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Let's talk trash: 5 post-hurricane picks
Katrina left behind a record amount of debris. Waste disposal companies will clean up in more ways than one.
By Jim Jubak
Eighty million cubic yards of debris. That's the current estimate of the stuff -- garbage, tree limbs, furniture, carpeting, wallboard and siding -- that will have to be removed as a result of Hurricane Katrina. That figure is so large it's hard to get your mind around. The storm left twice as much debris as 1992's Hurricane Andrew, until Katrina the most expensive hurricane on record.
Picking up the debris is not the end of the job. It still has to be trucked off to landfills and dumped there, and that's where the big waste management companies come in. In the short run, picking up after Hurricane Katrina will add 20 cents a share to the earnings of waste disposal company Waste Management (WMI, news, msgs), for example. In the longer run, the effort to rebuild the Gulf Coast will result in more waste for the next 12 to 24 months.
The cleanups after Hurricane Andrew and 2004's Hurricane Ivan give investors a useful blueprint for estimating the added costs and, importantly, the boost to profits from the Katrina cleanup.
Early costs, then a revenue kick
In the early stages of the Andrew recovery, that storm meant added costs to waste disposal companies. And it will be the same with Katrina. Landfills have to be repaired and leachate -- water that percolates through or runs off landfills and is potentially contaminated with toxic materials -- has to be processed. Friedman, Billings, Ramsey estimates that Katrina could add 20% to leachate processing costs, which were running about $100,000 a year in the area hit by Katrina for a waste disposal company such as Waste Management. The short-term landfill repair bill could be $1.5 million, or less than 1% of the company's trailing 12-month revenue of $12.8 billion. Most waste disposal companies operating in the region will take a small hit to third-quarter earnings.
Extra revenue and earnings from the cleanup effort kick in after that -- and continue for 12 to 24 months. And right now it looks like cleaning up after Katrina will be more profitable for the waste disposal companies than was cleaning up after earlier hurricanes.
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In 2004, for example, the Federal Emergency Management Agency hired Waste Management to oversee the cleanup in Florida from that year's four hurricanes. Waste Management was directed to use municipal landfills, rather than its own private landfills, for the disposal of the majority of storm debris. That kept profit margins relatively low because the company saw revenue from carting the debris but not from using its own landfills for disposal.
More than municipal dumps can handle
There is more post-Katrina debris than damaged municipal landfills in the region can handle, so much more will go to the landfills owned and operated by the waste disposal companies that are already doing the carting. Revenue could easily double or triple from 2004 levels. Friedman, Billings, Ramsey estimates that each 2 million cubic yards of debris disposed of in one of Allied Waste's landfills is good for 2 cents a share in earnings. That's meaningful for a company expected to earn 36 cents this year.
The hurricane should also help the waste disposal industry with two long-term problems. Waste disposal companies have been trying -- with some difficulty -- to raise prices. The extra demand for disposal services and the squeeze on capacity caused by short-term damage to landfills should help firm up prices. Perversely, the spike in fuel prices that followed the hurricanes should also make it easier for waste disposal companies to force customers to pay fuel surcharges to offset the companies' own rising fuel costs. Because everybody knows fuel prices are up after the storms, customers expect to see higher fuel prices. It's just a cost of doing business.
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