美國廢棄物管理公司 (WM) 2009 Q3 法說會逐字稿

Good morning. My name is Nicholle, and I will be your conference operator today. At this time I would like to welcome everyone to the Waste Management third quarter 2009 earnings release. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions).

I would now like to turn the call over to Jim Alderson, Director, Investor Relations. Thank you. Mr. Alderson, you may begin your conference.

Thank you, Nicholle. Good morning, everyone, and thank you for joining us for our third quarter 2009 earnings conference call. With me this morning are David Steiner, Chief Executive Officer; Larry O'Donnell, President and Chief Operating Officer; and Bob Simpson, Senior Vice President and Chief Financial Officer. David will start things off with a summary of the financial results for the quarter and a review of the details of our revenue growth, including price and volume trends. Larry will discuss operating costs and Bob will cover the financial statements. We will conclude with questions and answers. During their statements, any comparisons made by David, Bob, or Larry unless otherwise stated will be with the third quarter of 2008.

Before we get started, let me remind you in addition to our press release that was issued this morning, we have filed a Form 8-K that includes the press release as an attachment and is available on our website at WM.com. The Form 8-K, the press release, and the schedules to the release include important information that you should refer to. We have given detailed information on all of the non-GAAP measures that will be discussed on this morning's call and have reconciled them to the most comparable GAAP measure, and you can find that information in the schedules to the earnings press release and the Form 8-K filed today, which can be found on the company's website at WM.com.

Additionally, during the call you will hear certain forward-looking statements concerning our plans and expectations for the fourth quarter and full year 2009. Actual results could differ materially from our plans and expectations. Certain factors related to future expectations are detailed in our press release this morning and in our filings with the Securities & Exchange Commission, including the Form 10-K filed for 2008.

This call is being recorded and will be available 24 hours a day beginning at approximately 1 PM Eastern Time today until 5 PM Eastern Time on November 12th. To hear a replay of the call over the internet, access the Waste Management website at WM.com. To hear a telephonic replay of the call, dial 800-642-1687 and enter the reservation code 3006451. Time sensitive information given during the course of today's call, which is occurring on October 29, 2009, may no longer be accurate at the time of a replay. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Waste Management is prohibited.

Now I will turn the call over to Waste Management's CEO, David Steiner.

Thanks, Jim. Good morning from Houston. When we look at the quarter, we see that our core solid waste operations continue to benefit from our pricing and cost programs. Our success is proven by the fact that despite an 8.9% decline in volume, our operational earnings were flat year-over-year. In other words, if we start with $0.54 as adjusted and add back $0.09 of nonoperational impacts from our recycling and waste to energy operations mentioned in our press release, we would have matched as adjusted prior year earnings -- again, despite volume losses of 8.9%. This shows the strength of our core operating model, which focuses on pricing and operational excellence.

We would expect the fourth quarter of this year to follow a similar pattern. Our pricing and cost programs will make up for volume losses, but we shouldn't see a significant drag from those nonoperational items, with year-over-year declines in our waste to energy business likely being offset by year-over-year benefits in our recycling operations. Consequently, we're competent that we can meet the current Wall Street consensus of $0.48 per diluted share in the fourth quarter.

I am pleased that we achieved solid third quarter results, given this challenging economic environment. We maintained our focus on pricing and achieved internal revenue growth from yield on our collection and disposal business of 2.9%. We realized the full benefit of our reorganization announced in February and are on pace to exceed our original target of $120 million in annualized savings. We increased productivity in our rolloff and residential collection lines of business. We have seen some positive signs on the macroeconomic front, with recycling commodity prices increasing each month since the lows reached in January. Natural gas prices, which affect the electricity sales at some of our waste energy plants, have rebounded well in the last two months. Collection and disposal volumes have stabilized, which should lead to slightly better year-over-year volume comparisons beginning in the fourth quarter of this year and continuing into 2010.

Looking at revenue, in the third quarter, revenue declined by $502 million. Most of the decline was a result of items that do not relate to our solid waste collection and disposal operations. $189 million of the decline was due to recycling revenues and electricity sales prices. $108 million was related to the decline in fuel surcharge revenue as oil prices declined. $10 million was related to foreign currency translation. This leaves a third quarter 2009 revenue decline related to our solid waste collection and disposal business of about $195 million or approximately 5.5% of revenue.

