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A month has gone by 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 Supasses Q2 Earnings & Revenue Estimates
Republic Services reported solid second-quarter 2020 results wherein earnings and revenues surpassed the Zacks Consensus Estimate.
Adjusted earnings per share (EPS) of 81 cents outpaced the consensus mark by 35% and improved 3% year over year.
Republic Services continued to convert CPI-based contracts to more favorable pricing mechanisms for annual price adjustment. It now has roughly $850 million in annual revenues, or 34% of nearly $2.5 billion CPI-based book of business. The company's average recycled commodity price per ton sold in the second quarter was $101, reflecting a sequential increase from $25 per ton sold in first-quarter 2020 and year over year increase from $23 per ton.
Quarterly revenues of $2.45 billion beat the consensus estimate by 2.5% but decreased 5.8% year over year. Unfavorable impact of 6.5% internal growth was partially offset by 70 basis points positive impact of acquisitions.
Revenues in the Collection segment totaled $1.83 billion, down 6% year over year. Transfer segment revenues of $150.1 million decreased 0.7% year over year. Landfill segment revenues of $315.7 million decreased 6.4% year over year. Environmental services segment revenues of $30.1 million declined 26.2% year over year. Other segment revenues of $128.6 million grew 0.3% year over year.
Adjusted EBITDA of $726 million was almost flat year over year. Adjusted EBITDA margin of 29.6% grew 170 basis points (bps) from the prior-year quarter. This included a 110 bps benefit from higher recycled commodity prices and lower fuel costs and 130 bps headwind from $31 million of coronavirus-related costs.
Operating income was $395.2 million compared with $437.4 million in the year-ago quarter. Operating margin declined to 16.1% from 16.7% in the year-ago quarter.
Total selling, general and administrative expenses were $262.1 million compared with $264.5 million in the year-ago quarter.
Balance Sheet and Cash Flow
Republic Services exited second-quarter 2020 with cash and cash equivalents of $269.7 million compared with $281.6 million at the end of the prior quarter. Long-term debt was $8.59 billion compared with $8.95 billion at the end of the prior quarter.
The company generated $764 million of cash from operating activities and spent $307.9 million in capex in the reported quarter. Adjusted free cash flow was $476.3 million.
The company invested $61 million in acquisitions in the reported quarter.
Share Repurchase and Dividend Payout
In April 2020, the company paid out $128.9 million of cash dividend to shareholders of record as of Apr 1, 2020. As of Jun 30, 2020, the company’s quarterly dividend payable was $129 million to shareholders of record as of Jul 1, 2020. The dividend was paid out on Jul 15, 2020.
During the reported quarter, the company did not repurchase any shares. As of Jun 30, 2020, the company had $605.8 million available under its October 2017 repurchase program.
Republic Services expects to generate $1.1 billion to $1.175 billion of adjusted free cash flow for the full year. It also plans to invest $600-$650 million in acquisitions for the full year.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 13.41% due to these changes.
At this time, Republic Services has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Republic Services has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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