Republic Services reports 4.6 percent revenue growth in Q3

By Katie Fletcher | October 31, 2014

Republic Services Inc. released third quarter results Oct. 30, reporting increased revenue. The waste services company currently operates active landfill gas-to-energy projects (LGTE) at approximately one-third of its landfills nationwide. The company began operations at its 71st and 72nd LGTE projects in late September.

During an investor call to discuss the quarterly results, Don Slager, CEO of Republic Services, announced the company’s financial performance was in line with expectations. Republic Services reported earnings of 52 cents per share with a reported net income of $185.8 million for the three months ending Sept. 30. This shows a 4.6 percent growth in revenue, “with a balanced mix between price and volume growth,” Slager said.

This revenue growth consisted of increases in average yield by 1.4 percent, fuel recovery fees of 0.2 percent, volume of 2.1 percent, recycled commodities of 0.2 percent and acquisitions and net of divestitures of 0.7 percent.

“During the quarter we continue to profitably grow our business by attracting the right types of customers, differentiating our service offering and improving our service quality,” Slager said. “We completed high quality accretive acquisitions, and have already exceeded our full-year goal, and we remain focused on managing cost, improving productivity and leveraging our cost structure.”

Slager shared that during the third quarter, Republic Services made great progress towards achieving its annual goal. Amongst the highlights was a year-to-date adjusted pre-cash flow of $433 million. Slager said, this level of performance includes 84 percent of their projected full-year capital expenditures. Core price in the third quarter was 3 percent and average yield was 1.4 percent, this was consistent with the company’s second quarter performance even with a step-down in consumer price index (CPI) based pricing, Slager said. “We continue to see better open market pricing to offset the CPI headwind,” he said.

Chuck Serianni, company chief financial officer, shared that post collection, consisting of third party landfill and transfer station volume was positive at 4.1 percent, which includes an increase in landfill special waste of approximately 16 percent. “Our landfill MSW volumes were up 1.8 percent,” Serianni said.

Average yield in the post-collection business was 1.3 percent, lead mostly by landfill MSW. The company said they have done a deliberate job on moving landfill pricing forward, and that this is the first time in a long time they’ve seen MSW growth. RSG remarked that the issue for them is, what will happen with landfill pricing going forward. The company said they like to think as the economy improves it will move at a more solid rate.

Third quarter 2014 adjusted EBITDA margin was 28.2 percent compared to 29.5 percent in the prior year, a decrease of 130 basis points. Serianni said, a majority of the change can be explained by three line items, most of which relate to one-time benefits from the prior year.

One of these line items was landfill operating costs increasing 60 basis points due to Republic Services implementing a low-cost solution at one of their remediation sites in the prior year, which resulted in a onetime benefit. Other contributors were risk management costs increasing 40 basis points and selling, general and administrative expenses increasing 40 basis points due to a bad debt recovery in the prior year.

The company’s multi-year initiatives were mentioned in the call. Slager said, “We continue to roll out capture, our next generation ROI-based pricing tool and priority-based selling, and our new standardized sales process.” Both of these initiatives were designed to work together to identify the right type of volume growth at attractive prices.

Year-to-date Republic has invested $111 million dollars to acquire $57 in revenue. Additionally, Republic Services completed the acquisition with Rainbow Disposal on Oct. 1. Regarding Republic’s fleet, 14 percent are operating on natural gas and 68 percent of their residential fleet is now automated.

RSG shared updates for their 2014 financial guidance. The company updated its full year adjusted diluted earnings per share guidance to be in a range of $1.93 to $1.94. Republic additionally updated its 2014 adjusted free cash flow guidance to be in a range of $675 million to $690 million.

The board of directors declared a regular quarterly dividend of 28 cents per share for stockholders of record on Jan. 2 to be paid on Jan 15. Republic Services, as part of its share repurchase program, has purchased 43.5 million shares of its stock from November 2010 to Sept. 30 of this year.

Republic Services also gave point-in-time estimates based on current projections of 2014 performance, an early review of the 2015 budget process and current economic conditions. The company said diluted earnings per share is expected to be in a range of $2.02 to $2.06, representing mid-to-high-single digit growth compared to Republic’s estimate of 2014 performance. The adjusted free cash flow is expected to be in a range of $725 million to $750 million, representing mid-single digit to low-double digit growth compared to 2014 performance. The cash provided for this adjusted free cash flow include operating activities, less property and equipment receive, plus proceeds from the sales of property and equipment and withdrawal payments related to Central States Pension Fund, net of tax. Republic stressed they would provide formal guidance in February 2015 once the budget process is complete and 2014 results are reported.

Republic Services recently announced two new LGTE projects at the Forward and Vasco Road landfills located in the Bay Area of California. These projects contributes to the 72 LGTE projects RSG operates in the U.S. These two recent projects combined will send 8.6 MW of energy to the local grid. RSG partnered with Ameresco Inc. for the projects’ design, development and management. Partnered with Ameresco, RSG has generated more than 65 MW of power with seven other projects in the U.S.