Waste Handler Raises Margins, Grows Steadily
For the past few years, Waste Management () has been shedding unprofitable customers.
While that’s slowed sales growth a bit, it’s also improved margins.
Pretax margin in 2007 was 12.7%, the best in at least nine years.
The dumping of low-margin business carries a short-term price. In the first quarter, divestitures decreased revenue about $61 million, according to company officials.
At a recent conference call, Chief Executive David Steiner said the divestiture cycle was over. The focus now will shift to acquisitions.
A solid strategy, reasonable earnings growth, excellent earnings stability and a slightly above-market dividend put Waste Management on the income investor’s radar.
The three-year earnings growth rate is 15%. The dividend yield is 2.9%. The EPS Stability Rating is 1, the strongest possible.
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Operating cash flow is impressive about 127% above annual EPS, far above the desired 20% cushion.
Annual earnings were up for a fourth straight year in 2007, and that was despite significant challenges last year.
The head winds include high fuel prices, a sluggish economy and the unpredictable winter weather in the Midwest and East.
Weather in the Midwest trimmed a penny off Q1 earnings, according to management, and fuel costs were up 39% on a year-ago basis.
On the flip side, higher recyclable commodity prices helped earnings.
Another helpful factor is Waste Management’s business model.
If the company focused solely on the Sun Belt, earnings would be better in boom times. But the firm’s nationwide footprint leads to a more stable performance. Business in the Midwest and East doesn’t reach the peaks and dips characteristic of the West, the company says.