Why Investors Trashed Waste Management Today

Investors dumped shares of Waste Management on Tuesday. Here's what you need to know.

Feb 18, 2014 at 2:45PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis. 

Investors dumped shares of Waste Management (NYSE:WM) on Tuesday, sending the stock lower by as much as 5.2% this afternoon to trade around $41.44 per share. The move comes after Waste Management before the bell reported fourth-quarter earnings that failed to live up to Wall Street's expectations for both earnings and revenue. However, there could be an even bigger problem for the company going forward. Let's take a closer look.

Screen Shot

Source: Waste Management

For the three-month period ended in December, Waste Management generated earnings of $0.56 per diluted share, while analysts were looking for earnings per share of $0.61. This $0.05 miss was underscored by lower than expected quarterly revenue, which inched up just 1.9% to $3.5 billion in the quarter. Wall Street had estimated revenue of $3.58 billion.

In addition to its quarterly results, Waste Management said it approved a 2.7% increase in the company's planned quarterly dividend to $0.37 per share, up from $0.36 a share. This means Waste Management will now pay an annual dividend of $1.50 per share. The hike also marks the 11th consecutive year the board has increased its payout. Moreover, Waste Management said it returned more than $900 million to shareholders in 2013 through dividends and share repurchases.

Down in the dump
Unfortunately, the dividend news wasn't enough to move the company's stock in the right direction today. Waste Management's shares continued to move into the red as concerns surfaced about the company's future prospects. Weak recycling trends remain a challenge for the company. Waste Management said recycling operations hurt earnings by as much as $0.03 per share in the fourth quarter, and negatively affected full-year earnings by as much as $0.12 per diluted share.

Looking ahead, the company expects its recycling business to remain flat in 2014. The cost of recycling has increased 10%, according to data from Morningstar. As costs increase, Waste Management is being forced to rethink its approach in hopes of securing higher returns from its recycling business.

Ongoing concerns involving the broader waste sector may also be contributing to the stock's slump today. Last week, Credit Suisse said the sector could underperform in the first half of the year because of the low inflationary environment. Shares of Waste Management are down nearly 3% so far this year. However, they may have farther to fall if pricing in the waste sector is slow to recover in 2014.

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Tamara Rutter has no position in any stocks mentioned. The Motley Fool recommends Waste Management. The Motley Fool owns shares of 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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