1 Dividend You Don't Want to Trashhttp://www.fool.com/investing/general/2012/10/31/1-dividend-you-dont-want-to-trash.aspx Justin Loiseau
October 31, 2012
Waste Management (NYSE: WM ) reported earnings today, and Mr. Market seems satisfied for the time being. Read below for what worked, what didn't, and where this company -- and its 4.4% -- dividend might be headed in the not-so-distant future.
Although sales remained steady, income got trashed. The company scrapped together $214 million, or the equivalent of $0.46 diluted earnings per share. Compared to last year's $272 million third quarter, that's a 21% drop in income. The main culprits: a $32 million restructuring/union dispute, and $39 million worth of "investing impairments."
Luckily for the company, Wall Street wasn't expecting much better. Analysts predicted $0.60 diluted EPS in pre-tax income, and Waste Management's $0.61 earnings proved to be on the money. Revenue came in shy of Wall Street's $3.5 billion, but the $40 million seems to have been forgiven, judging by the stock's 0.9% increase today.
Waste Management makes a business out of finding value where others don't, but that value can fluctuate. "Commodity price declines in our recycling and waste-to-energy operations led to a $0.10 year-over-year EPS negative impact," said President and CEO David Steiner.
In plain English, this means that the company's foolproof plan to sell people's trash back to them as either raw material or energy didn't work out so well. Average prices dropped 40% in a year, resulting in a $0.08 diluted EPS decline.
It's not that Waste Management did anything wrong, but decreasing commodity demand, and increasingly cheap energy sources -- (did someone say natural gas?) -- have pushed Waste Management's bargain bin back into the trash.
But even if people aren't buying, Waste Management's still collecting. Luckily for this company, they're collecting more than before. Collection and disposal yields improved sequentially for the first time in six quarters, providing immediate collection revenue and potentially lucrative materials for resell down the road. Operations, excluding commodity price impact, increased $115 million, or 3.3%, over 2011's third quarter.
...and the dividend?