Republic Services (RSG) Beats Q2 Earnings, Raises Guidance

Waste management firm Republic Services, Inc. (NYSE:RSG) reported strong second-quarter 2017 results, with healthy year-over-year increase in earnings and revenues. GAAP earnings for the quarter were $202.9 million or 60 cents per share compared with $180.8 million or 52 cents per share in the year-ago quarter. The year-over-year increase in earnings was primarily driven by higher revenues.

Excluding non-recurring items, adjusted earnings for the second quarter were $205.9 million or 61 cents per share compared with $189.5 million or 55 cents per share in the year-earlier quarter. Adjusted earnings for the quarter exceeded the Zacks Consensus Estimate by 2 cents.

Top-Line Performance

Quarterly revenues improved 7.5% year over year to $2,526.7 million and exceeded the Zacks Consensus Estimate of $2,473 million. The year-over-year increase in revenues was driven by a 2.5% rise in average yield and a 1.9% increase in volume. Core price increased revenues by 4.1% during the quarter.

Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) for the reported quarter was $708.6 million, resulting in an adjusted EBITDA margin of 28.0% compared with the respective tallies of $666.4 million and 28.3% in the year-ago period.

Segmental Details

Revenues from Collection increased 4.4% year over year to $1,862.9 million as all the sub-segments fared relatively better in the reported quarter. Revenues from Transfer improved 9.9% year over year to $130.3 million. Energy Services revenues more than doubled to $36.1 million. Revenues from Landfill were up 9.6% to $314.2 million while sales from the Other segment increased 27.0% year over year to $183.2 million.

By the end of the quarter, about 19% of the total fleet was operating on natural gas. Approximately 75% of the residential fleet was automated and completed certification under the standardized maintenance program.

Balance Sheet & Cash Flow

Cash and cash equivalents at the quarter end were $36 million while long-term debt (net of current maturities) was $7,075.7 million.

Cash from operating activities totaled $878.8 million for the quarter compared with $844.3 million in the prior-year period. Adjusted free cash flow for the first half of 2017 was $358.3 million compared with $337.2 million in the year-ago period.

Share Repurchase

Republic Services has a share repurchase program in place since Nov 2010. During the second quarter, the company repurchased 2.2 million shares under this program for $138.5 million at an average price of $69.21 per share. The company had $214.4 million worth of shares remaining under the share repurchase authorization at the quarter end.

Dividend Increase

The company increased its quarterly dividend by 8% year over year to 34.5 cents per share. This marks the eighth consecutive year of dividend hike by Republic Services.

Guidance Raised

With solid quarterly results and favorable growth dynamics, Republic Services raised its adjusted earnings guidance for 2017 to $2.36–$2.39 per share from the previous guidance of $2.32–$2.36. Republic Services is likely to generate a healthy cash flow in the future with diligent execution of operational plans and a realigned operational structure. The company has strong underlying fundamentals and is set to achieve consistent earnings growth while creating significant shareholder value.

Republic Services currently has a Zacks Rank #2 (Buy). Some other stocks in the industry worth considering include Stericycle, Inc. (NASDAQ:SRCL) , ABM Industries Incorporated (NYSE:ABM) and Rollins, Inc. (NYSE:ROL) , each carrying Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stericycle has a long-term earnings growth expectation of 9.1%. It delivered a positive earnings surprise of 4.4% in the trailing four quarters, beating estimates thrice.

ABM pulled off a positive earnings surprise of 16.9% in the trailing four quarters, beating estimates thrice.

Rollins delivered a positive earnings surprise of 1.1% in the trailing four quarters.

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