Something Stinks at Waste Management

This article is part of our Real-Money Stock Picks series.

Waste Management's (NYSE: 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 (Nasdaq: CSCO  ) , Best Buy (NYSE: BBY  ) , and Alcatel-Lucent (NYSE: 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' (Nasdaq: 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.

Alyce Lomax owns 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 services have 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 that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (12) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 30, 2012, at 7:19 PM, SuntanIronMan wrote:

    Wait a sec... Starbucks and job creation? Starbucks and Schultz subtracted a huge amount of jobs just a few years ago (after they had to close a ton of stores). Wasn't exactly Schultz's fault. The previous management really messed things up and Schultz had to come back in as CEO and right the ship. Though Schultz was still Chairman of the Board even when he wasn't CEO, so he isn't entirely blameless for the way management . Either way, the layoffs still happened.

  • Report this Comment On July 30, 2012, at 7:23 PM, SuntanIronMan wrote:

    Wait a sec... Starbucks and job creation? Starbucks and Schultz subtracted a huge amount of jobs just a few years ago (after they had to close a ton of stores). Wasn't exactly Schultz's fault. The previous management really messed things up (though Schultz was still Chairman of the Board even when he wasn't CEO, so he isn't entirely blameless). Schultz had to come back in as CEO and right the ship (and righting the ship included Schultz closing stores and laying off people). You can say it needed to be done, but the layoffs still happened.

  • Report this Comment On July 30, 2012, at 7:59 PM, SuntanIronMan wrote:

    Wait a sec... Starbucks and job creation? Starbucks and Schultz subtracted a huge amount of jobs just a few years ago (after they had to close a ton of stores). Wasn't exactly Schultz's fault. The previous management really messed things up (though Schultz was still Chairman of the Board even when he wasn't CEO, so he isn't entirely blameless). He had to come back in as CEO and right the ship (and righting the ship meant closing stores and laying off people). You can say he needed to do that, but the layoffs still happened.

  • Report this Comment On July 31, 2012, at 11:22 AM, luckyspike01 wrote:

    According to the WM Conference Call, 90% of the layoffs are corporate, not the front line. They have restructured their management and have reduced corporate at the regional level.

  • Report this Comment On July 31, 2012, at 11:30 AM, Rasko wrote:

    Seriously? I

  • Report this Comment On July 31, 2012, at 2:44 PM, turb0kat wrote:

    wow this is a terrible article.

  • Report this Comment On August 01, 2012, at 10:44 AM, moneytrail wrote:

    Here's a newsflash Alyce: Companies do not exist to provde jobs; they exist to make profits for their owners, you might remember: they're called shareholders.

    Companies who do this tend to create jobs and opportunites in the long run, as a natural consequence of organic growth.

    Take an eco refresher course.

  • Report this Comment On August 02, 2012, at 12:20 PM, TMFLomax wrote:

    Hi there everyone,

    Thanks for the comments. I understand that in some cases layoffs have to occur, but I believe that many companies take too cavalier approach to them as a pretty standard cost-cutting measure to boost short-term profitability at the expense of long-term health. I also believe too many investors are too content to sign on to that point of view.

    Yes, Starbucks did perform mass layoffs several years ago, but Starbucks was in REAL trouble at that point. I also believe that Schultz felt very bad about the situation. Here is a snip from his book "Onward": "This is a defining moment like no other for Starbucks Company, and

    moments like this are quite difficult and emotional so let me specifically address yesterday. I never anticipated, nor was I emotionally prepared for, the decisions that led to asking passionate, talented, deserving partners to leave our company... I know people are angry and grieving and I know people are mad. But I had to make the

    difficult choice [and consider] the long-term sustainability of the company. Our revenue and profits have got to be linked to a lower cost

    structure or else we are going to find ourselves in a much worse situation. We have less customers in our stores this month than we did last month, and less last month than the month before. We are not seeing new customers come into the stores..."

    Throughout the book, Schultz does not give the impression that that was anything other than a "dark" period. I believe he was empathetic to what that was like, for both the people laid off and the employees left behind (and it's difficult for both -- there are studies about this sort of thing).

    moneytrail, the more and more people lose jobs, the less and less money there is for these companies' own products and services. I think this is an economic reality that few wish to recognize. We shouldn't be celebrating layoffs as a reasonable way to "make profits for their owners," since the profits will dry up over the long run as the ripple effects go through the economy.

    We are all more interconnected than we may realize. In Waste Management's case, the worse the economy, the less trash there is and the less commodities to recycle, too. Just a thought.

    Thanks again for adding thoughts to this conversation.

    Best,

    Alyce

  • Report this Comment On August 02, 2012, at 12:53 PM, ejazz2095 wrote:

    I wouldn't consider 2% of the workforce to a MASS layoff!

  • Report this Comment On August 02, 2012, at 7:59 PM, TXemployee wrote:

    Well, try standing in the lobby tomorrow and tell that to the people streaming out of the building. They have grossly misquoted the number of layoffs (told a little white one) they have cut the company to the bone. How it will survive with the structure in place will be a miracle. The Houston cut alone will approach close to 50%. The employees left will have to work in a ghost town. The people they cut were some of the best of the best. I know economics are a consideration but the work is done by people and Waste has disregarded its people for too long. This was the worst organized most badly communicated event ever. Work has been at a standstill for weeks as tiny bits of information were leaked. Waste Management has done nothing to garner the reputation of one of the best companies to work for. Stop paying the consultants and hang on to your employees.

  • Report this Comment On August 16, 2012, at 12:52 AM, exWM123 wrote:

    I can tell you as a ex-employee of both Republic and WM, buy Republic and get rid of WM...Republic has more common sence mgmt practices and empowers it's GM's to run their businesses of course with guidelines but they can adjust to the region of the country and their customer base. WM has way too many quirky regs in service such as if an acct. calls in concerned that their driver hasn't come by a courtesy is issued and the next morning it must be serviced by 7:30am and Missed p/u by 12:00pm and you may have to go back to the same street later in the day...what does equate to well massive labor hours and fuel costs not to mention a dept. in most divisions to manage the process which is called Service Machine..And in layoffs well I left before layoffs occured because I knew they were coming...front line Supervisors were let go which I can tell you makes the machine go..Ops Mgrs are middle men and DM's are useless..In Oakland CA the largest division in all of WM they let go of most senior RM's and kept RM's who just entered the company which is cheaper but when you lose someone with say 15yrs of experience well the teamsters will eat you up. lastly well I got e-mails of fatalities monthly, at Allied/republic yes it happened but never on the scale of WM..that translates into huge losses in the millions...I made the stupidest mistake of my life leaving Allied for WM! Do not waste your $$ on WM they are on the way down, poor leadership equals poor results!!

  • Report this Comment On August 16, 2012, at 12:59 AM, exWM123 wrote:

    By the way, WM Oakland CA is going out to bid in 2013 and the City has refused to negociate with WM even though WM has exclusive rights currently..the service is horrible, route trucks commisioned in 1996 and accident/injuries through the roof! WM may even choose to not bid on it like they did in Livermore CA...Another note of fact is in 2015 the WM landfill in Livermore CA will no longer get SF garbage...that is a 40 million $ revenue hit coming down the pike! WM is a giant that could have been great but poor mgmt too caught up in layers of red tape screwed the golden goose!! This is only 1 area of the company imagine whats going on across the US?!!

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