Waste Management, Inc. WM shares opened lower today following a Downgrade by Stifel analyst Michael Hoffman from Buy to Hold. He also removed the price target of $57 on the stock. David Steiner, Waste Management president and CEO, was on CNBC recently to discuss how commodity prices and the drop in oil prices are impacting his business.
Profitability And Oil
When asked about the influence of oil prices against Waste Management's profitability, Steiner replied, “We have a fuel surcharge that covers any increase or decrease in oil. So, that really doesn’t affect our profitability.”
Recycling Is Not Profitable
“Lower oil prices affect plastics recycling [...] The biggest thing that we recycle is fiber: paper, cardboard. And what you have got going on right now is the slowdown of the ports on the West Coast,” Steiner said.
“So, you can't move product overseas, and you have got slowdown of demand from China. So, paper prices are at multi-year lows.”
He continued, “It’s really leading to make recycling not profitable. We are the largest in North America and we can’t invest if it’s not profitable. So, we have got to figure out what we need to do in our business to make it long-term sustainable.”
Related Link: Appliance Recycling Centers Granted Patent For Refrigerant Recovery Systems
When asked if he has slowed down investments, Steiner replied strongly, “Absolutely.”
“Two years ago we were investing anywhere from a 100 to 400 million a year in recycling,” Steiner replied. "Last year we invested virtually nothing, just maintenance.
“So, for the first time since recycling really took hold in the early '90s, last year, recycling rates actually went down in United States, and they went down because you can’t extract the value out of the material.”