Another take on the recent announcement:
FOCUS-Troubled Waste Management sees big Q3 charge
(Adds quotes from company spokesman, analyst) By Andrew Kelly
HOUSTON, Oct 22 (Reuters) - Waste Management Inc.<WMI.N>, the No. 1 U.S. garbage disposal firm beset by accounting problems and management turmoil, warned Friday that a major financial review would have a "material unfavorable impact" on its earnings.
The Wall Street Journal said the review could result in a charge of $1 billion against third quarter earnings but the company said it could not yet quantify the amount.
Waste Management's stock, hit hard by two profit warnings in July, fell sharply in early trading but later recovered and closed up 7/16 at 17-1/4. The shares are currently worth a little more than one quarter of their May 1999 peak of $60. Waste Management had already taken $3.8 billion in charges against its 1998 earnings in an attempt to straighten out its accounts and reflect the true value of its assets following a rapid series of acquisitions in recent years.
Recognizing it was still far from achieving that goal, it hired over 1,000 auditors to work on an exhaustive review in August.
"Preliminary findings indicate that the results of this review process are likely to have a material unfavorable impact on Waste Management's third quarter and year ending 1999," the company said in a statement.
Board Chairman Ralph Whitworth said he and his fellow directors were taking "swift and decisive" action to restore confidence in the company and create a firm foundation on which a new chief executive officer, yet to be appointed, could build.
CEO John Drury and Chief Operating Officer Rodney Proto resigned in August, a move which coincided with news that the U.S. Securities and Exchange Commission was looking into sales of stock by company insiders before a July 6 profit warning.
That profit warning triggered a 37 percent fall in the company's stock and on July 29 the stock fell 21 percent when the company again lowered its earnings expectations.
Whitworth said in August that the company would sell off all of its international assets and some of its North American assets, using the proceeds to pay down debt and buy back shares.
Company spokesman Bill Plunkett told Reuters that board members had interviewed several candidates for the position of CEO but had not set a deadline for an appointment.
"We want to go as quickly as possible in finding a new CEO but we want to make certain it's the right person," he said.
Stewart Scharf, an analyst with S&P Equity Group, said news of a big charge against third-quarter earnings had not surprised him because a major audit had been announced in August. A figure of $1 billion was "probably in the ballpark", he said.
Scharf said he was maintaining an "Avoid" rating on Waste Management stock, saying the company still had a lot of work to do to get back on track and restore investor confidence.
At current levels there was probably far less downside risk to holding the company's stock, Scharf said, but he added that he did not see much upside potential for the time being.
Aside from accounting and management problems, Scharf said he was "not overly optimistic" about garbage industry fundamentals.
"It still looks like a mature, slow-growth business that could be even further affected by economic weakness," he said.
Waste Management was acquired by USA Waste in a stock deal worth about $13.5 billion when it was announced in March of 1998. The merged company retained Waste Management's name, though it was USA Waste executives who ran it. |