Pricing continued to be strong and consistent. Internal revenue growth from collection and disposal yields in the third quarter was 2.9%. Internal revenue growth from yields was strongest in the three collection lines of business. Combined, the revenue growth from yield in the industrial, commercial, and residential lines of our collection business was 3.9% in the third quarter. We again produced our strongest results in our commercial collection line of business, where internal revenue growth from yield was 4.4% in the quarter. The yield components of internal revenue growth in our industrial and residential lines of business were 3.8% and 3.5% respectively.

Internal revenue growth from volumes declined 8.9% in the quarter. The recession resistant lines of our business, namely commercial and residential collection, saw volume declines of 5.3% and 3.7%, similar to what we have seen in recent quarters. In our more economically sensitive rolloff line of business, volumes were off 18.2%. Despite lower volumes, we maintained our focus on rolloff pricing, which resulted in revenue growth from yield of 3.8% for the quarter. We continued to work to obtain price increases in our rolloff line despite lower volumes. Certainly we will continue that strategy. Overall, we expanded our income from operations margin in the collection line of business by 200 basis points.

Turning to yield and volume on the disposal side of the business, third quarter 2009 internal revenue growth from volume decreased by 19.7%. The softness occurred primarily in our more economically sensitive special waste and C&D lines. Internal revenue growth from volume for special waste was negative 20.5%, and for C&D, it was negative 25.8%. For MSW, internal revenue growth from volume was negative 6.3%. On the pricing front, pricing was strongest in our MSW line, with per unit pricing up by 2.9%. Again, we will maintain our focus on MSW pricing despite the lower volumes.

The recycling markets have shown significant improvements since January of this year, with commodity pricing rising on average over 80% between January and September. Even with this improvement, however, average commodity prices were down approximately 40% in the third quarter of 2009. This decline in commodity prices caused a negative year-over-year impact to earnings of $0.05 per diluted share in the third quarter of 2009, consistent with our expectations. For the fourth quarter of 2009, we're anticipating a positive impact to earnings per diluted share of $0.02 to $0.04 in our recycling line of business as we anniversary the steep declines in commodity price that is occurred during the fourth quarter of 2008.

At our waste to energy operation, we anticipate a negative impact from electricity sales prices of between $0.02 and $0.04 during the fourth quarter of 2009. While natural gas prices have increased over 150% from the lows reached in September, we expect Q4 2009 prices to be lower on average than Q4 2008 prices by approximately 30%. In addition, the percentage of power sold on a merchant basis increased to 43% during the third quarter. On a combined basis, we anticipate that our recycling commodity and electricity sales will offset each other for a net break even impact in the fourth quarter of 2009.

As we look to the fourth quarter, we anticipate that year-over-year volume comparisons should start to improve. However, we will face some headwinds due to the volumes we received during the fourth quarter of 2008 and the aftermath of Hurricane Ike when increased internal revenue growth from volumes for disposal by 250 basis points and for collection and disposal by 40 basis points. So, looking at overall volumes for the fourth quarter, we expect the rate of decline to be slightly better than the third quarter of 2009. Given our assumptions, we remain confident that our full year as adjusted earnings will fall within our previously announced range of $1.95 to $1.99 per diluted share. This is consistent with the current Wall Street consensus of $0.48 per share for the fourth quarter of 2009.

As you all know, our capital allocation program over the past few years has been very clear -- return cash to our shareholders through dividends and share repurchases while opportunistically acquiring assets. We resumed our share repurchase program during the third quarter, and as of today we repurchased over $100 million of our common stock for the year. In the quarter, we paid $143 million in dividends, and we closed on $82 million of acquisitions primarily in our collection line of business that will add about $53 million of annualized revenue and we continue to see good acquisition opportunities. It is truly an exciting time to be at Waste Management, and we look forward to entering 2010 with a momentum that we expect to build throughout the year.

With that, I will turn the call over to Larry.

