Accounting Woes Hurt Waste Management Profit
Waste Management Inc. acknowledged Friday that a massive audit of its dumps and garbage-collection operations found more accounting problems that will hurt its third-quarter and annual earnings.
But the nation’s largest trash hauler said the findings also will pave the way for a recovery from its multibillion-dollar troubles, and its shares rose modestly on Wall Street.
Analysts were not surprised by the preliminary audit results or by reports that the intensive examination will lead Waste Management to take a $1-billion charge against earnings when it releases third-quarter results and audit findings on Nov. 9.
“Hopefully this will be the last shoe to drop for Waste Management. There have been several in the last few months,” said Melville Cody, an analyst with Sanders Morris Mundy.
In early 1998, Oak Brook, Ill.-based Waste Management took a $3.54-billion pretax charge to correct years of shoddy accounting. The company was acquired later that year by Houston-based USA Waste Services Inc., which retained the Waste Management name in the $13.5-billion deal.
In June, the Houston-based company announced a $250-million revenue shortfall. A shake-up of top management followed in August, along with the acknowledgment of a federal insider-trading investigation.
“What we’re seeing today is an indictment of accounting at USA Waste,” said Doug Augenthaler, an analyst with CIBC World Markets Corp. “Basically, they’re just overpaying for assets.”
Candidates in Waste Management’s search for a chief executive have been briefed on its troubled past, company spokesman Bill Plunkett said. Outside board members have been running the company since the departure of John E. Drury, former chairman and CEO.
The board ordered the recent review--involving 1,160 auditors at a cost of $3 million a day--at its 1,200 facilities.
“When you’re going to take a bath, you’ve got to get all the way in,” acting Chairman Ralph V. Whitworth told the Wall Street Journal, which reported on the new problems Friday. “We want to deliver an absolutely pristine set of books to our new CEO.”
Analysts believe many of the company’s troubles stem from a failed acquisition strategy and cite the 1998 merger as the most obvious example.
“This is really a function of a troubled company--Waste Management--getting involved with a flawed company--USA--and creating a giant problem,” said Augenthaler. “Hopefully they’ll hire a good CEO and get their stock back on the road to recovery. But I think it’s going to be a long, hard road.”
Waste Management shares closed up 44 cents at $17.25 on the New York Stock Exchange.
