Cinching the Belt

Chris Carlson ([email protected])

With tightening markets and diminished earnings, solid waste companies continue to adjust their operations while expecting conditions to improve as 2009 progresses.

Houston-based Waste Management reports a net income of $218 million on revenues of $3.1 billion for fourth-quarter 2008, both decreases from a net income of $309 million on revenues of $3.4 billion for the same quarter in 2007.

In response to diminished returns, the company announced a reorganization of its operations in order to please investors during these tough times.

For all of 2008, the company reports a net income of $1.1 billion on revenues of $13.4 billion, compared to a net income of $1.2 billion on revenues of $13.3 billion in 2007.

“The fourth quarter was a challenge on a number of fronts, and I am pleased with the way we have reacted to the tough economic circumstances,” said David Steiner, CEO of Waste Management, in a press release. “Despite the challenges, our adjusted earnings per share for the quarter beat consensus; we met our full year expectations for earnings per share; we increased our adjusted margins; and we generated strong free cash flow.”

The reorganization includes reducing its market areas from 45 to 25 to eliminate duplicative functions; realigning its corporate staff to more efficiently support new field operations; eliminating merit-based pay increases for salaried employees in 2009; and suspending merit-based increases for hourly employees until June 30. The company claims these moves will save about $100 million.

“We expect that in 2009 we will acquire more revenue than we divest, as valuations and prices for assets reach lower levels,” Steiner said. “We believe our new organization makes us more nimble and able to assimilate acquired operations. However, we will not make any acquisitions that would jeopardize our strong balance sheet or our credit rating.”

Phoenix-based Republic Services has reported a net loss of $132 million on revenues of $1.2 billion for fourth-quarter 2008, compared to a net income of $82 million on revenues of $796 million for the same quarter in 2007.

“Despite a weaker economy, we expect 2009 free cash flow, excluding merger-related payments, to be approximately $650 million, which compares favorably to 2008,” said Donald Slager, president and chief operating officer of Republic, in a press release. “Our field organization is adjusting the business for changing economic conditions while remaining focused on the basic aspects of our business including safety, customer service, pricing, and achieving strong and predictable free cash flow.”

Will Flower, executive vice president of communications for Republic, says the firm will maintain the efficiency of its collection routes by, in some cases, parking some trucks in order to sustain pickup volumes for routes whose volume may have dipped due to slumping construction and commercial markets. In some ways, he adds, the company was already doing something similar by combining collections operations with Allied Waste following the recent merger.

“We had to do it anyway, and now we're capturing [route efficiency] for every reduction in volume,” he says.

For the year, the company reported a net income of $74 million on revenues of $3.7 billion, compared to a net income of $290 million on revenues of $3.2 billion in 2007.

“I am very pleased with our progress to date concerning the integration of Republic and Allied following the merger that took place on Dec. 5, 2008,” said James O'Connor, chairman and CEO of Republic, in a press release. “We have already completed initiatives that provide an annual benefit of more than $50 million in synergies. I remain confident that we will achieve the estimated $150 million in annual run-rate savings by the end of 2010.”