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Republic Services (RSG) Up 0.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Republic Services (RSG - Free Report) . Shares have added about 0.2% in that time frame, underperforming 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 drivers.

Republic Services Supasses Q3 Earnings

Republic Services  reported mixed third-quarter 2020 results wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings per share of 81 cents outpaced the consensus mark by 35% and improved year over year.

Republic Services continued to convert CPI-based contracts to more favorable pricing mechanisms for annual price adjustment. It now has roughly $855 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 third quarter was $99, reflecting a year-over-year increase of $27 per ton. The company has been honored as a Great Place to Work for the fourth consecutive year.

Revenues

Quarterly revenues of $2.57 billion lagged the consensus estimate by 0.5% and decreased 2.8% year over year. The company’s top line was unfavorably impacted by 2.7% internal growth and 0.1% acquisitions.

Revenues in the Collection segment totaled $1.92 billion, down 2.4% year over year. Transfer segment revenues of $161.5 million increased 4.3% year over year. Landfill segment revenues of $333.9 million decreased 1.7% year over year. Environmental services segment revenues of $24.1 million declined 58.3% year over year. Other segment revenues of $131.5 million grew 4.7% year over year.

Operating Results

Adjusted EBITDA of $781 million was almost flat year over year. Adjusted EBITDA margin of 30.3% improved 230 basis points (bps) from the prior-year quarter. This included a 70-bps benefit from higher recycled commodity prices and lower fuel costs.

Operating income was $447.9 million compared with $467.8 million in the year-ago quarter. Operating margin declined to 17.4% from 17.7% in the year-ago quarter.

Total selling, general and administrative expenses were $256.1 million compared with $275.4 million in the year-ago quarter.

Balance Sheet and Cash Flow

Republic Services exited third-quarter 2020 with cash and cash equivalents of $406.4 million compared with $269.7 million at the end of the prior quarter. Long-term debt of $8.59 billion was flat sequentially.

The company generated $575.5 million of cash from operating activities in the reported quarter. Adjusted free cash flow was $366.1 million. The company invested $30 million in acquisitions in the reported quarter.

Dividend Payout

In July 2020, the company paid out $129 million of cash dividend to shareholders on record as of Jul 1, 2020. As of Sep 30, 2020, the company’s quarterly payable dividend was $135.4 million to shareholders on record as of Oct 1, 2020. The dividend was paid out on Oct 15, 2020.

The company’s board of directors declared a regular quarterly dividend of 42.5 cents per share for shareholders on record as of Jan 4, 2021. The dividend will be paid out on Jan 15, 2021.

Share Repurchase Activity

During the reported quarter, the company did not repurchase any shares. As of Sep 30, 2020, the company had $605.8 million available under its October 2017 repurchase program.

Concurrent with the earnings release, the company’s board of directors approved $2 billion for share repurchases, effective from Jan 1, 2021 till Dec 31, 2023. As of Sep 30, 2020, the company had $606 million available under its prior authorizationand this continues till Dec 31, 2020.

2020 Guidance

Republic Services reaffirmed its full-year 2020 adjusted EPS guidance. Adjusted EPS is expected to be in the range of $3.37-$3.40.

The company now anticipates to generate $1.15 billion to $1.20 billion of adjusted free cash flow for the full year compared with the prior guidance of $1.1-$1.175 billion. This guidance assumes continued gradual improvement in economic activity through the remainder of the year.

It also plans to invest $850-$900 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 6.16% due to these changes.

VGM Scores

At this time, Republic Services has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, 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

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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