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By Jeremy Glaser | 01-06-2010 08:50 AM

From Hard Luck to Wide Moat

The 2009 CEO of Year built a wide moat business by carefully consolidating a fragmented, but profitable, industry.

Securities mentioned in this video
SRCL Stericycle Inc

Jeremy Glaser: I am Jeremy Glaser with Morningstar.com. This morning we announced our CEO of the Year for 2009, and here to share it with us is Paul Larson.

Paul thanks for joining me.

Paul Larson: Thanks for having me again.

Glaser: So who is the winner?

Larson: Mark Miller of Stericycle.

Glaser: What made this Mark Miller's year?

Larson: He built a company over two decades that has gone from essentially a dozen customers up to over 400,000 customers. And really he took a debt-riddled, tiny company and created an industry juggernaut that we think has a wide economic moat.

Glaser: What does Stericycle do exactly?

Larson: They are a medical waste services company. They go around to hospitals and dental offices and they gather the waste and dispose of the waste, and also recycle when appropriate.

Glaser: What was Mark Miller do to carve out [a moat]? It sounds like a commodity business. Could I just buy a truck and go out and start collecting medical waste?

Larson: You could but it would be very difficult to compete with Stericycle. As you might imagine this is a heavily regulated industry, and this is also an industry where route density matters. Stericycle has the densest routes in the industry; it is able to utilize its assets better than anyone else. And because of these factors we think that the company has been able to create a wide moat for itself.

This was a small company, and through Mark Miller's leadership they were able to acquire over 170 other medical waste firms and integrate them into a company that really is a leader and has high returns on capital.

Glaser: Where there any significant moves that the company made in 2009 that set it apart for this award right now?

Larson: There actually weren't any specific moves within 2009, but 2009 the company really did show how resistant it is to the recession. The company basically didn't skip a beat in 2009 and continued to grow while the rest of the economy contracted. I think that is one of the attractive parts of this particular business, is the fact that it is not affected by the recession.

Glaser: So while the banks are trying to get rid of the toxic waste on their books, Stericycle was actually making money by taking away other people's toxic waste.

Larson: That is one way of putting it.

Glaser: All right, Paul, thanks so much for talking to me today.

Larson: Thanks for having me.

Glaser: For Morningstar.com I am Jeremy Glaser.

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