Waste Management's Slow and Steady Progress

Slow and steady wins the investing race, and Waste Management's (NYS: WM) long slog back to its pre-recession highs is finally drawing close to the finish line. Full-year earnings reported yesterday saw the garbage hauler come within $10 million in revenue of its 2008 high-water mark, though profit remains $126 million beneath that year's impressive take. Guidance for the coming year is uninspiring, but there's no risk to profits. Will 2012 mark a replay of Waste Management's middling 2011, or can the stock sustain its slow momentum?

Headwinds ahead
Little has fundamentally changed from last year, as higher revenues were offset by rising fuel costs and other increased operating expenses. Let's take a look at some of the differences to see how Waste Management is recovering:



Change From Prior Year

Annual revenue

$13,378 million

$863 million

Annual gross profit

$2,028 million

($88 million)

Annual gross margin



Annual net income

$961 million

$8 million

Annual net margin




$9,756 million

$849 million

Free cash flow

$1,198 million


Cash and cash equivalents

$258 million


Fuel costs

$628 million

$135 million

Source: Waste Management 10-K filing for 2011.

Top-line growth doesn't much mask a weaker bottom line, which was dinged by weaker-than-expected volume as well as higher fuel costs. There are signs that volume is nudging higher, which is one way to gauge the broader economy. CEO David Steiner pointed out that volume has increased for three straight quarters, and recycling volume is also growing at a brisk pace.

Looking forward
Waste Management's 2012 performance looks to continue the slow, steady growth one might expect from a company that's become a de facto garbage utility. The company's annual guidance came in at the low end of analysts' expectations, but earning at least $2.22 per share in 2012 is nothing to sneeze at. Waste Management's currently only half as costly as international rival Veolia Environment (NYS: VE) on a P/E basis. Waste Management and Republic Services (NYS: RSG) have such a lock on the American trash market that it's bounced Veolia right out of the country.

The first half of 2012 might not be the best time to pick up more shares, as Steiner anticipates things to be tougher until midyear, after which the company ought to bounce back. On the other hand, Waste Management's dividend yield is near five-year highs, and its P/E has yet to recover to last summer's highs. Potential overreactions to the muted guidance could make it an even more attractive buy, particularly if American macro trends continue to show unexpectedly strong growth.

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At the time thisarticle was published Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of Waste Management. Motley Fool newsletter services have recommended buying shares of Waste Management, Republic Services, and Veolia Environnement, as well as writing a covered strangle position in Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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