Republic Services (RSG) Q2 Earnings In Sync, View Intact

Waste management firm Republic Services, Inc. (NYSE:RSG) reported relatively modest second-quarter 2016 results with GAAP earnings of $180.8 million or 52 cents per share compared with $190.3 million or 54 cents per share in the year-ago quarter. The year-over-year decrease in earnings, despite higher revenues, was primarily attributable to higher operating costs and restructuring charges.

Excluding non-recurring items, adjusted earnings for the reported quarter were $189.5 million or 55 cents per share, which matched with the Zacks Consensus Estimate.

Top-Line Performance

Revenues improved 1.7% year over year in second-quarter 2016 to $2,350.7 million but missed the Zacks Consensus Estimate of $2,359 million. The year-over-year increase in revenues was driven by a 2% rise in average yield and a 0.5% increase in volume, partially offset by lower fuel recovery fees of 1.0%. Core price increased revenues by 3.1% during the quarter.

Adjusted EBITDA for the reported quarter was $666.4 million, resulting in an adjusted EBITDA margin of 28.3%.

Segmental Details

Revenues from Collection increased 1.7% year over year to $1,784.1 million as the Commercial and Industrial sub-segments fared relatively better in the reported quarter. Revenues from Transfer improved 4.2% year over year to $118.6 million. Revenues from Landfill were up 2.0% to $286.6 million, while sales from the Other segment increased 7.2% year over year to $144.2 million.

By the end of the reported quarter, about 17% of the total fleet was operating on natural gas. Approximately 73% of the residential fleet was automated and 85% was certified under the standardized maintenance program.

Balance Sheet & Cash Flow

Cash and cash equivalents at the quarter end were $42.0 million, while long-term debt (net of current maturities) was $7,608.4 million.

Cash from operating activities totaled $844.3 million for the first six months of 2016 compared with $901.2 million in the prior-year period. Adjusted free cash flow for the quarter was $177.3 million versus $168.8 million in the year-earlier period, bringing the respective tallies for the first half of the year to $337.2 million and $409.6 million.

During the quarter, Republic Services entered into a new $1 billion unsecured revolving credit facility, which replaced the erstwhile $1 billion credit facility maturing in May 2017. The new credit facility will mature in May 2021.

Share Repurchase & Dividend

Republic Services has a share repurchase program in place since Nov 2010. During second-quarter 2016, the company repurchased 2.3 million shares under this program for $107.6 million at an average price of $47.70 per share.

The company increased its quarterly dividend by 2% to 32 cents per share, payable on Oct 14, 2016 to shareholders of record on Oct 3. With this, Republic Services has increased the quarterly dividend consecutively for seven years, which reflects its confidence in future cash flows and commitment to effectively return cash to shareholders.

Moving Forward

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 favorably-ranked stocks in the industry include Waste Connections Inc. (NYSE:WCN) , Clean Harbors, Inc. (NYSE:CLH) and Waste Management, Inc. (NYSE:WM) , each carrying the same Zacks Rank as Republic Services.