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Republic Services, Inc. (RSG - Analyst Report) reported first-quarter 2014 adjusted earnings of $154.3 million or 43 cents per share, down 7.8% from $167.4 million or 46 cents in the year-earlier quarter. The year-over-year decrease in earnings was partly attributable to challenging winter conditions in the quarter. Adjusted earnings for the reported quarter missed the Zacks Consensus Estimate by a couple of cents.

GAAP net income for the reported quarter was $132.5 million or 37 cents per share compared with $124.6 million or 34 cents per share in the year-ago quarter. The year-over-year rise in GAAP net income was driven by decent top-line growth and positive yield across the board.

The harsh weather conditions translated to lost revenue opportunities and higher operating costs, resulting in a decrease in adjusted EPS by 2 cents and a drop in EBITDA margin by 30 basis points (bps). Moreover, the expiration of alternative fuel tax credits and the resultant increase in fuel expenses exerted pressure on the EBITDA margin.

Revenues improved 3.8% to $2,073.7 million in the reported quarter from $1,998.6 million in the prior-year period. The year-over-year increase was driven by a 1.2% rise in average yield, a 1.5% increase in volume, higher fuel recovery fees of 0.1% and higher recycling commodity revenues of 0.4% and accretive acquisitions (net of divestitures) of 0.6%.

However, revenues for first-quarter 2014 missed the Zacks Consensus Estimate of $2,081 million. Adjusted EBITDA was $574.8 million versus $569.3 million in the year-ago quarter.

Segment Performance

Revenues from the Collection segment increased 3.2% year over year to $1,613.5 million as all its sub-segments, namely Residential, Commercial, and Industrial fared relatively better. The Transfer segment revenues decreased 2.7% year over year to $89.0 million. Revenues from the Landfill segment were up 5.5% to $236.8 million, while sales from the Other segment climbed 12.8% year over year to $134.4 million.

Financial Update

Cash and cash equivalents at quarter end were $175.8 million, significantly up from $130.1 million at the prior-year quarter end. Long-term debt (net of current maturities) stood at $7,007.9 million at quarter end, with $1.5 billion available under the company’s revolving credit facility.

Cash from operating activities totaled $396.4 for the quarter compared with $419.8 million in the prior-year period. Adjusted free cash flow for the quarter was $185.6 million versus $212.8 million in the prior-year period.

The company invested $11 million in acquisitions during the quarter, generating about $7 million of revenues at a post-synergy EBITDA multiple of 4.5 times.

Share Repurchase

Republic Services has a share repurchase program in place since Nov 2010. By the end of first-quarter 2014, the company had repurchased 39.4 million shares under this program for $1,171.3 million at an average price of $29.76 per share, including 3.9 million shares bought back for $132.2 million at $33.89 per share during the reported quarter.


Republic Services is focused on enhancing its operations by rationalizing the cost structure, improving revenue quality and seeking growth through profitable investment opportunities.

The company reiterated its guidance for full-year 2014, and expects earnings in the range of $1.93 to $1.98 per share. Revenues are expected to increase by 3.5–4.5% year over year with an average yield of 1% to 1.5%, volume growth of 1.5% to 2% and a 1% contribution from acquisitions. Adjusted free cash flow is expected to be within $675 million and $725 million for the ongoing year with an EBITDA margin of 28.5% to 29.0%.

Moving Forward

Republic Services is committed to its long-term strategy, which involves the maintenance of a healthy cash flow and a disciplined approach to cash utilization. The company has strong underlying fundamentals and is set to achieve consistent earnings growth and create shareholder value.

Republic Services currently has a Zacks Rank #4 (Sell). Other companies in the Business Services sector that are worth mentioning include Convergys Corporation (CVG - Snapshot Report), EnerNOC, Inc. (ENOC - Snapshot Report) and HNI Corp. (HNI - Snapshot Report), each carrying a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on RSG
Read the Full Research Report on CVG
Read the Full Research Report on ENOC
Read the Full Research Report on HNI

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