Owner-Oriented Investment Research and Commentary - Have a private comment or question? Email us at commonstocksense@gmail.com

Wednesday, February 24, 2010

Clean Harbors Again Disappoints - Still Not Enough Hazardous Waste

Briefly, following up on our waste services post yesterday, Clean Harbors (CLH) reported results and guidance that fell short of expectations (results here, Reuters summary here). The company cited lower utilization in its recently acquired Eveready unit, which is a Canadian-based business that "provides industrial maintenance and production, lodging, and exploration services to the oil and gas, chemical, pulp and paper, manufacturing and power generation industries". Pricing pressure was also a problem.

The company relayed the following in its release:
  • “While our EBITDA was 27% higher year-over-year due to the acquisition and the leverage within our network, several factors led to our EBITDA falling short of our guidance,” said McKim. “We ramped up our staffing levels at Eveready for the seasonally stronger fourth quarter. However, customer demand did not materialize as quickly as anticipated, resulting in lower billable utilization of our personnel and underutilization of Eveready’s fleet of specialized equipment. In addition, margins came under pressure from a highly competitive pricing environment.”
The stock isn't reacting kindly - from Google Finance:


Over the past year, we took a cautious view toward Clean Harbors and refrained from purchasing shares even though we believe the company owns/operates a high quality, near-impossible-to-replicate franchise. Our primary concern was weak fundamentals with potential downside to Market expectations that might also lead to multiple compression. Turns out that this was the right call. However, we're certain that whenever the economy rebounds, services offered Clean Harbors, including the oil/gas/commodity focused Eveready unit, will be in high demand with positive operating leverage returning to the company.

While many investors clamor for natural resource exposure in Canada or elsewhere (also impacted by slack demand), we might prefer to own Clean Harbors over the long haul. One side note is that we do have "natural resource" exposure through our ownership position in Harry Winston Diamond Corp. (HWD), which owns an interest in a Canadian diamond mine.

Although the bottom will be tough to catch, we suspect we have more time. We'll keep watching Clean Harbors as well as American Ecology (ECOL) while holding pat with our position in Casella Waste Systems (CWST).

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long CWST.

© 2010 Jeffrey Walkenhorst
Please see important Risk Factors & Disclaimer

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.