MAY 2009

Recession impacts solid waste industry

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The solid waste industry is generally considered to be recession resistant, because waste collection and disposal services are needed in both good and bad times. But this current recession is hurting both the private and public sectors of the industry.

Unlike some of the less severe recessions during the last half of the 20th century, declines in volumes this time are impacting the entire solid waste industry, said Bruce Parker, president and chief executive officer of the Washington D.C.–based National Solid Waste Management Association. He added that the current recession is the “most steep and complex recession” since the Great Depression, which started in 1929.

“The economy is the issue that is affecting the whole industry,” Parker said.

Construction, both residential and commercial, is down. Therefore, there is less construction and demolition waste being processed. The same goes for manufacturing. When consumers cut back on spending, less packaging is needed. Plus, with fewer consumers eating out, restaurants are buying fewer products and producing less waste.

Dismal reports from across the country on disposal tonnage substantiate the drop in solid waste volumes. Parker cited a 30 percent decline in volume from Los Angeles County residents at the Puente Hills landfill in California in January. Lancaster County in Pennsylvania also reported a 10 percent decline in solid waste disposal in January.

“Communities, which receive host fees where landfills are located, may also be affected by the decline in waste volumes,” Parker said. “This revenue is used for civic purposes, such as building schools, libraries and purchasing police cars and fire trucks.”

The decline in solid waste volumes is also impacting the manufacturing side of the industry. Manufacturers of mobile trucks and transfer trailers, along with stationary equipment like balers, compactors and containers, have taken cost-cutting measures. Parker said equipment manufacturers have cut their workforce and slowed production because solid waste companies are postponing purchasing new equipment.

Yet another major impact from the recession on the solid waste industry is a drop in prices for recylcable materials, Parker said. There have been reductions in the amount of material that mills are buying. Therefore, some recycling facilities have had to lay off workers, reduce hours of operations and take other steps to reduce operating costs.

“While recycling always has experienced cycles with some deep economic potholes, this one has been the most sustained because of our global economy,” Parker said. “The good news is that I have seen no evidence of recyclables being disposed of or municipal recycling programs being closed, with a few exceptions in small rural areas.”

To cope with the downturn in the economy, Houston-based Waste Management Inc. announced a restructuring in the first quarter that will cost the the company $50 million to implement. But the company says the changes will result in annualized savings of more than $100 million.

Rutland, Vermont-based Casella Waste Systems Inc. is also in the middle of what the company’s chairman and chief executive officer, John Casella, described as a “comprehensive effort to improve all aspects of our operating structure and daily business practices” in a statement to shareholders.

“The widening economic recession, both locally and globally, poses a significant challenge on many levels,” said Joe Fusco, vice president of communications at Casella Waste. “The worldwide collapse of the recyclable commodities markets, for example, has had a measureable impact on our recycling revenues. We’ve also seen lower solid waste volumes in markets that have been particularly hard hit by the economic downturn.”

Casella Waste reported a 14 percent drop in revenue in its fiscal third quarter, ended January 31, 2009. Revenue totaled $121.2 million, down $19.7 million from the comparable quarter last year. But the company was able to reduce its net loss to $3.8 million or $.15 a share compared with $4.6 million or $.18 a share last year.

“The economy is issue number one. Almost nothing else approaches this challenge in terms of importance, and the effort and focus required to manage intelligently through the downturn,” Fusco said. The company is also increasing pricing where supported by the market and reducing its capital expenditure plans.

Soft demand for commodity recycling materials and one of the worst downturns in the residential housing construction market in history will likely continue to impact solid waste collection volumes through at least the rest of this year, said Stewart Scharf, an environmental services equity analyst at Standard & Poor’s Corp. in New York.

“With manufacturing down sharply, the appetite for purchasing recycled materials, especially in China, from the United States has dried up, forcing commodity prices to plunge by as much as 75 to 90 percent in some regions,” Scharf said.

Standard & Poor’s is forecasting a 42 percent decline in housing starts this year. The drop in housing starts translates into less construction and demolition waste. Plus, Scharf said the downturn has carried over into the industrial and commercial markets.

With S&P forecasting a 3 percent decline in real gross domestic product for 2009, Sharf said, solid-waste volumes would probably continue to decline this year. However, he said that President Barack Obama’s economic stimulus plan and bank bailout plans should lead to a gradual improvement in the capital markets, easing the credit crunch.

“It’s basically an industry-wide, across-the-board type of downturn. Although the industry is generally recession resistant, the extent of this economic crisis has affected both large and small haulers,” Scharf said. “The smaller haulers are having a more difficult time coping with the financial woes, which will likely lead to more niche acquisitions by the larger players and more attractive acquisition multiples as well.”