Thank you, David. Good morning.

I will begin by reviewing our operating cost results for the third quarter of 2009. Operating expenses in the third quarter of 2009 were $1.856 billion or 61.4% of revenue, an improvement of $365 million from the third quarter of 2008 or 160 basis points as a percent of revenue. This is another strong performance given the year-over-year decline in revenue. The cost reduction is due primarily to three factors. First, flexing down costs and executing our restructuring plan that we put in place at the beginning of the year. Second, lower recycling commodity prices, which resulted in lower rebates we paid to our customers. And third lower fuel costs from the decline in diesel fuel prices.

I continue to be pleased with the way our team has actively managed down our operating costs during these tough economic conditions. Our new organizational structure that we implemented at the beginning of the year has enabled us to quickly react to the lower volumes by flexing down our costs while continuing our operational improvements in the areas of safety, fleet maintenance, productivity, and service to our customers. I believe we're in a great position to leverage our cost structure as the economy recovers.

I will now review our performance in the third quarter of 2009 compared with the prior year period in a number of the cost categories. Labor and employee benefits costs improved by $59 million in the quarter. $21 million of this improvement relates to costs incurred in the third quarter last year in a labor action in Milwaukee, Wisconsin, with most of that cost related to the withdrawal from the Teamsters underfunded Central States Pension Fund.

The remainder of this improvement results primarily from reducing routes in reaction to the volume decline, achieving productivity improvements, and labor cost savings that resulted from our restructuring that we implemented at the beginning of the year. We reduced our driver hours by about 915,000 hours by taking trucks off the road as volumes declined, using our routing tool to rebuild more efficient routes, and achieving continued productivity improvements. Transfer and disposal expenses, which include those costs that our selection companies pay to third party landfills and transfer stations, improved by $32 million, primarily due to volume decline and our continued focus on managing down our third party disposal costs.

We lowered our maintenance and repair costs in total by $13 million in the third quarter of 2009 compared to the prior year period as a result of continued reduction in collection truck and heavy equipment fleet maintenance. With the lower volumes, we've parked trucks and we've taken heavy equipment out of service. We've also adjusted our operating hours at our landfills and transfer stations. Our standardized per minute of maintenance program has also contributed to the reduction in our fleet maintenance costs.

Subcontractor costs improved by $59 million in the third quarter of 2009, due to using fewer third party contractors as a result of lower volumes, negotiating down our third party transportation costs, and decreases in the indirect fuel costs passed onto us by our subcontract haulers as a result of lower diesel fuel prices. Cost of goods sold decreased by $103 million, principally due to the reduction of recycling commodity rebates we paid to our recycling customers as a result of lower recycling commodity prices. We also benefited from the implementation of our new recycling pricing and rebate program that is designed to allow us to recover our processing costs and earn a return on our investment before we share the upside on commodity prices with customers.

We lowered our direct fuel costs by approximately $95 million compared to the third quarter of 2008 as a result of lower diesel fuel prices and using less fuel as volumes declined. The average diesel fuel price was $1.72 lower per gallon in the third quarter of 2009 compared to the same period last year. Indirect fuel costs charged to us by our subcontract transfer station haulers declined by approximately $12 million. As I mentioned in the past, our fuel surcharge program continues to keep pace with changes in our direct and indirect diesel fuel costs over time.

Everything we have accomplished with our restructuring has enabled us to become even more proactive in managing our costs and efficiently adjusting our operations to match our volumes. This will serve us well as we head into the winter months. I would like to congratulate our team for the outstanding job they continue to do in a very tough economic environment. We expect the momentum we have created to continue into the fourth quarter and into 2010, and we are well-positioned to leverage our cost structure as the economy recovers. With that, I will turn the call over to Bob.

Thank you, Larry. I would like to start out by discussing SG&A costs. These costs decreased by $30 million to $339 million during the third quarter of 2009. This decrease is due primarily to labor cost savings that resulted from our restructuring announced in February of this year. Also contributing to the decrease are lower long term incentive plan expenses, lower bad debt expenses and reductions in advertising and travel expenses resulting from our focus on cost control. Bad debt expense decreased by almost $4 million per the quarter and our day sales outstanding were essentially flat. We believe that this is a good result, particularly given the economy, and we will continue managing all of our receivables very closely.

