Waste Management CEO bringing tech to trash
Waste Management CEO Jim Fish heads a company that manages landfills, recycling centers and garbage trucks, but he’d rather talk about robots, autonomous vehicles, advanced algorithms, e-commerce and big data.
Fish wants the largest waste removal service on the New York Stock Exchange to operate more like a tech company that happens to pick up trash, rather than a trash company that has tech.
Since moving into the CEO position in 2016, he’s driven the company at full speed toward a digital strategy with a modern, Silicon Valley-esque corporate culture. His vision is to become the kind of CEO who hires Ivy League graduates, coders and gamers and works in an open, airy and modern office space.
Fish is a tall, clean-cut financial type who can talk earfuls about his ventures group and how it’ll drive growth for shareholders. He not what potential college graduate recruits expect when he enters a room.
“They expect this dirty trash man to come through the door,” Fish said.
But Fish is a certified accountant who started his career at KPMG. He progressed naturally from a Big Four auditing firm to a CFO and then CEO position at a Fortune 500 company, which happened to be Waste Management.
The Houston-based company, worth nearly $40 billion on the stock market, has worked over the past two years to lay the foundation of a digital-forward strategy. Fish and his team believe innovative technology will be a major growth driver in the coming years, so they’re betting big on it now.
They met with Google to talk shop and have taken inspiration from Amazon, and they plan to move their corporate employees to a new headquarters this year to match the work space with the goal. Fish says we should envision their new headquarters more like a campus, compared with their current headquarters, filled with antique art and stuffy wood furniture in private offices at 1001 Fannin Street in downtown Houston.
“This looks like a 1985 building,” Fish said of the current space. The new headquarters will only move a few blocks away in 284,000 square feet in the Capitol Tower at 800 Capitol Street. Waste Management still likes the tax benefits and the low cost of living in Houston, though the company also considered moving to Nashville, Chicago or Denver.
Since Fish took over Waste Management in 2016, the company’s financial strategy has not changed much, according to analysts. Scott Levine, a Bloomberg Intelligence senior industry analyst, said that could be because much of Fish’s pricing and corporate strategy was implemented while he was CFO.
“He was a key architect of pricing strategy and corporate strategy, which emphasized, from 2012-forward, discipline around overhead,” Levine said.
As 2019 progresses, Waste Management executives believe they will start to see the fruition of their technology efforts in customer growth and cut costs.
Analysts expect the company to do $458 million in adjusted net income for the fourth quarter of 2018 and the company’s dividend rate for the last four quarters was 1.96 percent.
A force in the industry, Waste Management claims a whopping 42 percent of its industry’s market share in 2017 according to data compiled by Bloomberg, and analysts remain bullish.
Its biggest domestic competition is Republic Services Inc., $23.6 billion company at the end of the third quarter of 2018. Waste Management stock price rose a little over 5 percent in 2018. Since 2016, the stock price has climbed from around $50 per share to $90. In summary: Analysts think there’s a steady road ahead for shareholders.
Futuristic fleets ahead
Fish started his career at Waste Management in 2001 with various management positions and climbed up to the CFO position in 2012. An accounting graduate from Arizona State University with an MBA in finance from the University of Chicago, he’s from Austin and has family in Denver (he lobbied a bit to move the headquarters to Colorado, but ultimately decided Houston had a more compelling case). As much of his financial strategy is already in play, Fish can afford to take the long view, starting initiatives that look 10 or 20 years down the road instead of to only the next quarter. The existing business “is very solid,” Fish said.
One of those initiatives is autonomous vehicles. The company is piloting remote-operated vehicles, like bulldozers, with Caterpillar in Denver. Instead of a driver getting out of the truck at the landfill and going to the bulldozer, young people with video game experience would be able to sit inside and move the waste remotely.
“I was thinking my 16-year-old nephew would be really good at this,” Fish laughed. “It’s an easier job to hire for. One of the guys we were hiring was a Fortnite guy. So, he picked this up quickly.”
Waste Management is meeting with another company in February to talk about piloting autonomous vehicles for over the road trucking. Fish imagines that within five years they will have an autonomous truck in their fleet (if not within five years, he says at least within the decade).
Though Republic Services uses data to plan routes and has single-operator trucks with cameras installed, Fish claims his competition isn’t looking as far down the road at futuristic tech as he is when it comes to autonomous trucks and equipment. Republic Services declined to share what they are testing at this time.
“I think they think we’re nuts, which is fine,” Fish said of competition in the industry.
