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Waste Management to Build New Plant

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Recently, Waste Management (WM - Analyst Report) has announced to set up the largest single stream recycling center in Cambridge, Ontario, by investing nearly $30 million. The recycling center is scheduled to begin its operations this fall and is expected to process up to 550,000 metric tones of material each year.

The material handling equipment inside the single stream recycling facility (SSRF) would enable the company to separate recyclable materials. This operation would thus spare the customers from the bother of having to segregate materials before collection. It would increase the volume of recyclable materials nearly by 20% to 30%.

The new plant would be utilizing new and advanced technology to separate and sort out residential and commercial materials like cardboard, paper, glass, plastic and metals. In addition, the magnets, screens and optical scanners of the new plant are also capable of sorting electronic equipment such as cell phones and computers as well as compact fluorescent light bulbs and batteries.

The recycling center would generate about 80 local green card jobs initially. The 126,000 square-feet plant at 505 Conestoga Blvd. has already been acquired by Waste Management and is scheduled for a retrofit.

The new center would probably be Ontario’s largest private sector recycling center and management is optimistic that it would support Ontario’s landfill goals with the setting up of this new plant.

Waste Management’s cost cutting efforts helped it maintain its profits despite weak volumes. In the recently reported third quarter, the company witnessed a $28 million benefit from its cost reduction initiatives. Management stated that it remains focused on its cost control measures.

However, the company’s margins were affected by higher fuel prices, deterioration in pricing across most business lines, particularly residential. We further expect margin deterioration to continue due to the impact of integration of Oakleaf in July 2011 and continued customer churn.

In addition, paper commodities, namely old corrugated containers and old newsprint, have declined sharply. Waste Management may face significant headwinds if such a trend continues along with increased pricing pressure as municipalities cut expenses in the face of budget shortfalls. According to management, a $10/ton drop in average price would impact EPS by about $0.01 for the full year. Furthermore, the fourth quarter also faces a headwind from the loss of a large contract in South Florida.

Currently, the shares of Waste Management retain Zacks #4 Rank (short-term “Sell” recommendation). It has announced to release its earnings of fourth quarter and full year 2011 on February 16, 2011, before the market opens. It competes with Republic Services, Inc. (RSG - Analyst Report) and Casella Waste Systems Inc. ((CWST - Snapshot Report).

Based in Houston, Texas, Waste Management Inc. is the largest provider of comprehensive waste management services in North America. The company provides collection, transfer, recycling and resource recovery, as well as disposal services to nearly 20 million residential, commercial, industrial and municipal customers. It is also a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the U.S.

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