Depreciation and amortization expense for the third quarter of 2009 declined $25 million when compared with the third quarter of 2008, principally as a result of lower landfill volumes. As a percentage of revenue, depreciation, and amortization expense was 10% compared with 9.2% in the prior year quarter, with the increase primarily due to the decline in revenue. Our interest expense declined in the third quarter year-over-year by $10 million, primarily due to lower interest rates as well as lower debt levels. Our debt to total capital ratio is 55.8%, well below our target ratio of 60%. The floating rate portion of our total debt portfolio was 28% at the end of the quarter.

Moving to income taxes, in the third quarter of 2009, our effective tax rate was approximately 31.2%. The decrease in our tax rate is primarily the result of the finalization of our 2008 tax return and favorable tax audit settlements. It was also impacted by the recognition of state net operating losses previously unrecognized, as well as updating our effective tax rate. We expect our fourth quarter 2009 effective tax rate to be 36.8%.

Turning to cash flow, third quarter 2009 net cash provided by operating activities was $575 million. Our capital expenditures for the quarter were about $240 million, a decrease of $61 million compared with the prior year period. Our free cash flow for the quarter was approximately $343 million and our free cash flow for the first three quarters is $839 million. In order to meet our full year free cash flow target of $1.3 billion, during the fourth quarter of 2009 we will need to produce strong income from operations and closely manage our working capital and capital expenditures. We paid $143 million in dividends in the quarter and repurchased as of today over $100 million of our common stock this year. Our dividend yield is currently 3.8%. It takes each and every employee to be engaged in servicing our customers every day to be successful, and again, this quarter, our employees have met the test. We thank them for their dedication.

With that, Nicholle, let's open the line for questions.

(Operator Instructions). Your first question comes from the line of Richard Skidmore with Goldman Sachs.

Good morning. Thank you.

Good morning.

Perhaps you can just elaborate a little bit more on your use of free cash flow between now and the end of the year and also the free cash flow guidance? Seems like a pretty big step up in it is fourth quarter versus what you have been doing over the last couple of quarters. Can you just elaborate on how you expect you can get to the $460 million you need to hit your target?

Richard, it is going to take a good conversion ratio on our income from operations turning it into cash. We typically in the fourth quarter over the last few years have been between 120% and 130% of converting our income from operations and cash from ops, and then we just got to be really tight on working capital and CapEx. We expect it to be a challenge, but we think it is something that is achievable.

And then just on the share repurchase, I thought I understood that the plan was for $400 million of share repurchase by year end 2009. Is that still the target or was I just mistaken?

We were authorized to do $400 million. Managing our cash in this environment is important to us, so we haven't gone in as aggressively as we might. I think we're on a pace right now to do 250 million to 300 million shares, probably closer to 250 million -- but if circumstances present a real opportunity, we would certainly increase that. But we do to want look to continue to look for acquisitions and other opportunities as well.

Thank you.

Your next question comes from the line of Vance Edelson with Morgan Stanley.

Thanks a lot. Could you just provide some color around how easy it is to raise prices, how competitive is the environment? Are customers very receptive to that, and what gives the commercial business particular strength there?

Vance, I wouldn't say that there has been a dramatic change. You would expect there to be a dramatic change maybe with what the economy has gone through in the last year, but frankly we haven't seen a dramatic change in our ability to continue to raise prices. On the commercial side, I think a good portion of it is that we provide certainly the best service in the industry. But also when you're getting a 4.4% price increase on a fairly low base with that average customer being somewhere in $300 to $500, it doesn't appear as such a large price increase. So you all have heard me say it hundreds of times -- it is not just as simple as putting out a 4.4% price increase across the board and hoping that it sticks. There is a science to pricing, and we have a group here that applies that science better than anyone, so we certainly expect to keep that price even if the economy continues to be weak, and we expect it to accelerate if the economy gets better.

