commodities fell, battering its recycling business. However, the Houston company said its trash hauling operations were "recession-resistant," posting only a slight dip for the quarter.

Net income was $277 million, or 56 cents per share, down 11 percent from $310 million, or 63 cents per share, in the third quarter of 2008. The latest quarter's results included a benefit of 2 cents per share from certain income tax adjustments and charges related to restructuring, Waste Management said.

Revenue slid 14 percent to $3.02 billion from $3.53 billion.

Analysts, on average, expected earnings of 53 cents per share on revenue of $3.07 billion, according to a Thomson Reuters survey. Analyst estimates typically exclude one-time items.

Waste Management CEO David P. Steiner said recycling commodity prices increased each month in the third quarter and have risen more than 80 percent from low points in January.

Furthermore, he said the company expects to exceed its original forecast for annual savings of $120 million from restructuring announced in February.

Trash-hauling revenue declined only 0.7 percent among Waste Management's business customers, and revenue from trash-hauling at residential customers declined just 0.4 percent in the quarter, Waste Management said.

"Our commercial and residential business lines continued to demonstrate their recession-resistant qualities," Steiner said.

Waste Management continued to feel the impact of falling electricity prices, which reduced earnings by 4 cents per share. More than one-fourth of the company's Wheelabrator Technologies plants sell electricity to power grids and the price has fallen in line with natural gas prices. Wheelabrator accounted for about 7 percent of the company's revenue in the third quarter.

The company backed its 2009 guidance for earnings per share between $1.95 and $1.99. Analysts expect the company to earn $1.97 per share.

Waste Management said prices for its collection and disposal operations rose 2.9 percent. Wunderlich Securities analyst Michael E. Hoffman applauded the company for resisting price cuts amid falling volume in the recession. Analysts and competitors expect the largest waste hauler to keep prices up, even if it means losing some customers that refuse to pay them.

Slashing prices could trigger a free-fall that could usher in lower profit and revenue for the industry.

"Investors should be buoyed by the sequential improvement in year-over-year price and the depth that Waste Management reduced operating costs," analyst Michael E. Hoffman of Wunderlich Securities said in a client note. "There should be no doubt about its conviction and discipline concerning price leverage. The comparisons improve from this point forward."

Steiner said economic conditions and trash-hauling volumes have stabilized. He expects the rate of volume decline to be slightly better in the fourth quarter than in the third quarter.

Additionally, because the recycling business has shown "consistent improvement" since January, Waste Management expects recycling to boost earnings by 2 cents per share to 4 cents per share in the fourth quarter.

But that gain will be offset by lower natural gas prices that the company expects to reduce electricity sales prices in the fourth quarter. As a result, per-share earnings are expected to decline between 2 cents and 4 cents, Waste Management said.

Shares rose 13 cents to $30.75 in midday trading.

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