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Republic Services (RSG) Beats Q3 Earnings, Outlook Raised
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Waste management firm Republic Services, Inc. (RSG - Free Report) reported relatively healthy third-quarter 2016 results with GAAP earnings of $85.6 million or 25 cents per share compared with $215.0 million or 61 cents per share in the year-ago quarter. The year-over-year decrease in earnings, despite higher revenues, was primarily attributable to higher operating costs and loss on extinguishment of debt.
Excluding non-recurring items, adjusted earnings for the reported quarter were $212.6 million or 62 cents per share, compared with $184.7 million or 53 cents per share in the year-earlier quarter. Adjusted earnings for the reported quarter exceeded the Zacks Consensus Estimate by 4 cents.
Revenues improved 2.8% year over year to $2,409.3 million and matched the Zacks Consensus Estimate. The year-over-year increase in revenues was driven by a 2.1% rise in average yield and a 0.6% increase in volume, partially offset by lower fuel recovery fees of 0.6%. Core price increased revenues by 3.2% during the quarter.
Adjusted EBITDA for the reported quarter was $697.2 million, resulting in an adjusted EBITDA margin of 28.9%.
Segmental Details
Revenues from Collection increased 2.0% year over year to $1,813.5 million as the Commercial and Industrial sub-segments fared relatively better in the reported quarter. Revenues from Transfer improved 10.0% year over year to $125.8 million. Revenues from Landfill were up 1.1% to $293.3 million, while sales from the Other segment increased 13.7% year over year to $159.4 million.
By the end of the reported quarter, about 18% of the total fleet was operating on natural gas. Approximately 74% of the residential fleet was automated and 90% was certified under the standardized maintenance program.
Balance Sheet & Cash Flow
Cash and cash equivalents at the quarter end were $55.0 million, while long-term debt (net of current maturities) was $7,739.6 million.
Cash from operating activities totaled $1,359.6 million for the first nine months of 2016 compared with $1,324.5 million in the prior-year period. Adjusted free cash flow for the first nine months of 2016 and 2015 was $575.9 million and $602.9 million, respectively.
Share Repurchase & Dividend
Republic Services has a share repurchase program in place since Nov 2010. During the third quarter, the company repurchased 2.3 million shares under this program for $109.6 million at an average price of $47.34 per share.
The company returned $212 million to shareholders through share repurchases and dividends during the quarter and $622 million on a year-to-date basis. Since the beginning of the year, Republic Services repurchased 6.5 million shares for $312 million and remains well on track to complete $400 million of share repurchases during 2016.
Based on healthy quarterly results and expectations that recycled commodity prices will remain at current levels for the remainder of the year, management raised the guidance for 2016. The company expects its adjusted earnings to be in a range of $2.19–$2.20 per share, up from the original guidance of $2.13–$2.17. Additionally, adjusted free cash flow is expected to be in the range of $840 million–$850 million, up from the earlier projection of $820 million–$840 million.
Preliminary Guidance for 2017
Republic Services offered a preliminary outlook for 2017 on the basis of current economic conditions. Adjusted earnings are expected to be within $2.31–$2.36 per share, while adjusted free cash flow is expected between $875 million–$900 million. Both performance metrics represent mid to high single-digit growth compared to 2016.
Moving Forward
Republic Services is likely to generate a healthy cash flow in the future with diligent execution of operational plans and a realigned operational structure. The company has strong underlying fundamentals and is set to achieve consistent earnings growth while creating significant shareholder value.
Waste Management has a long-term earnings growth expectation of 9% and is currently trading at a forward P/E of 21.9x.
Accenture has a long-term earnings growth expectation of 10.1% and is currently trading at a forward P/E of 19.6x.
Carbonite has a long-term earnings growth expectation of 30.0% and is currently trading at a forward P/E of 110.0x.
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Republic Services (RSG) Beats Q3 Earnings, Outlook Raised
Waste management firm Republic Services, Inc. (RSG - Free Report) reported relatively healthy third-quarter 2016 results with GAAP earnings of $85.6 million or 25 cents per share compared with $215.0 million or 61 cents per share in the year-ago quarter. The year-over-year decrease in earnings, despite higher revenues, was primarily attributable to higher operating costs and loss on extinguishment of debt.
