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Rubbish Company Warns on Profits

LONDON -- Shanks  (LSE: SKS.L  ) lived up to its billing as a "rubbish company" today after warning that profits would be "slightly below" current market expectations.

The FTSE 250 business, which sorts and recycles industrial and domestic waste, saw its shares dive 7 pence, or 8%, to 83 pence in early London trade.

Shanks said that market conditions had "deteriorated significantly" within its U.K. and Dutch Solid Waste divisions since July.

The firm blamed the "Northern European recession" and record lows in construction activity. Falling recycling prices, lower volumes and increased competition were also cited.

Shanks did confirm other parts of the group had performed as expected. In particular, the organics division was said to have delivered good growth while the hazardous waste operation currently enjoys a solid order book. The mid-cap's U.K. Municipal business continues to perform well, too.

Peter Dilnot, chief executive of Shanks, said: "While market conditions in Solid Waste remain very challenging, our Organics, Hazardous Waste and U.K. Municipal businesses are performing well and we are continuing to invest for future growth. Our cost reduction plans are progressing well and, with the new organization in place, the Group remains firmly on track to deliver profitable growth in the medium term."

This is not the first time Shanks has been seen as a "rubbish company." Back in 2009, the firm had to suspend its dividend and launch a rights issue to reduce its debts and stave off the recession.

The shares plunged from 209 pence to 37 pence in less than a year, but subsequently rallied to as high as 134 pence. Smart investors could therefore have enjoyed a 262% gain on Shanks' revival.

Such returns suggest it may pay to keep an eye on Shanks, rubbish company or not.

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Maynard Paton does not own any share mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not 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.

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