We’re rich. We have less than 4,000 people living here and we have millions of dollars in the bank.
- Town Administrator, Fox Township Pennsylvania
It’s tough to imagine in this economic climate, but some small towns are getting rich.
That may be a surprise. After all, dozens of state and local governments are broke and on the verge of being downgraded to “junk” status. State pension funds have been decimated. A few pundits have even predicted state and local governments’ debt loads may trigger the next phase in the credit crisis.
However, that’s not a problem in
Few people grow up dreaming of getting wealthy in the trash business, but trash is a quietly profitable business that is holding steady during the recession.
When people lose their jobs and feel insecure about their futures, they often change their habits. They may shop less, dine out less, postpone big-ticket purchases, etc., but one thing they don’t stop doing is throwing things away.
I know what you’re thinking. Many of the stocks that have recently been touted as “recession proof” have been crushed, along with the rest of the market. Pawnshops, alcohol manufacturers, and gambling hubs have suffered right along with the junior mining stocks and the banks. However, waste management is a ravenous monster that is always growing.
The $52 billion waste management market is dominated by the “Big Three”: Waste Management (WMI), Allied Waste (AW), and Republic Services (NYSE:RSG). Together, they take out 45% of
There are two main components of the waste management industry: garbage removal and landfill.
Removing the garbage (from your home or a construction site) has thin margins and is subject to labor issues. It’s a respectable business, but nothing to get excited about.
Landfills are the enticing part of the business. It’s highly profitable and the barriers to entry are high. Landfill permits are notoriously difficult to get, and NIMBY factors can stretch that process to 10 years.
The Big Three waste management companies own several landfills. In fact, they own nearly two-thirds of the landfills in the country. That means other companies have to pay them fees to dump in their landfills. With a going rate of between $20 and $40 per ton, (costs can vary greatly depending on local laws) the revenue is significant.
Landfills generate the big profits in the waste management industry. Landfills account for only 35% of the Big Three’s revenues, but almost half of their operating profits.
No business is completely recession proof, but the waste management industry has a lot less exposure to economic fluctuations than most others do. About 16% of Waste Management’s revenues come from “roll-off activity.” Roll offs are the big containers you see at construction sites and outside factories.
With new building permits in the U.S down 38% from the previous year, the “roll off” revenue is going to be squeezed. However, Waste Management is still going to be picking up garbage from private residences and trucking it to its own landfills.
In the last two years, Waste Management has managed to increase core pricing 11%. With fuel costs unexpectedly declining, that extra revenue goes straight to the bottom line.