There is one company where waste equals profit: Waste Management Incorporated (NYSE:WMI). The lord of the landfill just posted a record earnings report, and with its rebranding to a "Think Green" ethos, Waste Management could be set for more record-breaking earnings reports in the future.
Earnings Anything But Garbage
For its fourth quarter, Waste Management reported a net income of $276 million, or 54 cents per share, beating analyst estimates of 51 cents per share and surpassing last year's fourth-quarter performance by 14.9%. For the full year 2007, its earnings per share came in at $2.23 compared to $2.10 per share in 2006.
It's hard to argue with these numbers. Waste Management has been growing at a steady rate for some time now. In addition to its strong operating fundamentals, the stock's current dividend payout of 2.8% a share (96 cents per year) makes Waste Management both an attractive value and growth play.
Waste Management was involved in a accounting scandal with Arthur Anderson in 1998, where the company inflated the depreciation time for many of its hard assets in order to give the appearance of higher after-tax profits. Since the scandal WMI went on a public relations bender and adopted the "green" mindset. (Is Waste Management's transformation to green crusader legitimate or yet another case of cynical greenwashing? To learn about the other side of these rebranding efforts, read The Green Marketing Machine.)
Over the last decade Waste Management has developed the technology to profit from two energy conversion practices:
• Methane from landfills - Controlling nearly 300 landfills throughout the United States, WMI has access to a large supply of methane, which it now collects and uses directly for industrial energy purposes or to fuel electrical generators.
• Trash as fuel - Through WMI's subsidiary, Wheelabrator Technologies, it uses actual trash as fuel to generate electrical power through its 17 waste-to-energy plants. The conversion of trash to energy not only cuts down on the amount of landfill waste, but also provides an alternative energy source to fossil fuels.
Through these and other initiatives, Waste Management is trying to clean up what used to be a dirty business. There has been a large shift toward environmentally friendly business since the 1990s, and by adopting green energy producing practices, Waste Management is developing the necessary skills to one day compete in the growing energy market through the ever-present waste industry. (For more on the monetary perks of going green, see For Companies, Green Is The New Black.)
The Bottom Line
With a stranglehold on the garbage industry - a business that will never die - Waste Management is going to be profitable for many years to come. Its strong dividend, which is going to be increased by 12.5% in 2008, means Waste Management looks to be a solid value play with a good growth potential in the long term. Finally, its "Think Green" waste-to-energy conversion programs could one day provide it with a foothold in the consumer energy market. This could prove to be an extremely profitable move over the long term.