Waste Management, the largest U.S. trash hauler, posted a weaker-than-expected quarterly profit on Friday as the run-up in crude oil prices eliminated an expected tax benefit.
The company, whose shares were off 2.6 percent in early electronic trading, also cut its 2007 profit forecast, citing the loss of the tax benefit in the second half of the year.
Net income in the third quarter fell 7.3 percent to $278 million, or 54 cents a share, from $300 million, or 55 cents a share, a year earlier.
Excluding costs for a California labor disruption, it earned 57 cents a share, 2 cents below the average forecast of analysts polled by Reuters Estimates.
Houston-based Waste Management said the higher oil prices cut 2 cents off earnings due to the elimination of Section 45K tax credits. In the year-earlier quarter, the credits boosted earnings by 5 cents a share.
Section 45K tax credits provide incentives to corporations to use alternative energy sources, which can be more costly than traditional petroleum-based sources, a Waste Management spokeswoman said. As the price of oil has risen, the gap between traditional and alternative sources has diminished, decreasing the value of those incentives.
The spokeswoman said Waste Management would continue to invest in alternative energy even as the value of those tax credits decreases.
"There are certain types of costs, such as health and welfare, litigation settlement costs and bad debt expense, that tend to be uneven through the year," Chief Executive David Steiner said in a statement.
"The fluctuation in these costs and Section 45K tax credits were benefits in the first and second quarter of the year, and worked against us in the third quarter. These items were the primary reason earnings did not meet our expectations for the third quarter."
Revenue in the quarter slipped to $3.40 billion from $3.44 billion a year earlier. Analysts had expected $3.43 billion.
For 2007, Waste Management previously forecast a profit of $2.07 to $2.11 a share, including a benefit of 4 cents in the second half from Section 45K tax credits. The company said it no longer expects to receive that benefit.
Analysts' average forecast for the year was $2.10 a share.
Waste Management raised its forecast for 2007 free cash flow to $1.5 billion, $100 million above the high end of its previous forecast of $1.3 billion to $1.4 billion.
Waste Management shares were down $2.62, or 6.7 percent, at $36.41 in morning New York Stock Exchange trade. The drop pushed them into negative territory for the year, down 1 percent, at a time when the Dow Jones Waste & Disposal Services Index, is up 10 percent.