It was a bad year last year.
Recycling continues to hurt Waste Management’s bottom line, as low oil prices and low commodity prices have made that a challenging business for at least the past year.
The Houston company on Thursday reported a decline in revenue and earnings for its fourth quarter and full year in 2015, as it sheds some unprofitable recycling contracts and works to expand higher-margin business. Net income in the fourth quarter was $273 million, down from $590 million in 2014, and earnings per share dropped to 61 cents, from $1.29 a year earlier.
“The business is firing on all cylinders, save two areas: recycling and environmental services,” CEO David Steiner said during a call with investors.
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Waste Management has been coping with tough times for residential recycling that spread across the industry. In many cases the company is no longer able to cover the costs of collecting and processing paper, cans and plastic bottles with the revenue it gets from selling them.
In paper, “if they can improve their processing costs per ton, you survive,” Hoffman said. But slower economic growth in China has contributed to lower prices for recycled metals, while the low price of oil makes virgin plastic cheaper to produce than using recycled plastic.
“It’s just very hard to cover your cost of processing,” Hoffman said.
Glass causes problems for waste companies by damaging sorting machines while it’s sold at very low prices, and consumer confusion over what to put in recycling bins makes recycling more expensive. Companies spend money removing non-recyclables from the stream, and contamination reduces the quality, and therefore price, of the recyclables they sell from collection.
Waste Management cut its recycling expenses by 15 percent from a year ago, Steiner said, and is working to renegotiate municipal contracts so that it doesn’t shoulder all of the costs of recycling when it’s operating at a loss. Already it has renegotiated 75 to 80 percent of its contracts, Steiner said.
See here, here, and here for the background. Waste Management of course also has a contract with Houston, one that has been pretty good to the city, allowing it to buy the equipment needed to bring curbside recycling everywhere at a faster-than-expected pace. City Council is scheduled to vote on whether to continue the single-stream recycling program today. I don’t know if the terms are the same as before or not, but I’m sure that will come up.
UPDATE: As predicted:
City Council this week will consider a four-year deal with Waste Management that will increase the fees the city pays the company to process its recyclables and will, for the first time, put Houston on the hook if the firm cannot cover its costs by reselling the recycled items.
If Houstonians keep rolling 5,400 tons of recycled material to the curb each month and current commodities prices hold, city officials project the cost to the city will be more than $3 million a year.
“Our contract expired in a bad market,” said Steve Francis, chief of staff in the Solid Waste Management Department. “If we were here last January at $107 a barrel (for oil), we’d have a significantly better contract in place. They’ve negotiated away their downside, which becomes a downside for us.”
It was nice while it lasted.
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