Something Stinks at Waste Management
This article is part of ourReal-Money Stock Picksseries.
Waste Management's (NYS: WM) focus on innovative ways it can be part of the green revolution landed it in the socially progressive real-money stock portfolio I'm managing for Fool.com. For a while, I considered it one of the most promising stocks in the portfolio. However, recent quarterly tidings have taken a bit of the bloom off that rose.
In my book, the crux of the issue right now is not simply a financial disappointment, although many investors would focus on that particular aspect. Waste Management's second-quarter profit fell 12% to $208 million, or $0.45 per share, and revenue rose a scant 3% to $3.46 billion.
Waste Management's profitability has been hurt by one-time charges associated with withdrawing from a pension plan, but also lower prices on some of the commodities it recycles. In addition, its waste-to-energy segment has faltered as electricity prices fell by 10%.
None of these issues are spooky enough for me to want to ditch Waste Management shares, but one aspect I find far more disturbing is that the company announced it's slashing 700 U.S. jobs, or 2% of its total workforce.
Waste Management's news gets worse. The company's tussling with the Teamsters in Seattle and has had to bring in replacement drivers in the Seattle market as workers strike there. These replacements are only for commercial customers, not residential ones. Apparently employee relations aren't going swimmingly well, and I doubt residential customers are enjoying piles of collecting garbage.
Further, Seattle regulators aren't taking kindly to the hold-ups, either. It threatened fines of $1.25 million per day if service disruptions continue, or even $3 million if several cities in nearby counties follow suit.
Responsibility goes beyond green
When it comes to seeking out companies that have spearheaded responsibility in their business practices, employee happiness is part of the package. Mass layoffs do not result in happy employees.
On a bigger picture level, the U.S. economy continues to struggle, and that situation isn't helped by more layoff announcements. Waste Management joins the dubious ranks of Cisco (NAS: CSCO) , Best Buy (NYS: BBY) , and Alcatel-Lucent (NYS: ALU) in announcing recent layoff plans. All told, these companies' recent cost-cutting decisions have resulted in thousands of lost American jobs.
What's more responsible behavior? Corporate leaders like Starbucks' (NAS: SBUX) Howard Schultz, who have recognized that American business needs to be cognizant of how much our shared fate depends on adding jobs, not subtracting them. The Create Jobs for USA plan that Schultz and Starbucks have helped spearhead has created 4,000 jobs in 44 states. Unfortunately, Waste Management is one of the companies that has, in effect, recently helped negate such efforts.
I'm not selling Waste Management from my portfolio at this time, but I've got my eye on its progress in this area. I've long held the opinion that mass layoffs are not a positive for companies' futures. Near-term profit boosts simply don't make up for the long-term damage mass layoffs can do. Given how layoffs can help trash our future, Waste Management's position may be in danger.
The article Something Stinks at Waste Management originally appeared on Fool.com.Alyce Lomaxowns shares of Starbucks and Waste Management in her personal portfolio. The Motley Fool owns shares of Waste Management, Cisco Systems, Starbucks, and Best Buy.Motley Fool newsletter serviceshave recommended buying shares of and writing covered calls on Waste Management and Starbucks. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.
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