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Waste Management (WMI)Stock (Transportation Industry, Services Industry, Waste Management Industry)
 Waste Management (NYSE: WMI) is North America's largest solid-waste collection provider, with number two Allied Waste and third-place Republic Services as its only other significant competitors. It makes its money not only through the collection of garbage, but also through recycling services as well as sales of methane generated from landfill decomposition. Despite its scandal-tainted past, (the largest pre-Enron accounting scandal), the company remains the market leader through its massive fleet of waste-collection vehicles and large system of landfills. As of December 31, 2006, WMI owned or operated 277 solid waste and six hazardous waste landfills. In addition, the Company managed 187 closed landfills as of December 31, 2006. As of December 31, 2006, WMI owned or operated 342 transfer stations in North America. The Company deposits waste at these stations, as do other third-party waste haulers. Oil prices have a significant impact on Waste Management's business. Because such a large part of the company's business consists of transporting waste to landfills, rising oil prices can put a very real dent in the company's profits. The company also has to deal with ever changing government regulations, which can add expense to the waste disposal process.
[edit] HistoryFounded in 1968 by Wayne Huizenga, Dean Buntrock, and Larry Beck, Waste Management began purchasing smaller garbage collection operations as soon it began its existence. By 1971, just three years later, the company went public and continued to make acquisitions through the 70s and 80s, to become the nation's leading waste disposal company after acquiring Service Corp of America. In 1998, WMI merged with USA Waste and also encountered a major accounting scandal that rocked the company's stock price significantly in 1999. Essentially, Waste Management had inflated its earnings by nearly $2 billion through the manipulation of depreciation record-keeping, and between June 1999 and December of the same year, WMI shares plummeted by nearly 75% from $57.19 to $14.69. [edit] Business DivisionsWaste Management's income is derived primarily through contracts with various governments and municipalities. As such, the company does not receive payment for each specific service such as garbage collection, landfill storage, and recycling; The company is paid on a contract basis for completing the services promised. [edit] Garbage CollectionWaste Management's fleet of 24,000 collection and transfer vehicles is the largest in the industry and collects 83 million tons of solid waste annually through 379 collection operations. The company also operates 342 transfer stations in strategic locations, which are intermediate stations where trash is compacted and sent to one of WMI's many landfills. [edit] LandfillsWaste Management runs the largest network of landfills in the industry, with 128 million tons of waste disposed annually in 283 active landfills. Landfills do not serve only as spaces for storing garbage, however. They also serve as a source of renewable energy. The methane generated from decomposition can be used for generating electricity or sold to industrial customers. WMI already has more than 100 methane projects currently operating, and expects 10 to be opened in 2007. Furthermore, some of the collected waste is also burned to created electrical or steam energy (to the tune of 650 megawatts, or the equivalent of 7.6 million barrels of oil), which is enough to power 700,000 homes annually. This trash-burning division is known as Wheelabrator Technologies. Finally, 17,000 acres of protected wildlife habitat have been created from WMI landfills, with 24 landfill sites certified by the Wildlife Habitat Council. [edit] RecyclingIn North America, WMI is also the single largest provider of recycling services, with 116 facilities in the United States and Canada. In 2006, the company recycled over 5.5 million tons of waste, including 32,000 tons of aluminum , 57,000 tons of prices cans, and 2.4 million tons of paper. The total amount of waste recycled in 2006 saves a tremendous amount of energy, enough to power 833,000 households. Waste Management was the first major solid waste company to use the single-stream recycling method for residential areas. This system boosts recycling participation because it permits the mixing of paper, plastic, metals, and glass in one container, essentially putting the burden of sorting on WMI's advancing sorting equipment instead of residential customers. In the company's 30 single-stream facilities, 2006 saw a 33% increase in volume of recyclables processed over 2005.
[edit] Trends and Forces[edit] SeasonalityThe waste industry is subject to seasonal nature of waste production. In the warmer months, for example, revenues are higher than average because of increased waste that comes from higher levels of new home construction and demolition. Furthermore, the months of June through November can also increase revenues because the weather during six-month period of time is most conducive for hurricane activity. On the negative side, inclement weather such as major blizzards can also prohibit trash-collection operations from going out on the road, which decreases revenues on the average. [edit] LegislationWaste companies must ensure that they comply with relevant environmental, health, and safety laws in the areas where they operate. Breach of these laws could lead to lawsuits. WMI is even responsible for pre-existing conditions of its assets, such as landfills, or for the environmental contamination caused by previous owners of these assets. Consequently, the litigation that may result from these potential liabilities could adversely affect Waste Management's financial health. [edit] Governmental RegulationRegulations at the local, state (U.S.), provincial (Canada), or federal levels greatly influence how companies in the waste industry do their business. Some of the regulations imposed on companies such as Waste Management include those limiting the locations for new landfills or facilities, those controlling prices/rates/volumes, and those restraining the types of waste can be transported or disposed of. Future regulations could impose further restrictions on Waste Management and compel the company to close particular landfills, obtain additional permits, or replace capital assets such as equipment and facilities. [edit] Rising Fuel PricesGiven that the majority of Waste Management's vehicles run on petroleum fuels (although some run completely on natural gas), the company's profitability is heavily dependent on volatile oil prices. Furthermore, rising fuel prices can negatively impact Waste Management if its vendors raise their prices to compensate for rising costs. [edit] CompetitionAllied Waste, Republic Services, and Waste Services are the only three competitors in the waste industry that operate on a similar scale to Waste Management. The waste industry overall is very fragmented, with the majority of companies having a strong presence only in certain geographical regions, such as Waste Connections in the Southern and Western United States. However, the top three companies have all undertaken strategies of acquisitions to expand their respective market shares. It is also worth noting that WMI has mentioned the possibility of entering the medical wasted collection and disposal business. This would put it in direct competition with Stericycle (SRCL) as well.
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