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business newsWaste Disposal Firms Find Treasure in Trash
By
Justin Sharon
Nov 12, 2010 4:20 pm
Waste Management and Republic Services are both up after being begun with bullish Outperforms by brokerage William Blair this morning.
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As a member of the Garbage Pail Kids generation I’ll never forget that 1987 multi-state odyssey of the Mobro 4000 gar-barge. Co-chartered by Long Island mob boss Salvatore Avellino, it let slip from Islip carrying 3,168 tons of refuse only to be rejected entry by six states and three countries. Waste Management was actually incorporated the same year we woke up to the pressing problem of rubbish, and it and Republic Services have been reliably landfilling their pockets ever since.
Both companies provide nonhazardous waste disposal, recycling services, curbside collection, and the like, while Waste Management also offers portable restrooms under the Port-o-Let name. Together these two trash titans control about 70% of domestic disposal capacity. Republic’s exclusive contract with the city of Las Vegas lasts for another quarter of a century and ensures a steady income stream, even if the large debt load it took on in acquiring Allied Waste for $6.59 billion in 2008 remains a risk.
All our discarded items need a place to go, so this is a good growth business for investors, while some lucky souls have literally found artistic treasure -- if not yet the woman who modeled for the Mona Lisa herself -- in trash. And as for those stock swimmers worried that the SEC will eventually go through with its proposed changes to so-called “dark pools”? That’s a discussion for another day. Now if you’ll excuse me, I’m going for a dip in a dumpster.
Turn to The Waste Management Dividend Play, Dumpster-Diving for Fun and Profit, and Florida Town to Use Robots to Collect Trash, Go Haywire and Squeeze Citizens’ Heads for more.
Manhattan has played host to Earth’s biggest pizza party and the Midwest is home to America’s most precocious pie but it’s our economic pity party epicenter the Golden State that really bakes ‘em just like mama used to make. California Pizza Kitchen (CPKI) shares are rolling in dough right now, extending a 2010 increase of almost 30% after its third-quarter earnings beat the Street.
The quick-service restaurant chain, which operates in 32 states and nine overseas countries including China, the United Arab Emirates, and Indonesia, actually posted a loss of $7.5 million, or $0.31 on an earnings per share basis due to restructuring charges. However, investors are instead choosing to focus on the $0.23 it earned excluding such one-time items in posting revenue of $164.5 million. These figures were ahead of consensus analyst estimates calling for $0.19 and $164.3 million, respectively.
In a statement, Co-CEOs Rick Rosenfield and Larry Flax made reference to having “managed our labor, direct operating, and occupancy costs, which allowed us to drive non-GAAP net income compared to the prior year quarter.” Certainly, there was no sign of the company going down the Domino’s (DPZ) route by offering 31 grand an hour for part-time work. California Pizza Kitchen will, however, have to continue keeping a tight lid on expenses amid a recent uptick in commodity pressures. Toppings, which include Hawaiian pineapple, aren’t for everyone and their offerings remain a pricier option than Domino’s, never mind Ray’s or those one-buck Chuck’s suddenly muscling in on a slice of the action.
Analysts at Oppenheimer also note that royalties from grocery licensing declined for the fourth consecutive quarter, while a slower than anticipated gross margin rebound makes the fast-food outfit a less appealing acquisition target. Buckingham researcher Mitch Speiser pointed out earnings guidance was “shy of expectations” and characterized the company’s fourth-quarter same-store-sales forecast of flat to down 1% as “lackluster.” Unit expansion has ramped up with 10 new stores expected by year-end, so the secular growth story remains intact. Given the uninspiring near-term outlook, however, investors shouldn’t bite off more than they can chew at present.
Please see Will Restaurants Go Hungry?, World’s Worst Pizza Combines KFC, McDonald’s, Wendy’s, Taco Bell, Human Misery, and Name Games: Ray’s Pizza vs. Ray’s Pizza.
Why was this week’s streak in the sky deemed so mysterious? Its origins are in fact crystal clear. That was the sight of aerospace and defense giant Boeing (BA) falling back down to earth once more. Our headline downgrade is this afternoon’s biggest drag on the Dow, tumbling another 2% plus to take its seven-day slide to roughly 10%.
Analysts at Sanford Bernstein moved the Chicago company -- perfect end to a perfect few days for Obama, eh? -- to Market Perform from Outperform, citing a heightened risk to profit margins and further potential delivery delays amid this week’s latest snafu involving its star-crossed 787 Dreamliner. Bernstein researcher Doug Harned now sees a two- to three-month setback, until May 2011, before All Nippon Airways gets its first order and is also now projecting only eight total such aircraft deliveries next year, well off the previous estimate of almost 30.
Say what you want about Boeing, investors often get more than they bargain for, especially in executive suites, which appear to be populated by anything but buttoned-down engineers. In recent years back-to-back CEOs have bailed out early, one due to the fallout from an ethics violation and another, his 68-year-old successor, being being kicked out of the Mile High Club after a sex scandal. With current Chief Executive Jim McNerney recently conceding that 787 development plans have been “overly ambitious,” it's obvious why shares have hit another air pocket.
Also check out Boeing: The Good, the Bad, and the Ugly, Video: Boeing’s Sixth Delay of Dreamliner, and Welfare-Case Companies: Boeing.
Wendy’s/Arby’s Group (WEN) must be tempted to give Wall Street the finger, as it were. Shares of the fast-food firm are off more than 3% after unexpectedly losing money in its third quarter. Increased ingredient costs -- a remarkably familiar refrain at the moment, especially in a era when "experts" assure us inflation is absent -- were a factor behind a $909,000 third-quarter deficit, essentially flat on an EPS basis. This was below both per share analyst expectations of $0.04 and the $0.03 earned a year ago. A 5% fall in revenue, to $861.2 million, also missed consensus calling for $882.6 million, as same-store sales slipped 1.7% with Wendy’s and a steep 5.9% at Arby’s, where $5+ sandwich offerings aren’t especially inexpensive in these belt-tightening times.
Indeed the lack of a “compelling value menu” is behind ongoing customer attrition, according to Morningstar analyst Joscelyn MacKay. Wendy’s was always well-known for its advertising, with founder Dave Thomas appearing in more than 800 commercials. January 1984, while most famous for its iconic Big Brother Apple (AAPL) ad whose one and only airing occurred on the 22nd of that month, also featured those adorable elderly ladies for the first time 12 days earlier. Investors are understandably asking themselves "Where’s the beef?" at the moment.
McFlation and Barricading the Drive-Thru provide related content.
No positions in stocks mentioned.
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