Answering the tough questions

Features - Investment Report

CEOs from the largest public and private waste and recycling firms candidly discuss the industry.

June 6, 2017
Kristin Smith
© Professor25 | Thinkstock

The fifth annual Waste360 Investor Summit, May 8, 2017, in New Orleans, held in conjunction with WasteExpo at the Earnest N. Morial Convention Center, drew hundreds of attendees interested in learning about the growth strategies of some of the top waste and recycling firms in the country.

Organized by WasteExpo and sponsored by Stifel Financial Corp., St. Louis, the day included a host of executive interviews by Michael Hoffman, a 28-year Wall Street veteran, who wasn’t shy about asking tough questions, from how Waste Connections’ acquisition of Progressive Waste is going to whether Casella Waste Systems plans to sell and if it is true that the big waste management firms all want to bury the material they collect in landfills.

DOWN TO BUSINESS

Waste Connections, The Woodlands, Texas, acquired Progressive Waste Solutions, Toronto, in June 2016, doubling its size and making it the second largest waste firm in North America and the third largest in the U.S.

Regarding how the purchase and integration of Progressive is going nearly 11 months later, Waste Connections CEO Ronald Mittelstaedt told Hoffman, “Fortunately most things have come out a little better than we thought.”

He said prices were doing much better at north of 3 percent and safety has improved by 65 percent in 11 months. “Most things have gotten materially better and gotten better than we thought,” Mittelstaedt said.

He said “the condition of the fleet” was worse than expected. Progressive’s fleet was in poor condition, Mittelstaedt added, and continued to be a challenge for Waste Connections, referencing “a lot of wrong applications.”

He also addressed the company’s data acquisition and use, saying, “We gather lot of data; we use a little of it.” Waste Connections eliminated 80 percent of the data that Progressive was collecting because, Mittelstaedt said, employees were “gathering data to gather data.”

“You cannot have your frontline people measuring 200 things a day. You need to have intense focus on 10 pieces,” said Mittelstaedt.

When Hoffman addressed the team of CEO John Casella, Chief Operating Officer Edwin Johnson and Chief Financial Officer Ned Coletta from Casella Waste Systems, Rutland, Vermont, asking them about their future plans for the company, he was informed that two or three paths could be taken, including sale, modest growth or much larger growth.

“For Casella there is a tremendous number of opportunities in terms of direction,” he was told.

GETTING CALLED OUT

Republic Services, Phoenix, disputed an earlier claim made by Atlanta-based Rubicon Global CEO Nate Morris that “bigger [waste management] companies are geared toward landfill,” saying where the waste goes depends on the customer’s needs. “You need landfills, but we are growing recycling faster than our solid waste. It helps meet their needs. I reject this hypothesis,” a Republic Services representative said.

That sentiment was echoed during the CEO panel that included Richard Burke, CEO of Advanced Disposal, Ponte Vedra, Florida; Steve Jones, CEO of Covanta Holdings, Morristown, New Jersey; Waste Connections’ Mittelstaedt; and Jim Fish, CEO of Waste Management (WM), Houston.

Fish said that if the statement implied WM was married to its assets, at 30 percent margins, “I am OK with our marriage at this point.” He added that WM had experienced volatility with its recycling business that landfills did not have.

“Once we derisk the business, I am agnostic as to whether [material] goes to a landfill or a recycling plant,” Fish said.

Mittelstaedt said recycling is not as prevalent in other states as it is in California, New York, Florida, New Jersey, Washington and Oregon.

“We’re not seeing the clamoring in Nebraska that we are in California and New York. It is a very state issue and a very local issue,” he said. “We don’t feel like we have to shape the conversations. At the end of the day, the customer decides where [it wants] volume to go.”

Fish said WM has renegotiated 90 percent of its contracts to minimize risk, adding that fewer companies are responding to requests for proposals (RFPs).

“If no one shows up, something must be wrong with the model,” he said.

“We think it is a good business for the environment, but it has to be a good business. We aren’t in it for charity.”

ROOM FOR IMPROVEMENT

The CEO panel also addressed the topic of safety and trucks equipped with technology. On-board cameras are helping to identify common issues that drivers are experiencing and helping to change bad habits before an accident or injury occurs, according to Burke.

Fish says cameras can exonerate drivers in some cases.

“Once we derisk the business, I am agnostic as to whether [material] goes to a landfill or a recycling plant.” – Jim Fish, CEO, Waste Management

Additionally, truck cameras are helping with what Fish described as “predictive safety.” By looking at data, one can predict the likelihood that driver A is going to have a backing accident within 60 days and get him or her backing training. “If I am wrong, [the driver is] going to have some backing training. If I am right, I might have saved a life. It is good for us and whole industry as we think about safety,” he said.

Because of the number of accidents to date in 2017, Hoffman said the industry could be the third most dangerous in the U.S. by the end of the year. “What is the message we need to get across?”

Burke said, “As leaders, we need to make sure nothing is more important than the safety of your people.” He said this should be more important than productivity or adding customers. “Service first, safety always,” Burke said. “If we don’t have a safe process and well-trained drivers, we shouldn’t be putting them out on the street. We don’t want to be ranked where we are ranked; we don’t want to be on that list.”

“At the end of the day, safety is about leadership and what responsibility you have to your people,” said Mittelstaedt. He alluded to Progressive’s safety record, saying, despite its safety slogans, it had 31 fatalities in 48 months and 1 in 2 employees had an accident or injury in 12 months.

“A lot of times, we as leaders want to try to hold our frontline people accountable, when in reality there is a reason for accidents and injuries.” He said public and private firms and municipalities must better ensure employees’ safety.

The author is editor of Waste Today magazine and can be reached at ksmith@gie.net.