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Republic Services (RSG) Beats Q4 Earnings, Updates View

Zacks

Waste management firm Republic Services, Inc. RSG reported relatively healthy fourth-quarter 2016 results with GAAP earnings of $189.5 million or 55 cents per share compared with $172.3 million or 49 cents per share in the year-ago quarter. The year-over-year increase in earnings was primarily attributable to higher revenues.

Excluding non-recurring items, adjusted earnings for the reported quarter were $193.8 million or 57 cents per share, compared with $175.0 million or 50 cents per share in the year-earlier quarter. Adjusted earnings for the reported quarter exceeded the Zacks Consensus Estimate by 2 cents.

For full-year 2016, the company recorded GAAP earnings of $612.6 million or $1.78 per share, compared with $749.9 million or $2.13 per share in 2015. Adjusted earnings for 2016 improved to $763.3 million or $2.22 per share from $722.3 million or $2.06 per share in 2015.

Top-Line Performance

Quarterly revenues improved 3.9% year over year to $2,379.1 million and beat the Zacks Consensus Estimate of $2,355 million. The year-over-year increase in revenues was driven by a 2.2% rise in average yield and a 0.5% increase in volume. Core price increased revenues by 3.5% during the quarter. For 2016, revenues improved to $9,387.7 million from $9,115 million in 2015.

Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) for the reported quarter was $664.2 million, resulting in an adjusted EBITDA margin of 27.9% compared with the respective tallies of $622.9 million and 27.2% in the year-ago period.

Segmental Details

Revenues from Collection increased 2.7% year over year to $1,796.2 million as the Commercial and Industrial sub-segments fared relatively better in the reported quarter. Revenues from Transfer improved 6.1% year over year to $115.5 million. Revenues from Landfill were up 1.9% to $279.6 million, while sales from the Other segment increased 22.3% year over year to $164.5 million.

By the end of the reported quarter, about 18% of the total fleet was operating on natural gas. Approximately 74% of the residential fleet was automated and 92% was certified under the standardized maintenance program.

Republic Services, Inc. Price, Consensus and EPS Surprise


Republic Services, Inc. Price, Consensus and EPS Surprise | Republic Services, Inc. Quote

Balance Sheet & Cash Flow

Cash and cash equivalents at year-end 2016 were $67.8 million, while long-term debt (net of current maturities) was $7,653.1 million compared with respective tallies of $32.4 million and $7,527.4 million in the prior-year period.

Cash from operating activities totaled $1,847.8 million for 2016 compared with $1,679.7 million in the prior-year period. Adjusted free cash flow for 2016 and 2015 was $885.1 million and $813.4 million, respectively.

Share Repurchase & Dividend

Republic Services has a share repurchase program in place since Nov 2010. During the fourth quarter, the company repurchased 1.7 million shares under this program for $88.1 million at an average price of $51.08 per share. The company returned $820 million to shareholders through share repurchases and dividends in 2016.

2017 Guidance Updated

Based on healthy quarterly results and expectations that recycled commodity prices will remain at current levels for 2017, management updated the guidance for 2017. The company expects its adjusted earnings to be in a range of $2.32–$2.36 per share, up from the preliminary guidance of $2.31–$2.36. Adjusted free cash flow is expected to be in the range of $875–$900 million, while revenues are expected to be up 4.5–5.0% year over year.

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 Clean Harbors, Inc. CLH, Waste Connections, Inc. WCN and US Ecology, Inc. ECOL, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Clean Harbors has a long-term earnings growth expectation of 8.9% and is currently trading at a forward P/E of 61.7x.

Waste Connections has a long-term earnings growth expectation of 20.8% and is currently trading at a forward P/E of 27.8x.

US Ecology has a long-term earnings growth expectation of 10.0% and is currently trading at a forward P/E of 28.5x.

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