Okay. That's great. And then just on the cost side, since you're exceeding the target of $120 million in annualized savings, should we expect more going forward? Maybe just remind us where you are in the overall process of becoming more efficient in reducing those costs.

We have been running about $10 million a month. We saw a little bit more than that in this last quarter, but we still think we're going to continue on that same pace. We'll slightly exceed our original target, but we continue to look for ways to drive out even additional costs as we go forward.

Vance, it is important to think of it as two types of costs. There is the restructuring cost of $120 million which we took out, and that's out permanently, and then there is the other cost we got from flexing down. And while most of the flexing down came through in operating expenses, there was some of that in SG&A as well. So I think it is just a matter of keeping those two buckets separate in your mind.

I would add lastly, Vance, that it is interesting that as you go out and talk with folks in the field, generally at this time of year when they see the seasonal downturn coming, they're a little bit slow to react because they want to make sure that they can cover volumes. After what we saw last year where like everybody else our volumes fell off dramatically in October, what we're seeing this year is our field is starting to flex down costs anticipating the seasonal downturn. So I think Bob and Larry are exactly right. We have hit that cost category in every direction and we continue that. We expect that to continue.

Okay. That's very helpful. Thanks, guys.

Thanks, Vince.

Your next question comes from the line of Michael Hoffman with Wunderlich Securities.

Good morning, Michael.

How are you all?

Good.

Seasonality, didn't have as much in the third, but you always get some down in the fourth. S we should think about revenues are going to be down sequentially as part of this model, right?

Certainly we do expect that, yes.

Okay. On the recycling side, it was just about this time a year ago that the Chinese just pulled the plug. It is all about consumer electronics. Any sort of visibility through your brokerage business or anything on how the Chinese are behaving? And I realize you have given us guidance that it is going to offset, but what gives you confidence the Chinese just don't pull the plug again?

Well, what we have seen ever since the lows in January is we have seen continued increases in the commodity prices. We saw OCC pull back just a little bit in October, but it wasn't that much. I guess anything can happen, but we certainly think that we'll continue to see improvement out of our recycling operations, just like we have said in our press release and in our remarks.

Okay.

Michael, I think China is certainly driven by the macroeconomic factors in China, and I certainly haven't seen anything that would indicate that the pace of growth in China is going to slow.

Okay. That's good to know, too. Plugging in on the volume issue, do you have a dollar amount that -- reflected in the fourth quarter, and because as you think about doing your modeling, if you pull Ike out and have a normalized, what would the change be?

Michael, as we said it was 250 basis points of volume at the landfills, and 40 basis points of volume at the overall collection and disposal line. We didn't translate that into dollars. Basically what we're seeing right now is that the volumes through October are fairly consistent with what they have been in the third quarter. Where we're going to get the volumes, as we said, slightly improved the rate of decline in the fourth quarter, is because again last year just like commodity prices dropped off the face of the earth in October, volumes dropped off the face of the earth in October. So the comps get much easier going forward. So what we have seen so far frankly has been fairly consistent with what we've seen through the rest of the year, but November and December, clearly volumes should -- if they continue what we have seen through the quarter flat throughout the last 18 to 20 weeks -- if they continue with that and have a normal seasonal downturn, they should be much better than they were in November and December last year.

Okay. And then on the waste energy business, the model so far on the merchant has been to sell on a day rate basis. Is that changing with regards to trying to capture even if it is out six or nine months a little bit of that forward curve? Because there is pretty good contango going on.

Yes, and we have not looked at locking in those yet, Michael. We wanted to see the natural gas prices. They're up 150% off their lows, but they're still down about 40% year-over-year. And so we wanted to wait until -- we think that at least short-term with winter months coming up that you won't see natural gas prices drop dramatically. So before we lock in, we want to make sure we're locking in at the best rate we can.

Okay. And then can we talk a little bit, Larry, about low inflation, low growth environment. How would you think about capital spending as a percent of revenues in that kind of environment? Maybe you have run 9% to 10% historically, but you've had inflation in that and more organic growth in the economy. Is those are all low or almost zero, what do you think about cap spending as a percent of revenues?

