The Rutland, Vt.-based waste and recycling company said its realignment eliminates $6.5 million in annual costs.
The realignment includes enhancing parts of sales functions to improve customer service and retention, pricing growth and support of strategic growth initiatives; streamlining operations support to better align transportation, route management and maintenance functions at the local level; and reducing corporate overhead and staff, the company said in a news release. Casella expects to take a one-time charge of approximately $1.5 million in its second quarter.
The realignment builds upon the steps the company has taken particularly during the past 12 months to adjust its costs while still maintaining its focus on its main strategic growth objectives.
“The steps we have taken this week to realign our management structure are expected to improve our cost structure by roughly 100 basis points, but more importantly, will make our field teams more agile and responsive to customer needs,” said John Casella, chairman and CEO of Casella Waste, in announcing the move.
The realignment actually has been taking place over the past three years as Casella Waste looked at all its operations for ways to be more cost-efficient and deliver better services, adds Casella Vice President Joseph Fusco, in an interview.
“As the recession continues we’ve looked at how do we run our business better and put more of our field people’s attention closer to the customer where it needs to be,” he says. Casella eliminated functions it didn’t need after it changed the way it did business.
Fusco says a “few dozen” employees were laid off as a result of the realignment, spread out over the company’s six-state Northeast region.
The move represents “the realization that there were a lot of non-field related costs that could come out of the business, and they needed to take that action,” says Michael Hoffman, director of research for Wunderlich Securities Inc., in an interview. “And it was a good move, with a true $6.5 million in savings annually.” He also says he was impressed by the speed of the action.
Casella announced the sale of its Maine Energy Recovery Co. (MERC) waste-to-energy (WTE) facility to the host city of Biddeford just a week earlier. The sale of MERC had been pending for some time, and the operation had been a drain on Casella’s balance sheet. Fusco says the sale was coincidental to the realignment but part of the spirit of Casella’s long-term vision.
“It’s a significant part of what were trying to do,” Fusco says. “We don’t believe waste-to-energy or incineration … is a business we want to be in. We don’t think it’s where the world is going in terms of managing resources.”
The sale is set to close later this year pending a final permit modification at Casella’s Juniper Ridge Landfill in Old Town, Maine, to accept municipal solid waste (MSW). Currently, the landfill may only accept MSW as a bypass stream from WTE facilities.
Hoffman says with the deal Casella can maintain control of waste tonnage at Juniper Hill. And the MERC facility was an old-style operation that required a large amount of waste handling, so with current lower energy prices it was harder for the operation to make up the difference with productivity.
The city of Biddeford eventually will close down the MERC operation, which is downtown, to allow for more attractive economic development. “I think it’s a win-win for everybody,” Hoffman says.
Casella expects its revenue and earnings to be down the remainder of its fiscal year. But Hoffman believes Casella will see the benefits of the restructuring quickly, beginning with its next fiscal quarter and the full impact in the following two. “Steps taken here are part of an overall process of moving the business model to higher level of profitability,” he says. “So whenever an economic uptick occurs they’ll be as lean and cash-efficient as they can be.”
Fusco says that is how Casella is viewing the situation. “We hope to see the benefits right away in terms of managing costs and lean management,” he says. “Where we really expect to see benefits is when the economy turns around. We think we are extremely well positioned given the way we’ve structured our business. We’re all looking for a brighter economy; that will cure a lot of things.”