S&P Optimistic About Waste Industry Outlook

Date: June 22, 2009

Source: News Room

The rating agency Standard & Poor's, a division of McGraw-Hill, remains bullish about the waste management industry given the recession-resistant nature of the business and its ability to generate strong cash flow. Haulers have maintained cash flow through disciplined price increases, efforts to control costs, and willingness to sacrifice market share in order to steer away from lower margin business. Haulers are already enhancing customer service as a means to maintain a high retention rate, while maintaining a positive "churn" rate (price spread between new versus lost business). S&P expects lower construction and demolition (C&D), industrial and commercial volumes, along with soft, albeit stabilizing, commodity recycling demand and pricing, to outweigh higher overall prices. Waste collection volume is expected to gradually recover as economic conditions improve either late this year or early in 2010.

Despite the major merger last year between number-two ranked Allied Waste and number-three ranked Republic Services, S&P does not see a return to major industry consolidation that dominated the late 1990s that led to numerous integration problems. Instead, companies are likely to focus on "tuck-in" acquisitions to pick up as smaller haulers find it difficult to operate in a soft environment and acquisition multiples become more attractive for the major players.

To learn more, visit: sandp.ecnext.com/coms2/page_industry?referid=4890.

Sign up to receive our free Weekly News Bulletin