Excluding non-recurring items, adjusted earnings for the reported quarter were $212.6 million or 62 cents per share, compared with $184.7 million or 53 cents per share in the year-earlier quarter. Adjusted earnings for the reported quarter exceeded the Zacks Consensus Estimate by 4 cents.
Top-Line Performance
Revenues improved 2.8% year over year to $2,409.3 million and matched the Zacks Consensus Estimate. The year-over-year increase in revenues was driven by a 2.1% rise in average yield and a 0.6% increase in volume, partially offset by lower fuel recovery fees of 0.6%. Core price increased revenues by 3.2% during the quarter.
Adjusted EBITDA for the reported quarter was $697.2 million, resulting in an adjusted EBITDA margin of 28.9%.
Segmental Details
Revenues from Collection increased 2.0% year over year to $1,813.5 million as the Commercial and Industrial sub-segments fared relatively better in the reported quarter. Revenues from Transfer improved 10.0% year over year to $125.8 million. Revenues from Landfill were up 1.1% to $293.3 million, while sales from the Other segment increased 13.7% year over year to $159.4 million.
By the end of the reported quarter, about 18% of the total fleet was operating on natural gas. Approximately 74% of the residential fleet was automated and 90% was certified under the standardized maintenance program.
Balance Sheet & Cash Flow
Cash and cash equivalents at the quarter end were $55.0 million, while long-term debt (net of current maturities) was $7,739.6 million.
Cash from operating activities totaled $1,359.6 million for the first nine months of 2016 compared with $1,324.5 million in the prior-year period. Adjusted free cash flow for the first nine months of 2016 and 2015 was $575.9 million and $602.9 million, respectively.
Share Repurchase & Dividend
Republic Services has a share repurchase program in place since Nov 2010. During the third quarter, the company repurchased 2.3 million shares under this program for $109.6 million at an average price of $47.34 per share.
The company returned $212 million to shareholders through share repurchases and dividends during the quarter and $622 million on a year-to-date basis. Since the beginning of the year, Republic Services repurchased 6.5 million shares for $312 million and remains well on track to complete $400 million of share repurchases during 2016.
REPUBLIC SVCS Price, Consensus and EPS Surprise
REPUBLIC SVCS Price, Consensus and EPS Surprise | REPUBLIC SVCS Quote
2016 Guidance Up
Based on healthy quarterly results and expectations that recycled commodity prices will remain at current levels for the remainder of the year, management raised the guidance for 2016. The company expects its adjusted earnings to be in a range of $2.19–$2.20 per share, up from the original guidance of $2.13–$2.17. Additionally, adjusted free cash flow is expected to be in the range of $840 million–$850 million, up from the earlier projection of $820 million–$840 million.
Preliminary Guidance for 2017
Republic Services offered a preliminary outlook for 2017 on the basis of current economic conditions. Adjusted earnings are expected to be within $2.31–$2.36 per share, while adjusted free cash flow is expected between $875 million–$900 million. Both performance metrics represent mid to high single-digit growth compared to 2016.
Moving Forward
Republic Services is likely to generate a healthy cash flow in the future with diligent execution of operational plans and a realigned operational structure. The company has strong underlying fundamentals and is set to achieve consistent earnings growth while creating significant shareholder value.
Republic Services currently has a Zacks Rank #2 (Buy). Some other favorably ranked stocks in the industry include Waste Management, Inc. (WM - Free Report) , Accenture plc (ACN - Free Report) and Carbonite, Inc. , each carrying the same Zacks Rank as Republic Services. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Waste Management has a long-term earnings growth expectation of 9% and is currently trading at a forward P/E of 21.9x.
Accenture has a long-term earnings growth expectation of 10.1% and is currently trading at a forward P/E of 19.6x.
Carbonite has a long-term earnings growth expectation of 30.0% and is currently trading at a forward P/E of 110.0x.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>