Republic Services Q2 Earnings Nosedive

Zacks

Leading waste management company Republic Services, Inc.’s (RSG) second-quarter 2013 net income nosedived to $56.3 million or 15 cents per share from $149.2 million or 40 cents per share in the year-earlier quarter. The year-over-year decrease in earnings was primarily attributable to several non-recurring items such as pension and restructuring expenses. Excluding one-time items, adjusted earnings for the reported quarter were $156.7 million or 43 cents per share compared with $218.4 million or 59 cents a share in the year-ago quarter. The adjusted earnings for the quarter missed the Zacks Consensus Estimate by 6 cents.

Revenues improved 2.5% to $2,111.7 million in the reported quarter from $2,060.6 million in the prior-year period. The year-over-year increase was driven by 1.3% rise in average yield, higher fuel recovery fees of 0.2%, higher volume of 0.9% and accretive acquisitions (net of divestitures) of 0.4%, partially offset by a 0.3% decline in prices of recycling commodities.

However, the reported revenues missed the Zacks Consensus Estimate of 2,096 million. Adjusted EBITDA for second quarter 2013 was $582.1 million versus $624.8 million in the year-ago quarter.

Segment Performance

Revenues from the Collection segment increased 3.1% year over year to $1,621.2 million as all the sub-segments, namely Residential, Commercial, and Industrial fared relatively better. The Transfer segment revenues gained 4.0% year over year to $106.0 million. Revenues from the Landfill segment remained flat at $259.1 million, while sale from Other segment plummeted 2.0% year over year to $125.4 million.

Financial Update

Cash and cash equivalents were $96.7 million at quarter-end, while long-term debt (excluding current maturities) totaled $7,013.3 million. Cash from operating activities aggregated $761.5 million for the first six months of 2013 compared with $695.0 million in the prior-year period. Adjusted free cash flow for the first half of 2013 was $311.6 million versus $331.1 million in the prior-year period.

Share Repurchase

Republic Services has a share repurchase program in place since Nov 2010. By quarter-end, the company has repurchased 33.1 million shares under this program for $960.6 million at an average price of $29.00 each, including 2.0 million shares bought back for $68.1 million at $33.86 per share during the second quarter.

Dividend Increase

In accordance with its strategy of returning considerable cash to shareholders through share repurchases and steady dividends, Republic Services increased its quarterly dividend payout by 10.6% to 26 cents per share. The increased dividend will be paid on Oct 15, 2013, to stockholders of record as on Oct 1.

Outlook

With sequential improvements in core pricing and EBITDA margin, Republic Services remains focused to further drive its North American solid waste and recycling businesses. Management also remained confident of achieving its earlier guidance for the year. Republic Services reiterated its adjusted earnings outlook in the range of $1.86-$1.91 per share for full year 2013. The company also maintained its adjusted free cash flow guidance of $675 million to $700 million for the ongoing year, with total revenue expected to increase 2.0% to 2.5% year over year.

Moving Forward

Republic Services expects to remain committed to its long-term strategy with a healthy cash flow and disciplined approach to cash utilization. At the same time, the company expects to face severe competitive pressure from other players in the industry such as Clean Harbors, Inc. (CLH), Waste Management, Inc. (WM), and Stericycle Inc. (SRCL). Republic Services currently has a Zacks Rank #4 (Sell).

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