Things finally are looking brighter for the nations's top two waste companies. After months of rapid change, both Houston-based Waste Management Inc. and Scottsdale, Ariz.-based Allied Waste Industries announced their best earnings in nearly eight years, signaling that operational changes have paid off, according to market analysts.
Waste Management, the No. 1 U.S. hauler, posted third quarter losses of $190.8 million, compared to losses of $947.8 million during the third quarter of 1999. These numbers met analysts' predictions, prompting New York-based Deutche Banc Alex. Brown to raise Waste Management's investment recommendation to "strong buy" which sent Waste Management's stock soaring to a 52-week high of $24 7/16 per share on November 8.
"People are interested in our ongoing operations," says Cherie Rice, Waste Management's vice president for investor relations. Third quarter losses resulting from divestitures do not reflect the improving performance of the company's remaining holdings, she says. Adjusting for unusual costs, Waste Management's third quarter net income was 33 cents per diluted share - up one cent from second quarter earnings.
No. 2 Allied, which purchased Browning-Ferris Industries Inc. (BFI) in July 1999, reported third quarter 2000 earnings of $51.3 million. This matched analysts' predictions of 27 cents adjusted earnings per share.
The fact that these earnings reflect the completion of government-mandated divestitures and swaps resulting from the BFI purchase means Allied's third quarter is "a solid foundation for measurement going forward," a company spokesman says.
For Waste Management, 2000 has been a year of divestitures, as the company sold many of its European, Asian and South American operations to focus on its core North American holdings.
Conversely, Allied acquired 35 companies during a buying spree that ended in August of this year, according to Michael Burnett, Allied's director of investor relations.
"We're not in a growth mode anymore," Burnett told Waste Age in November [see "Is the Feeding Frenzy Over?" November 2000, page 72]. "Our plan is to refine what we have by making tuck-in acquisitions. But we're not going to acquire debt to do this."
The pace of buying and selling has slowed for Waste Management, too, Rice says.
"There still are some non-core U.S. businesses left to sell, but we're about 90 percent done," she explains. "We've made progress on a number of different fronts, and we're continuing to move forward."
Nevertheless, recovering from the financial and organizational troubles that have plagued Waste Management for the past year-and-a-half will take time, Rice adds. "We're one year into a two-to-three-year turnaround."
Allied already has begun paying down the $9 billion debt it incurred while acquiring companies. In a November 8 interview with CNBC, Allied CEO Thomas Van Weelden said the company paid approximately $1.6 billion by the end of second quarter, and another $233 million in the third quarter.
"We are pleased with the strong cash flow the company is generating, as well as with the related reduction of debt that occurred during the quarter," Van Weelden said.
Like Allied, Waste Management will focus on paying down its debt during the coming year, says Waste Management President and CEO Maurice Myers. Additionally, he says the company will continue its conversion to PeopleSoft software systems to facilitate the flow of information within and among separate operations.