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2009 Summer Waste Survey
Weakness Reported...Along With Signs of a Turn
Environmental Services
Scott LevineAC
(1-212) 622-5609
scott.j.levine@jpmorgan.com
Rodney C Clayton, CFA
(1-212) 622-2873
rodney.c.clayton@jpmorgan.com
J.P. Morgan Securities Inc.
See page 30 for analyst certification and important disclosures.
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This report summarizes the results of our most recent semi-annual waste
industry survey.
• Price easing, but stability projected. Overall, pricing eased in recent
months, though the outlook is stable, with the roll-off business showing
a bit more strain than other lines. Disposal trends appear healthier than in
hauling, suggesting the majors (and municipalities) remain disciplined in
that regard. Independents still appear heavily reliant on core price (rather
than surcharges) to recover fuel, and costs remain a key driver of the
independents’ pricing behavior. Results were fairly consistent across
geographies, with the Northeast a bit weaker, and the Midwest stronger,
than the national average.
• Acute volume weakness looking back, calling for a turn. Although
reported volumes were generally weaker than forecast in our winter
survey, respondents clearly do expect some improvement in the months
ahead. The outlook was most positive in construction and disposal,
suggesting respondents are optimistic that we’ve seen a cyclical trough.
The volume news was fairly consistent across geographies, with the West
still lagging and Midwest registering the strongest results. We’re
trimming our Q2 volume assumptions 25-125bps for the majors, though
our survey affirms our expectation of some improvement in the back half
of 09.
• Cost headwinds abating, disposal a critical factor. Respondents saw
costs abating, continuing the trend of easing from last survey (driven by
fuel), with the outlook calling for more gradual easing. Disposal ranked
as the most significant cost factor (a 1st for our survey), affirming the
importance of the landfill to the industry pricing story. Labor ranked
second in terms of importance, though given the weak economy, we
don’t see much cause for concern. Fuel concerns have eased, but with
prices starting to firm up, trends bear monitoring.
• Waste valuations appear reasonable. With the group trading toward
the lower end of the historical range, and with fundamentals still healthy,
we see upside potential in several names. We prefer names with
reasonable multiples that are poised to generate earnings upside via deal
synergies and/or acquisitions. RSG, WCN and SRCL are our top picks.
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