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Republic Services (RSG) Up 6.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Republic Services (RSG). Shares have added about 6.4% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Republic Services Beats on Q1 Earnings, Lags Revenues

Republic Services reported mixed first-quarter 2019 results wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.

Adjusted earnings per share (EPS) of 73 cents outpaced the consensus mark by a penny but were marginally lower than the year-ago quarter attributable to a 1 cent headwind due to the timing of tax-related expenses.

Revenues

Quarterly revenues of $2.47 billion lagged the consensus estimate by $19.9 million but increased 1.8% year over year, driven by strong pricing across the company’s collection, disposal and recycling processing businesses. The top-line growth also includes a positive impact of 1.3% internal growth and 50 basis points impact of acquisitions.

Revenues in the Collection segment totaled $1.88 billion, up 2.9% year over year. It contributed 76% to total revenues.

Transfer segment revenues of $122.9 million increased 3.9% year over year. It accounted for 5% of total revenues.

Landfill segment revenues of $296.8 million decreased 3.2% year over year. It contributed 12% to total revenues.

Energy services segment revenues of $45.0 million declined 5.9% year over year. It accounted for 1.8% of total revenues.

Other segment revenues of $129.1 million decreased 0.9% year over year. It contributed 5.2% to total revenues. 

Operating Results

Adjusted EBITDA came in at $699 million and adjusted EBITDA margin was 28.3%. 

Operating income was $422.8 million compared with $404.2 million in the year-ago quarter. Operating margin rose to 17.1% from 16.7% in the year-ago quarter. Total selling, general and administrative expenses were $266.4 million compared with $261.2 million in the year-ago quarter.

Balance Sheet and Cash Flow

Republic Services exited first-quarter 2019 with cash and cash equivalents of $68 million compared with $70.5 million at the end of the prior quarter. Long-term debt was $6.80 billion compared with $7.65 billion at the end of the prior quarter.

The company generated $553.7 million of cash from operating activities and spent $212.4 million in capex in the reported quarter. Adjusted free cash flow was $348.7 million. The company spent $86 million on acquisitions during the reported quarter and an additional $56 million in April 2019.

Share Repurchase and Dividend Payout

Republic Services returned $233 million to shareholders through dividends and share repurchases during the reported quarter.

During the reported quarter, the company repurchased 1.5 million shares at an aggregate cost of $111.5 million and at average cost of $74.76 per share. As of Mar 31, 2019, the company had $1.0 billion available under its share repurchase authorization.

In January 2019, the company paid $121.0 million of cash dividend to shareholders of record as of Jan 2, 2019. As of Mar 31, 2019, the company’s quarterly dividend payable was $120.7 million to shareholders of record as of Apr 1, 2019. The dividend was paid on Apr 15, 2019.

Concurrent with the earnings release, the company’s board of directors declared a quarterly dividend of 37.5 cents per share for shareholders of record as of Jul 1, 2019. The dividend will be paid on Jul 15, 2019.

2019 Guidance

Republic Services reaffirmed its 2019 guidance for adjusted EPS and adjusted free cash flow, despite a continued decline in recycled commodity prices. 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. Effective tax rate is expected to be approximately 24%. The company now plans to invest approximately $300 million for acquisitions compared with $200 million guided earlier.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Republic Services has an average Growth Score of C, a grade with the same score on the momentum front. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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