It has been about a month since the last earnings report for Republic Services (RSG). Shares have added about 0.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Republic Services due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Republic Services Surpasses Q4 Earnings Estimates, Lags Revenues
Republic Services reported mixed fourth-quarter 2018 results wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.
Adjusted earnings per share (EPS) of 80 cents outpaced the consensus mark by 2 cents and improved 31.1% year over year attributable to benefits (12 cents) from the tax reform policy.
Quarterly revenues of $2.53 billion lagged the consensus estimate by $6.2 million and decreased 1.2% on a non-adjusted basis year over year. However, the figure improved 2.6% year over year on a pro-forma basis. Top-line growth includes a positive impact of 2.3% internal growth and 30 basis pointsfrom acquisitions.
Revenues in the Collection segment totaled $1.89 billion, up 1.8% year over year on a non-adjusted basis and 3.8% on pro-forma basis. It contributed 75% to total revenues.
Transfer segment revenues of $134.8 million increased 3.7% year over year on a non-adjusted basis and 4.7% on pro-forma basis. It accounted for 5.3% of total revenues.
Landfill segment revenues of $317.7 million decreased 3.4% year over year on a non-adjusted basis and 2.1% on pro-forma basis. It contributed 12.6% to total revenues.
Energy services segment revenues of $45.1 million declined 1.3% year over year on a non-adjusted basis and were flat on a pro-forma basis. It accounted for 1.8% of total revenues.
Other segment revenues of $134.5 million decreased 29.2% year over year on a non-adjusted basis and 3.2% on a pro-forma basis. It contributed 5.3% to total revenues.
Adjusted EBITDA of $692.2 million declined 0.5% year over year on a non-adjusted basis and 0.4% on a pro-forma basis. Adjusted EBITDA margin was 27.4%. In the prior-year quarter adjusted EBITDA on a non-adjusted basis was 27.2% and 28.2% on a pro-forma basis.
Operating income was $483.3 million compared with $406.8 million in the year-ago quarter. Operating margin rose to 19.1% from 15.9% in the year-ago quarter.
Total selling, general and administrative expenses were $284.5 million compared with $274.2 million in the year-ago quarter.
Balance Sheet and Cash Flow
Republic Services exited fourth-quarter 2018 with cash and cash equivalents of $70.5 million compared with $81.9 million at the end of the prior quarter. Long-term debt was $7.65 billion compared with $7.55 billion at the end of the prior quarter.
The company generated $495.9 million of cash from operating activities and spent $300.5 million in capex in the reported quarter. Adjusted free cash flow was $210.2 million.
Share Repurchase and Dividend Payout
Republic Services returned $284 million to shareholders through dividends and share repurchases during the reported quarter.
During the reported quarter, the company repurchased 2.2 million shares at an aggregate cost of $162 million and at an average cost of $73.74 per share. As of Dec 31, 2018, the company had $1.1 billion available under its share repurchase authorization.
In October 2018, the company paid $121.7 million of cash dividend to shareholders of record as of Oct 1, 2018. As of Dec 31, 2018, the company’s quarterly dividend payable was $121 million to shareholders of record as of Jan 2, 2019. The dividend was paid onJan 15, 2019.
Republic Services reaffirmed its 2019 guidance for adjusted EPS and adjusted free cash flow while unveiling the same for other metrics. The company continues to anticipate adjusted EPS in the range of $3.23-$3.28. Adjusted free cash flow is anticipated in the range of $1,125-$1,175 million.
Revenues are expected to grow at a rate of 4.25-4.75%. Adjusted EBITDA margin is anticipated to expand around 30-50 bps. Effective tax rate is expected to be approximately 24%.
The company plans to invest approximately $200 million in tuck-in acquisitions. Additionally, the company is hopeful of rewarding its shareholders with almost $1.4 billion in cash, which includes $500 million in dividend payments and $875 million through share repurchases.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
Currently, Republic Services has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Republic Services has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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