Stephen Ursery, Editor, Waste Age Magazine

June 1, 2005

2 Min Read
Is The Price Right?

WASTE INDUSTRY PRICES are looking up, thanks to an improving economy and the resulting increases in trash volume that have enabled firms to increase their service rates, according to financial analysts.

Roughly 50 percent of waste companies' newly signed customers have rates priced higher than other clients, according to a first-quarter 2005 survey of 150 private waste firms. The survey was conducted by Friedman, Billings, Ramsey Group Inc. (FBR), an Arlington, Va.-based investment banking firm. The survey notes that from the mid-2003 through the end of 2004, the percentage was only 25 percent. “That's a big change,” says Michael E. Hoffman, deputy director of research for FBR.

Waste firms also may be raising tipping fees, the survey indicates. Houston-based Waste Management Inc. (WM), for example, recently announced that it is expanding its testing of increased landfill tipping fees. The firm has increased the tipping costs at 28 of its landfills by an average of 8 percent on certain third-party customers. Notably, only four of the sites lost volume, the company says. The testing program will add 23 transfer stations and 35 landfills.

If WM is able to reach its goal of successfully increasing prices across its entire disposal network, that could greatly improve the stock market's view of the waste industry, Hoffman says. The development would provide evidence to analysts and investors that the industry is experiencing the “return of real pricing leverage,” he says.

A long-term pricing trend remains to be seen, however. In its April 2005 report on the solid waste sector, New York-based Standard & Poor's (S&P) projects the growth rate of the gross domestic product to be smaller (3.8 percent) than it was in 2004 (4.4 percent). The firm also projects housing starts to decline in 2005 compared to 2004, and expects the growth rate of industrial production to decrease. The softening of such economic conditions and their effect on garbage volumes could hamper waste companies' ability to raise prices, the report says.

Hoffman says potential investors in publicly traded waste firms are taking a wait-and-see approach. “Can [the firms] demonstrate to the market that real pricing leverage can and is returning to the market?” he says.

The S&P report notes that increased fuel costs could hurt companies' earnings in 2005. Yet the study says that private haulers often combat the costs through fuel surcharges or fixed-price purchase contracts. The study concludes that there will be “modest [revenue] growth for the segment in 2005 as a result of price hikes in less competitive markets, as well as [from] increases in both commercial and residential waste volume.”

About the Author(s)

Stephen Ursery

Editor, Waste Age Magazine, Waste360

Stephen Ursery is the editor of Waste Age magazine. During his time as editor, Waste Age has won more than 20 national and regional awards. He has worked for Penton Media since August 1999. Before joining Waste Age as the magazine's managing editor, he was an associate editor for American City & County and for National Real Estate Investor.

Prior to joining Penton, Stephen worked as a reporter for The Marietta Daily Journal and The Fulton County Daily Report, both of which are located in metro Atlanta.

Stephen earned a BA in History from Rhodes College in Memphis, Tenn.

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