Solid waste management was initially thought to be the most recession-resistant segment of the environmental industry.
Surely even an economic downturn could not stem the tide of the millions of tons of garbage generated by Americans each year.
However, the first returns showing that a large environmental company was having trouble came from none other than Browning-Ferris Industries Inc. of Houston, the $3 billion refuse hauler and landfill operator.
BFI's 1990 fourth-quarter results were disappointing. Although revenue increased, the pretax margin fell from 18 percent to 15.6 percent, BFI's lowest level of profitability in years. Overall earnings for the quarter dropped 55 percent and the stock price plummeted more than 50 percent from its 52-week high of 49 1/4 . The stock hit a low of 20 3/8 in December and has subsequently rebounded a bit, closing January at 24 5/8 .
BFI's growth slowed primarily because of declining volumes of waste coming into its landfills, attributed partially to regulatory restrictions at facilities in Ohio and Minnesota, and to difficulties in obtaining permits in Los Angeles. Also cited is the impact that recycling and waste-to-energy plants are having on volumes of waste. But what has had a "clear-cut impact," in the words of corporate spokesman Peter Block, is the economic recession.
In its 1990 annual report, BFI states that commercial and industrial solid waste collection provided 58 percent of its revenues. The recession has affected these waste volumes the most. For example, Block points out that BFI has noticed a substantial drop in construction debris, which is unlikely to rise if housing starts remain low.
Residential solid waste collection represented only 17 percent of BFI's revenues last year, and these volumes have dropped much less than commercial and industrial solid waste. Recession resistance for an environmental company can clearly be a function of the diversity of its customer base. Processing and disposal of waste made up 16 percent of BFI's revenues in 1990, with the remaining 9 percent coming from special services.
BFI's relative revenue mix has changed little over the past five years, with the exception that its chemical waste collection and disposal division (which made up roughly 5 percent of revenues) was sold off in early 1990. Other companies in solid waste have not fared as badly as BFI, because the typical customer breakdown for large firms is nearer 60 percent commercial/industrial and 40 percent residential. Small firms usually depend mostly on residential waste and have not suffered too much yet either.
What does BFI plan to do to combat the effect of the recession? According to Block, the company will be "aggressive in marketing services for recovery of recycling materials." BFI contracts with municipalities to collect materials and then sells them to major manufacturers.
BFI's recycling collection program has expanded from 40,000 households two years ago to more than two million today.
The company doesn't see much opportunity in industrial recovery because the scrap business is well established. However, it certainly sees a "penetration opportunity" in high-grade reclaimed office paper, says Block. As with all recyclable materials, a commodity is only worth recycling if there is a demand for it. Since office paper is a good pulp substitute, the market for it is likely to remain solid.
Grant Ferrier is editor of the Environmental Business Journal, San Diego, Calif.