As easy as Amazon
In 2017, Fish hired Nikolaj Sjoqvist to create the building blocks of a digital strategy. Sjoqvist is the chief digital officer, charged with digitizing Waste Management: not an easy task to undertake in a company that only has 5 percent of its customer interactions online or by mobile. The management team is trying to change that. Fish wants Waste Management’s consumer interface to be like an airline; you never have to call them. And, Sjoqvist wants that be as easy to use as Amazon.
“Amazon is a very complicated logistics operation, and we too are a logistics operation,” Sjoqvist said. “And I think the difference is that Amazon started … with a model that absolutely puts the customer at the forefront.”
Sjoqvist envisions an online platform that allows customers to buy and pay for their trash services, see what time the truck will arrive and let the company know if they have a bulky pick up. Waste Management is in the early stages of rolling out the technology to its core customer base and he thinks 2019 will be the year customers will see material changes in the way they interact with the company.
Within the company, they developed algorithms using data collected from their trucks to predict when parts will break. Instead of fixing a part after it breaks on a route, which is more costly, the company will begin to proactively replace parts on their trucks if they estimate it will break soon. They are also collecting data from every single truck - each of the nearly 20,000 have computers installed - to determine the most efficient route for drivers to take. Sjoqvist expects implementation of both of these initiatives within the next year or two.
“Last year was sort of foundation-setting,” Sjoqvist said, referring to the development of algorithms and data collection. “This year is further strengthening our foundation but beginning to see the fruits of our labor.”
Landfilling and recycling facing disuption
Fish is looking 10 or 20 years down the road for solutions to what he sees as long-term problems. Landfilling is profitable right now, but quickly becoming an issue for waste companies as space runs out.
“At some point down the road, someone will come up with a technology that replaces landfills. And I want to be that person,” Fish said. “I don’t want one of these young Stanford MBA students to develop that technology and put my landfills out of business overnight.”
As landfills in the U.S. come to the end of their useful life, Waste Management typically tries to expand them, but that solution won’t be a reality forever. In some areas of the country, namely along the east coast, waste companies transfer trash by train and by barge to landfills further away, increasing transportation costs.
“If I could come up with a cost-competitive alternative to landfilling then I would use that immediately,” Fish said.
Waste Management’s venturing portfolio invested about $500 million in companies with promising technology that would divert wastes away from landfills, and the company scouts for new technology globally.
The company has the cash on hand to be flexible right now. In 2014, the company did a large divestiture of its waste energy business, Wheelabrator Technologies, for almost $2 billion. At the end of the third quarter of 2018, the Waste Management had $83 million in cash on the books.
“We have a balance sheet that can handle it,” Fish said of large acquisitions. “It used to be so leveraged that even if we were interested in a big acquisition we couldn’t do it because the balance sheet couldn’t absorb it.”
Recycling is another challenge. Profits for recycling have plunged due to new quality controls on recycling imports implemented by China. Since the change, the price of mixed scrap paper and other recyclable materials has plunged from $75 a ton in 2017 to nearly zero. Fish said that 18 months ago, the company was shipping over 25 percent of its recyclables to China. Now, it’s down to 3 percent. Research by Levine and other Bloomberg analysts show that the recycling headwind has begun to reflect on the company’s finances as growth slows. The result has been increased fees on the customer for recycling and more consumer messaging on what can and cannot be recycled.
“They will continue to diversify their exports to try to change their business to be more insulated from China in the future,” said Levine, who worked on the Bloomberg analysis. “What’s happened is serious enough to trigger longer-term changes in the business.”
Waste Management is testing what Fish calls a recycling plant of the future in Chicago. Right now, workers pick out items that are not recyclable from a conveyor belt. At the Chicago plant, workers (or a robot) pick out items that are. What’s picked out has much less contamination, as the only time it’s contaminated is if a picker picks up the wrong item. Fish thinks he’ll move the company to this type of plant as older plants retire or need equipment replacements.
Fish wants his legacy to be that he drove Waste Management to the cutting edge of trash technology, if there is one, with the talent to match. Recently, he worked with a group of Harvard students who presented ideas on how Waste Management could help with the ocean’s plastics problem. He wants those same students clamoring for a job at his company the same way that they would if he was from Deloitte or McKinsey.
“If I have a group of Harvard students who are not just looking at going to work for McKenzie or private equity, or going to work for Google, but they’re thinking about an innovative company as Waste Management, that used to be thought of as just a trash company,” Fish said. “That would be huge.”