Waste Management to Build New Plant - Analyst Blog
February 06 2012 - 10:05AM
Zacks
Recently, Waste Management (WM) has announced
to set up the largest single stream recycling center in Cambridge,
Ontario, by investing nearly $30 million. The recycling center is
scheduled to begin its operations this fall and is expected to
process up to 550,000 metric tones of material each year.
The material handling equipment inside the single stream
recycling facility (SSRF) would enable the company to separate
recyclable materials. This operation would thus spare the customers
from the bother of having to segregate materials before collection.
It would increase the volume of recyclable materials nearly by 20%
to 30%.
The new plant would be utilizing new and advanced technology to
separate and sort out residential and commercial materials like
cardboard, paper, glass, plastic and metals. In addition, the
magnets, screens and optical scanners of the new plant are also
capable of sorting electronic equipment such as cell phones and
computers as well as compact fluorescent light bulbs and
batteries.
The recycling center would generate about 80 local green card
jobs initially. The 126,000 square-feet plant at 505 Conestoga
Blvd. has already been acquired by Waste Management and is
scheduled for a retrofit.
The new center would probably be Ontario’s largest private
sector recycling center and management is optimistic that it would
support Ontario’s landfill goals with the setting up of this new
plant.
Waste Management’s cost cutting efforts helped it maintain its
profits despite weak volumes. In the recently reported third
quarter, the company witnessed a $28 million benefit from its cost
reduction initiatives. Management stated that it remains focused on
its cost control measures.
However, the company’s margins were affected by higher fuel
prices, deterioration in pricing across most business lines,
particularly residential. We further expect margin deterioration to
continue due to the impact of integration of Oakleaf in July 2011
and continued customer churn.
In addition, paper commodities, namely old corrugated containers
and old newsprint, have declined sharply. Waste Management may face
significant headwinds if such a trend continues along with
increased pricing pressure as municipalities cut expenses in the
face of budget shortfalls. According to management, a $10/ton drop
in average price would impact EPS by about $0.01 for the full year.
Furthermore, the fourth quarter also faces a headwind from the loss
of a large contract in South Florida.
Currently, the shares of Waste Management retain Zacks #4 Rank
(short-term “Sell” recommendation). It has announced to release its
earnings of fourth quarter and full year 2011 on February 16, 2011,
before the market opens. It competes with Republic
Services, Inc. (RSG) and Casella Waste Systems
Inc. (CWST).
Based in Houston, Texas, Waste Management Inc. is the largest
provider of comprehensive waste management services in North
America. The company provides collection, transfer, recycling and
resource recovery, as well as disposal services to nearly 20
million residential, commercial, industrial and municipal
customers. It is also a leading developer, operator and owner of
waste-to-energy and landfill gas-to-energy facilities in the
U.S.
CASELLA WASTE (CWST): Free Stock Analysis Report
REPUBLIC SVCS (RSG): Free Stock Analysis Report
WASTE MGMT-NEW (WM): Free Stock Analysis Report
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