End of Waste Mis-Management? (News) August 16, 1999

End of Waste Mis-Management?

By Brian Graney (TMF Panic)
August 16, 1999

In an effort to shake up its business after a series of management missteps and flat-out mistakes, battered trash hauler Waste Management Inc. (NYSE: WMI) decided to dump its current President and COO Rodney Proto and accept the resignation of ailing Chairman and CEO John Drury today.

Calling the shots for the time being will be acting chairman Ralph Whitworth and corporate turnaround artist Steve Miller (not to be confused with the rock 'n roll guitarist by the same name.) A former CFO and vice-chairman at Chrysler during its darkest days, Miller will serve as CEO until a replacement is found. Shareholders are hoping the duo can work some Abracadbra magic and keep Waste Management from trippin', trippin', trippin' into the future.

The company is also looking for a new CFO, after its former finance chief was offered up in a ritual sacrifice to the Gods of the Street last month when a communication breakdown between headquarters and the field resulted in two second quarter earnings warnings. At that time, lower-than-expected operating results, delayed accounting changes, and higher interest expense were fingered as the main culprits behind the problems. However, the new leadership admitted this morning that the company's current internal controls deserve the heave-ho as well. Pricing policies, information systems, receivables billing and collection, and financial controls will be the top priorities for Whitworth and Miller.

Investors trying to sniff out a turnaround opportunity might want to sit on their hands for awhile. With skepticism sky-high thanks to the layer upon layer of bad news that has been dumped on investors' heads in the past weeks, it's not surprising that Waste Management's shares barely budged today on the news of the management reshuffling. Then again, the company is hoping for stabilization rather than share price appreciation, given that its stock has been trashed for a more than 50% loss since the end of June. "We realize that we must deliver results before we will see meaningful increases in our share price,'' Whitworth said with more than just a little bit of understatement.

To get the company rolling again, Miller and Whitworth intend to can some of the company's non-strategic and underperforming assets. The focus will be on the most profitable North American solid waste business, although up to 10% of that unit's assets will also get the ax under the current plan. The money from the dispositions will be ploughed into debt repayment and share buybacks to secure the company's credit rating. Meanwhile, the core business will continue to suffer and second half earnings are expected to be $0.14 to $0.24 per share below the previous First Call mean estimate of $1.14 per share.

With nearly $12 billion in net property and equipment and $11 billion in long-term debt on its restated balance sheet, Waste Management isn't exactly the most nimble company to turn around. Then again, neither was Chrysler when Miller was there during the tumultuous 1980s. The turnaround proof will be in the pudding. If Waste Management can avoid negative surprises and make noticeable improvements to its business in the next few quarters, investors may want to hold their noses and take a closer look.

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