A big part of -- the two big components on our capital spending are first landfills, and that's going to be really driven by what the volumes are. So we have gotten really good at almost building out volumes or sales just in time, so that will be reflective of what we see in volumes. On the truck and container side, I mean, we parked -- I have been talking about it, we parked a lot of trucks this past year as well as containers. And while we have sold some of those older assets, we have also made sure we have parked and put off to the side, so those will be ready to go if we see volumes pick up some of that equipment, both trucks and heavy equipment. So I could see us next year not spending as much on trucks as we did this current year, but we're going to monitor that. We're going to make sure we're managing our capital in the right way given what the economic conditions are.

So 8.5% to 9% is not an unrealistic number given the way you just described that?

It could be in that range. I mean, we're going to just see how the year plays out, and just like what we have done this year, we're going to -- we've got our hand on the lever and we're going to adjust to whatever the economic conditions present to us.

Okay. Back to you again, disposal. Realize front end loader business you got service interval changes, so -- in the mix through the first nine months, but everything goes across the scale. Are you seeing on your trucks any increased tonnage out of your front end loader business that supports some of the commentary that the consumer's shown a little bit of life, and it might not be revenues yet, but you're at least getting incremental tonnage?

Michael, what we see is that actually the tons per haul are down slightly in the commercial business, basically flat in the rolloff business, but the amount that they're down has improved each quarter during the course of the year, so certainly that's a positive trend.

Okay. And then, Bob, on the cost side, what's your visibility or thoughts on the [flection] part as the business starts to grow again? How long do you think you can hold on and not -- your two big components are labor and your disposal. How long do you hold on not having to add labor as you get growth? How should we think about that? 3% to 4% top line, and you can hold the labor tight or where is that number flection?

I have continued to say I think we'll be able to leverage our cost structure. One thing that we did when I got with the group SVPs and we came up with this model to use in the restructuring, one thing we wanted to make sure we did was restructure in a way that would position us well when the economy did come back. And so I think we have got a cost structure that's going to serve us well when the economy starts -- we start seeing real signs of growth, and it is certainly our intention to leverage that cost structure and continue to see benefits from that.

Okay. And, David, I have to ask the medical waste question. How are we doing progresswise? Saw you announced an acquisition. Admittedly it was little, but what's the visibility on progress towards your $300 million in revenues?

Michael, as you point out, we did do a small acquisition, and it is certainly going to take time. We're not going to get the $300 million in revenue overnight, but what we're seeing as far as we start to build out the network and the customers receiving our offer has been very encouraging, so we look forward to building that business.

Okay. Nice job on the numbers.

Thank you.

Thank you, Michael.

Your next question comes from the line of Hamzah Mazari with Credit Suisse.

Good morning, Hamzah.

Good morning. Thank you. On your waste to energy business, can you comment on your acquisition pipeline there? Looks like there are a number of projects domestically and internationally, and how much capital are you putting towards those efforts? How many bids are you looking at right now? And also just remind us what your contracts are struck on the Wheelabrator business? And is 43% exposure the right number to market in 2010 or is that 50%?

The 43% moves to about 48% to 50% in 2010, so not a dramatic move in 2010. We'll talk about the growth by country. You all saw our announcement on our acquisition of a 40% interest in Shanghai Environment in China. That will be about $145 million. It is in the normal review process right now in China. It has to be approved by the government like any transaction with a partnership with a foreign partner, and so we expect that to close sometime in the first quarter of 2010. Again, that will be about $145 million. It won't have exposure to merchant power, because the waste contract and the electricity contract are locked in.

In Europe we continue to bid for projects. We have been shortlisted on a number, but we haven't won any of those projects yet. And so once that happens, we'll report that. And in the United States there is two or three projects that we believe that we're the primary party that's being looked at to build those plants. Obviously we'll announce those as we can. You probably have seen some press on some of the plants we're looking on building in Baltimore, and then recently we bid to purchase a plant we refer to as [CIPSA] in the Southeast for about $150 million.

So when you look at the current outlay, as we look to build plants whether it is domestically or internationally in Europe or in the United United States, obviously the cash outlays for those won't be for a number of years. As we win the bids, it will be three to four years before we finalize construction. The two that we will put money out currently would be China at $145 million, CIPSA at about $150 million.

