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S&P Optimistic About Waste Services Sector

Date: March 29, 2008

Source: Standard & Poor’s

Investment rating agency Standard & Poor's recently reiterated its confidence in the waste management sector, projecting that per share earnings will rise 8% to 10% in 2008. The recession resistant nature of the business and its ability to generate strong cash flow makes it a defensive play in uncertain financial markets. Continued pricing discipline should more than offset any volume loss due to lower construction business. At the same time, fuel surcharges, contract cost escalators and hedging programs should outpace actual cost increases especially if oil prices decline slightly as expected. Companies are expanding margins by sacrificing market share in favor of higher margin business, divesting of low-margin assets and routes while enhancing customer service to stem attrition.

The companies are also controlling costs through improved vehicle maintenance, fleet upgrades, and worker safety programs which have also helped lower medical and insurance costs. Other efficiencies are coming from higher internalization rates which result from improved asset utilization, strategic tuck-in acquisitions and improved route planning. Over the longer term, landfill gas to energy programs will pay handsomer dividends.

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