Friday, May 11, 2012

Progressive Waste Solutions Ltd

I own this stock (TSX-BIN, NYSE-BIN). I first bought this company as BFI Canada Income Fund (TSX-BFC.UN) in 2007. I bought some more after the stock price went down in 2010. I have lost some 2.2% per year on this stock. Or, the stock price is down some 14%. It is because of dividends of approximately 3% per year that I have not lost more.

The company changed from BFI Canada Income Fund (TSX-BFC.UN) in October 2008 to BFI Canada (TSX-BFC). This was a change from an Income Trust to a corporation. In June 2009, the company changed to IESI-BFC Ltd (TSX-BIN). The company was known as IESI in US and BFC in Canada. In May 2011 the company changed to Progressive Waste Solutions Ltd (TSX-BIN). This is all very confusing if you are trying to track a company. The company also changed their reporting to US$ and their accounting rules to US GAAP (from CDN GAAP) in 2009.

When they changed from an Income Trust to a corporation they decreased their dividends by 72% between 2009 and 2010 and changed dividend payments from monthly to quarterly (cycle 1). The decrease in dividends improved their Dividend Payout Ratios. As an Income Trust they were paying over 260% of earnings in distributions. Last year the DPR for earnings was 66%, this year’s is 48% (using adjusted EPS) and next year’s is expected to be 49%.

The DPR for cash flow was never so high, coming in at around 50% when it was an income trust. Last year the DPR for cash flow was 21%, this year’s is 16% and next year’s is expected to be 35%. One of the things that the old Income Trust companies had to do was bring their DPRs in line with corporation.

If you look at dividend growth over the past 5 and 10 years, you will see that dividends are down 20% per year over the past 5 years and down 4.4% over the past 10 years. This may not look good, but the fact is that a lot of Income Trust companies had to reduce their dividends. They had a good record of dividend increases prior to their change to a corporation. Also, they raised their dividends 12% in 2011.

Another thing to mention about this company is that a number of analysts look at what they call “Adjusted” net income and EPS. For 2011 they had a net income loss. However, most of this loss was due to non-cash goodwill impairment charge related to their U.S. northeast operations. I do not usually use such things, but sometimes you must to make sense of what is really happening on a stock.

When I look at total return over the past 5 and 10 years on this company I find that total returns are down 1.7% per year over the past 5 years, but up 17% over the past 10 years. The dividend portion of total returns over the past 5 and 10 years is at 4.5% and 9.9% per year. Capital gain over the past 5 and 10 years is negative 6.2% and positive 7.1% per year respectively.

All gains over the past 5 years were in dividends. Over the past 10 years, some 54% of the total return was in dividends. However, the current dividend yield is just 2.6%. Going forward you should only expect the dividend portion of the total return to be in the 2 to 3% range. Corporations have lower dividend yields than the old Income Trust companies.

Generally speaking the company has had better growth over the past 10 years than the past 5 years. This is typical of a lot of companies at the present time. Revenue per share growth is just 2% per year over the past 5 years, but 12% per year over the past 10 years.

For EPS, if you use the adjusted EPS for 2011, earnings are up 13% and 15% per year over the past 5 and 10 years. Cash flow is up 0% over past 5 years, but up 13.5% over past 10 years. Book Value is a different story, as it is down 3% per year over past 5 years and only up 2.4% per year over the past 10 years. Income Trust companies had little if any growth in book value and generally it when down. This is because Income Trust companies paid out too much in distributions. This company used to be an Income Trust.

As far as debt ratios goes, the current Liquidity Ratio is rather low at 0.88. It means that current assets cannot cover current liabilities. However, the company has a good cash flow. The current Debt Ratio is quite good at 1.72. The current Leverage and Debt/Equity Ratios are fine at 2.38 and 1.38.

The Return on Equity, if you use the adjusted net income the ROE for 2011 is 10.2%. If you use the one from the statements it is a negative 14.9%. The ROE based on comprehensive income is a negative 16.5%, which is not far off the one based on net income. This company has had historically quite low ROEs running around 5 to 6%.

For the first quarter of 2012, the company’s EPS came in lower than analyst had expected and they have lowered their EPS estimates for 2012, but kept the same ones for 2013. The company said that they expected lower EPS for the first quarter. See G&M article. David Berman points out in a G&M Article how recessions are bad for garbage companies.

I will hold on to the shares of this company that I have as I expect that it will do better when the economy picks up.

They are a full-service waste management company providing non-hazardous solid waste collection and landfill disposal services for municipal, commercial, industrial and residential customers in five provinces and ten US states. Two-thirds of their business is in US. The fund operates through its subsidiaries. Five companies control almost 53% of this company. There are also 11M special shares outstanding. Its web site is here Progressive Waste. See my spreadsheet at bin.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.


  1. Very interesting but under what circumstances would you sell the stock?

  2. Under what circumstances will I sell it? Generally I sell a stock when I see that they have problems which they will not be fixing anytime soon. I think this company will recover with the economy, but if it does not, I will take another look at it.

    I worry much more about cash flow then earnings. EPS is rather a fake figure. I like it that the Cash Flow per Share (CFPS) is higher than the Earnings per Share (EPS). They obviously have hope in future income as they raised the dividend 12% in 2011. It would be a bad sign if they lowered it again, or if the Dividend Payout Ratio for CFPS got too high. Industrial type companies should not have a DPR for CFPS sustained at over 40%.

    I know that analysts get upset if a company does not meet their earnings estimate. If there is any consistency in analyst estimates is that they have been wrong. Analysts tend to over or under estimates earnings. Humans are really bad at predicting the future. However, I do look at them and use them because it is all we have.

    At the moment, I am not worried about this company.

    Hopes this answers your question.