At its core, Waste Management Inc. picks up and disposes of trash, and that business is on solid ground, the company's CEO said.
But declining commodity prices associated with its recycling and waste-to-energy business are impacting earnings these days, David P. Steiner said.
"As has been the case throughout the year, our core solid waste business continues to perform well, and we're seeing some positive trends as we approach 2013," Steiner said on a recent conference call to discuss third-quarter earnings.
Lower commodity prices for both recyclables collected and processed by the company and electricity created by the company's waste-to-energy facilities, however, are having a larger impact than the company anticipated going into the year.
Initial guidance had Waste Management expecting lower recycling commodity pricing to have an impact of 4 cents per share on earnings in 2012 compared to last year. "Through the first nine months of 2012, we've incurred a negative year-over-year impact of 14 cents per share for recycling commodity pricing," Steiner said. "In the fourth quarter, we're expecting an additional 4 cents per share of headwinds from recycling commodity prices."
On the waste-to-energy side, electricity prices are a little more than 12% down during the third quarter compared with the same period last year. And through the first nine months of the year, lower prices have impacted earnings by 7 cents per share. That's 2 cents per share higher than originally anticipated.
"So looking at the combined recycling and waste-to-energy operations, the total negative effect is 16 cents of unexpected headwinds for the full year," Steiner said.
Without those unexpected shortfalls, the company "would have been soundly on course to achieve our original full-year goals, which demonstrates the stability and continued strong performance of our core solid waste business," Steiner said.
The company reported earnings of $214 million, or 46 cents per diluted share, on revenue of $3.46 billion for the three months ended Sept. 30. That compares with earnings of $272 million, or 58 cents per diluted share, on revenue of $3.52 billion for the third quarter of 2011.
Net income would have been $295 million, or 61 cents per share, if not for a $32 million, or 7 cents per diluted share, charge for organizational restructuring and a labor dispute, and a $39 million, or 8 cents per diluted share, charge from what the company called "impairments of investments in unconsolidated entities and related assets."
Analysts had predicted average earnings of 60 cents per share on revenue of $3.5 billion, according to Yahoo Finance.
Waste Management adjusted its full-year earnings guidance by 7 cents to a range of $2.08 to $2.13 per diluted share. That's down from earlier guidance of $2.15 to $2.20 per diluted share.