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Why Is Republic Services (RSG) Up 0.4% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Republic Services (RSG). Shares have added about 0.4% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Republic Services Surpasses Q2 Earnings Estimate, Lags Revenues

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

Adjusted earnings per share of 79 cents outpaced the consensus mark by a penny and increased 8.2% year over year, attributable to a 4 cents benefit from lower-than-expected effective tax rate, which was partially offset by a 3 cents non-cash tax-related charge.

Revenues

Quarterly revenues of $2.60 billion lagged the consensus estimate by $18.9 million but increased 3.5% year over year, driven by strong pricing across the company’s collection, disposal and recycling processing businesses. Top-line growth also includes a positive impact of 2.8% internal growth and 70 basis points impact of acquisitions.

Revenues in the Collection segment totaled $1.95 billion, up 2.9% year over year. It contributed 75% to total revenues. Transfersegment revenues of $151.1 million increased 10.3% year over year. It accounted for 6% of total revenues. Landfill segment revenues of $337.5 million increased 7% year over year. It contributed 13% to total revenues. Energy services segment revenues of $40.8 million declined 18.7% year over year. It accounted for 2% of total revenues. Other segment revenues of $128.2 million increased 4.4% year over year. It contributed 5% to total revenues. 

Operating Results

Adjusted EBITDA came in at $726 million and adjusted EBITDA margin was 27.9% (up 50 basis points year over year). Operating income was $437.4 million compared with $408.2 million in the year-ago quarter. Operating margin rose to 16.8% from 16.2% in the year-ago quarter. Total selling, general and administrative expenses were $264.5 million compared with $252.9 million in the year-ago quarter.

Balance Sheet and Cash Flow

Republic Services exited second-quarter 2019 with cash and cash equivalents of $72.5 million compared with $68 million at the end of the prior quarter. Long-term debt was $6.88 billion compared with $6.80 billion at the end of the prior quarter. The company generated $581.9 million of cash from operating activities and spent $315 million in capex in the reported quarter. Adjusted free cash flow was $272.1 million. The company spent $129 million on acquisitions during the reported quarter.

Share Repurchase and Dividend Payout

Republic Services returned $213 million to shareholders through dividends and share repurchases during the reported quarter.

The company repurchased 1.1 million shares at an aggregate cost of $91.9 million and at average cost of $82.67 per share during the reported quarter. As of Jun 30, 2019, the company had $900.7 million available under its share repurchase authorization.

In April 2019, the company paid $120.7 million of cash dividend to shareholders of record as of Apr 1. The company paid out quarterly dividend totaling $120.2 million to shareholders of record as of Jul 1 on Jul 15, 2019. Concurrent with the earnings release, the company’s board of directors approved an 8% dividend hike, thereby raising the quarterly dividend to 40.5 cents per share from 37.5 cents.  The raised dividend will be paid out on Oct 15, 2019 to shareholders of record as of Oct 1.

2019 Guidance

Republic Services reaffirmed its 2019 guidance for adjusted earnings and adjusted free cash flow, despite additional headwinds from lower recycled commodity prices. The company continues to anticipate adjusted earnings 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 $550 million for acquisitions compared with $300 million guided earlier.

How Have Estimates Been Moving Since Then?

Estimates revision followed an upward path over the past two months.

VGM Scores

Currently, Republic Services has a nice Growth Score of B, a grade with the same score on the momentum front. 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.

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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