Natural gas continues to be the buzz of the transportation industry, with its attractive price, ample supply, and environmental benefits continuing to attract more and more interest among those who build and operate heavy-duty trucks, trains, and other methods of transport. One of the most eager adopters, though, has been the waste service industry -- where natural gas now fuels one-half of all trash trucks, and has become a growing and increasingly profitable by-product.
As the three biggest firms in this space -- Waste Management (NYSE:WM), Republic Services (NYSE:RSG) and Waste Connections (NYSE:WCN) -- move into third-quarter earnings season, here's a look at how each is confronting the transformation from diesel to compressed natural gas, or CNG.
The biggest player in the category, Waste Management, is also the leader in the move to CNG. The company has been driving steadily in this direction since the 1990s, and already claims the largest fleet of natural gas fueled collection trucks in North America with 2,200 such vehicles. To support these, it has also developed a string of 50 fueling stations in 22 states and Canadian provinces -- 18 of which are open to the public.
Taking its commitment one step further, Waste Management is serious about turning the waste it collects into fuel and announced in mid-October that it was building another facility to capture, filter, and compress pipeline-ready natural gas at one of its landfills. The company expects that by late next summer the CNG produced at its site in Fairmont City, Ill., will be distributed to Waste Management facilities and other locations on the U.S. gas distribution grid. It projects that the facility would process approximately 3,500 standard cubic feet per minute of incoming landfill gas, which is equal to the gas it takes to fuel about 400 trash collection trucks each day. The total also represents more than 10% of the natural gas Waste Management currently uses in its entire CNG fleet. In addition, the company already operates another such facility to power its trucks in four California counties.
A solid No. 2 performer in the overall waste sector, Republic Services has also been aggressively turning toward natural gas powered collection trucks. The company now operates more than 1,400 of these around the U.S., and in mid-October announced that it was adding another 53 to replace aging diesel-powered vehicles in Charleston, S.C. It also operates 26 fueling stations nationwide, and is running nearly 70 active landfill gas-to-energy projects.
Republic Services also says about one-half of all the vehicles it is purchasing in 2013 are CNG-powered, and at its current rate of conversion it plans to be running more than 3,100 of these trucks nationwide by the end of 2015.
The smallest of the big three, Waste Connections, is dipping into natural gas as well through several promising projects, usually in partnership with other firms. For example, it is teaming with Integrys Energy Group's (UNKNOWN:TEG.DL) operating unit, Trillium CNG, as it constructs high-volume public access CNG stations in Wisconsin, New York, and other locales.
The most recent of these collaborations went on line in late summer. It is a CNG fueling station in San Jose, Calif., built by Trillium and a subsidiary of Waste Connections called GreenTeam. This is now fueling the company's 18 new natural gas trucks serving the area, a fleet it expects to double over the next year as its spends $15 million to convert its trucks and infrastructure.
The Foolish bottom line
As I've written about many times in the past (most recently in August) natural gas is rapidly gaining more than just a foothold in the transportation world. The waste collection industry has been leading the way as a user as well as a supplier and a distributor. As the national waste services market becomes increasingly competitive, cutting costs and building revenue through CNG becomes increasingly important to the bottom line of these companies. Smart investors who pay attention to what these companies say about it in their third-quarter reports -- which are being delivered through Oct. 31 -- just might gain an edge in understanding their performances going forward.
Howard Rothman has no position in any stocks mentioned. The Motley Fool recommends Republic Services and 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.