Great. And then on the volume side, are you guys seeing any additional signs of volume stabilization which are different from last quarter or are you just seeing the same thing?

No. From a volume perspective, what we're seeing is basically -- it has really been interesting that what we have seen over the last probably 20 weeks is basically been a flat line of volumes. Now, given that that flat line dropped off dramatically in October of last year, we would be thrilled to death if that continues through the fourth quarter. But what we have seen is basically the volumes stabilize and that gives us the confidence to believe that the volumes are -- the rate of decline is going to be better in the fourth quarter than it was in the third.

We also look at other signs. Michael asked about the tons per haul or other measures of tons per unit, and then we also look at our net service increases versus our net service decreases, and our net service increases net of our service decreases were basically flat this quarter, down $100,000. That compares with being down anywhere from $1 million to $1.5 million the prior three quarters. So the signs that we see show again stabilization in the volumes. We are not expecting the volumes to come roaring back like they were in 2007, but we certainly see stability, and given the year-over-year comps, stability would be a very good thing.

I will let some other people ask questions and I will get back in the queue. Thank you.

Thank you.

Your next question comes from the line of Scott Levine with JPMorgan.

Good morning, Scott.

Good morning, guys. Hey, a couple quick ones for you. Geographically, were there any unusual trends or notables more accurate trends -- either positive or negative in any of your regions that will be noteworthy on the volume or the price side?

No. Nothing of note at all. There is a slight difference right now, as you imagine -- the economies were hurt more in the South and the West than they were in the Midwest and the East, because they were falling from a higher perch if you will. You see a slight difference in the South and the West, but nothing that I would call dramatic or that I would say is a trend, and so really no big regional differences.

Okay. And then following up on the uses of cash question earlier, you guys last couple of years I think have made an announcement on your dividend in the month of December or late in the year. Any thoughts on how that fits into your cash flow usage decision making?

Certainly, Scott, you're exactly right. This is the time of year, we have a board meeting in November and another board meeting in December. The December meeting is generally whether we present our capital plan for 2010, and so any announcement that we make with respect to the capital plan would occur after that meet meeting.

With regard to the guidance or the implied guidance for the fourth quarter as well, could you tell us, I don't know if you mentioned earlier, Bob, the tax rate you're assuming?

I did mention it. It is 36.8%.

Is that a good one to think about for 2010 preliminarily?

I think for 2010 you're probably going to see something more 37% ish, but we'll get some guidance on that after we finish our budgets for the year. But it will be a little north of what we talked about today.

Very good. And then without asking for guidance on 2010 obviously, what preliminary thoughts could you offer up in terms of the business outlook, or is really the expectation or reasonable expectation at this point to think about stability on both the volume side, where the volume is really more a function of math than anything else, and then pricing remaining disciplined, but other folks have really talked to you following CPI's weighing on the reported growth rate -- any commentary you could give would be appreciated.

Scott, it is like I said earlier. From a pricing perspective, we don't see us going backward on price. The only way we see us going is forward. If the economy is more robust, we'll be better on pricing. So we don't see us going backward on pricing. From a volume point of view I think you hit the nail right on the head. Stability is the word. If we can see stable volumes, we would fully expect the year-over-year comps in the first half of the year to be less negative than they were this year, and then we think there could be some actual volume growth in this second half of the year. So we're just looking forward to starting 2010.

Thanks, guys.

Thanks, Scott.

Thank you.

Your next question comes from the line of Jonathan Ellis with Bank of America Merrill Lynch.

Good morning, Jon.

Good morning, guys. First off, just you had given the pricing for MSW at the landfills. You also normally provide overall landfill pricing and pricing for C&D or special waste?

The overall pricing of the landfill on an IRG reported basis, not per unit basis is about 1%, and on special waste it was basically flat, C&D -- both C&D and special waste were basically flat, slightly positive, but 0.2% to 0.3%, so basically flat.

Okay. Great. And then just on the environmental fee, can you provide us if you have it the handy the dollar contribution this quarter and also any thoughts on whether you may look to raise environmental fee again next year?

