Casella Waste Systems Inc., Rutland, Vt., has reported preliminary year-over-year revenue improvements for the first two months of its second quarter of fiscal year 2009.
The regional solid waste and recycling company has also emphasized that its “risk management programs are substantially mitigating commodity pricing impacts,” according to a Casella news release.
Regarding that the company terms “negative pressures from softer commodity pricing,” Casella Waste Systems’ news release says, “The company’s commodity risk mitigation programs are effectively managing the majority of commodity pricing exposure during this volatile period. The company seeks to limit its exposure to fluctuating commodity prices through the use of hedging agreements, floor price contracts, and long-term supply contracts with customers.”
Casella’s news release states, “Average commodity pricing is currently down 24 percent from our first quarter of fiscal year 2009, and based on our present knowledge of the commodity markets we expect November commodity pricing to be down approximately 54 percent from our first quarter of fiscal year 2009. Using these commodity pricing projections, the company estimates a $3 to $5 million negative impact to operating income for the last two quarters of our fiscal year 2009.”
The Casella release also notes that the company “derives its recycling revenues from tipping or processing fees and from the sale of recyclable materials. Tipping fees, which make up approximately 10 percent of total recycling revenues, are generally stable and do not vary with commodity pricing. The company sells over 90 percent of its commodities to the domestic markets, reducing exposure to international market volatility and currencies. By selling primarily to the domestic markets, the company has built solid long-term relationships with domestic mills and manufacturers.”
In breaking down the company’s commodity stream, the company cites the risk mitigation factors that it has pursued:
Fiber (newspapers, cardboard, and mixed papers) makes up approximately 66 to 68 percent of the company’s commodity revenue stream. Approximately 50 percent of these materials are exposed to minimal commodity volatility because Casella purchases the materials based off an index price less a processing fee, and then resells the materials off the same index within a short period of time. In addition, the company is party to 29 commodity hedge contracts that manage pricing fluctuations on approximately 80 percent of its remaining OCC and ONP volumes. These contracts expire between October 2008 and December 2011. The company does not use commodity hedges for trading purposes, it says.
Aluminum makes up approximately 8 to 10 percent of the company’s commodity revenue stream. The company sells the majority of its aluminum under fixed price contracts, with current contracts extending through April 2009.
Plastics (PET and HDPE) make up approximately 20 percent of the company’s commodity revenue stream. The company currently sells the majority of its plastics at spot market rates. It has floor prices in place on most PET contracts and is working to add fixed price contracts to help manage plastic pricing fluctuations in the future. There are no hedging instruments available for recovered plastics because, historically, recovered plastics are not highly correlated with market indices for virgin plastic resin sales prices, according to Casella.
Ferrous metals make up approximately 3 to 4 percent of the company’s commodity revenue stream. The company currently sells the majority of its ferrous metals at spot market rates.
Source Casella Waste Systems 10-31-08 News Release.