Earnings Preview: Waste Management

OVERVIEW: The Houston-based company's first-quarter results are expected to show what effect if any the U.S. economic downturn is having on earnings.

Shares of many companies in the waste sector have dropped recently on fears a drop in volume would hurt collection and landfill rates.

Higher fuel prices have also caused concern, with diesel prices sitting near all-time highs.

Fellow sector member Waste Connections Inc. was able to post a 3.3 percent jump in first-quarter profit, partly because of higher pricing. Waste Management also raised prices during the period.

Elsewhere in the sector, Allied Waste Industries Inc. is set to post quarterly results Wednesday.

BY THE NUMBERS: Analysts polled by Thomson Financial expect, on average, Waste Management to post first-quarter earnings of 46 cents per share on revenue of $3.20 billion. In the year-ago period, the company posted profit of 42 cents per share on revenue of $3.19 billion.

ANALYST TAKE: FBR Capital Markets analyst Brian J. Butler said Waste Management's recent improvements to margins and return on investment capital are sustainable, and he reiterated an "Outperform" rating.

Butler expects first-quarter revenue to drop 0.5 percent to $3.17 billion but earnings to jump to 47 cents per share. Prices grew an average of 2.5 percent at the company during the period, he said.

Margins may be pressured as the company relies on surcharges to counteract rising fuel costs, he said.