The contribution -- the year over year increase was about $9.8 million and the total contribution was about $56 million. We're now at 6% on the environmental fee. I certainly don't see -- we have not again looked at our 2010 plan. We'll do that in December. I certainly don't think that you will see a dramatic increase in that.

Okay. Great. Just there was a reference to CPI from an earlier question. I guess if you can help us ring fence what the potential risk is, do you have a number in terms of percentage of revenues tied to municipal contracts where there is some inflation escalator and to what extent you think you can negotiate if in fact CPI for the full year is negative?

I don't know about you all, but I haven't seen the CPI for the full year going negative on us yet. We have about $3 billion of municipal business. Most of that $3 billion is going to be tied to CPI or PPI. I am not sure that we're going to see negative CPI. Mind you, not all of those contracts allow for the price to go backwards. A lot of those contracts only contemplate positive CPI. If we see CPI going backwards to where it becomes negative, that's something we're going to have to address with our municipalities. These are long-term contracts that we signed up to, and we're just going to have to make that up somewhere else.

Okay. That's helpful. And then just quickly turning your attention to profitability, and I know normally looking at things on a sequential basis is dangerous in this industry. Given the lack of seasonality this year, I figured it would be somewhat appropriate to compare 2Q and 3Q, and I did notice that there was some uptick in the selling expense between 2Q and 3Q this year. Any particular reason for that? Were there changes in accruals or deferred compensation or anything along those lines?

Actually -- but for a reversal of long-term incentive plan accrual in the second quarter, the amount of the reductions are just about the same. I think if we didn't have that long-term incentive plan accrual benefit in the second quarter and plus a few smaller items, we would have been at the same rate then as we are this quarter, so it really has been no change.

Great. Thanks a lot, guys.

Thank you.

Thank you.

Your final question comes from the line of Bill Fisher with Raymond James.

Good morning.

Good morning, Bill.

First, you guys have done a great job on the labor productivity obviously through the downturn and obviously have some leverage when the economy improves. Are there any other initiatives you're looking at or talk about on that front that might help you if volumes are more sluggish or stable or whatnot?

Well, a couple of things. One, we put in place a whole new labor management tool that I think has really helped our field adjust their labor costs in the number of heads they need on a much more current basis than we had before. The other thing we have is a routing tool that we updated that the field is using, and they are constantly, as you might imagine with that much volume change, changing constantly -- all of our operations are in a constant state of rerouting. They just never stop. And I think with those two tools, it helps us not only as we see the downturn but I think it is going to help us when we start seeing increases in activity to better manage our costs than we were able to do before.

On the maintenance side, there is still opportunity there. We continue to standardize our fleets, standardize our maintenance practices, and that's one of the reasons that we have been able to continue to see those costs going down even when we were in an inflationary environment. So I think there is still continued opportunity for us there as well. Productivity -- with the focus that we've had on improving our efficiency, and that doesn't mean driving faster, we have really analyzed our routes and found ways to drive out inefficiencies, and we'll continue to do that. So we've got a lot of levers at our disposal on the operations side that I think there is continued opportunity for us to improve our cost structure, even if activities stayed at the same level we're seeing now.

Okay. Great. Just totally differently, you mentioned a lot of detail on the natural gas prices and impact on waste energy. Do you feel those have negatively impacted the landfill gas business or is that too immaterial or hard to isolate?

Clearly they would have affected it, but not anything again -- you're right, it is not material to the results.

Great. Thank you.

Thank you, Bill.

When we look at the quarter, virtually all of the trends that we follow are positive, and the cost action that is we took this year are going to continue into the fourth quarter and into 2010. So we look forward to a strong fourth quarter and a return to growth and profitability in 2010. With that, Nicholle, we'll say goodbye to all and see on you the road.

Thank you for participating in today's Waste Management third quarter 2009 conference call. This call will be available for replay beginning at 1 PM Eastern Standard time today through [midnight] Eastern Standard time on Thursday, November 12, 2009. The conference ID number for the replay is 30064951. Again, the conference ID number for the replay is 30064951. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. Thank you for participating in today's conference call. You may now disconnect.