S&P sees gradual pickup in solid waste volumes
New York— While large solid
waste management firms reported revenue growth in 2004, rising
fuel prices and, in some cases, increasing fleet maintenance costs
are likely to weigh on earnings in 2005, says Standard & Poor’s
Equity Research in a semiannual study of the industry. The report,
the Environmental & Waste Management Industry Survey, is published
twice yearly by Standard & Poor’s, a leading provider
of independent investment research, ratings and indices.
“Waste haulers will continue
to focus on pricing initiatives as long as fuel prices remain
high and regional market share is maintained,” said Stewart
Scharf, environmental services analyst with Standard & Poor’s
Equity Research Services. Fuel accounts for as much as 5% of a
trash hauler’s operating costs.
Waste haulers raised customer
rates and landfill tipping fees in 2004 and are considering further
hikes in 2005. “However, competitive pressures may make
raising prices more difficult, particularly if economic conditions
soften significantly,” added Mr. Scharf. “Intense
competition among trash haulers, particularly in the Midwest,
makes it difficult to raise pick-up and hauling fees.”
Waste management providers also
improved profitability in 2004 through increased internalization
rates. Trash haulers utilize their own landfills, which is generally
more cost-efficient than traveling to third-party landfills. In
recent years, the large solid waste management firms have participated
in asset swaps to align landfills closer to their major routes.
As a result, the trash haulers have increased their internalization
rates which is dumped into their own landfills.
Meanwhile, water utilities continue
to benefit from rate hikes and growth in their customer base.
State regulatory agencies approved numerous rate increases for
water supply and wastewater treatment providers in 2004. Over
the longer term, funding shortfalls for infrastructure improvements
will have to be addressed on the federal or state level.