Premier waste management firm Republic Services, Inc. (RSG - Free Report) is scheduled to report fourth-quarter 2017 results after the closing bell on Feb 8. The company’s Collection segment — accounting for more than 73% of total revenues — is likely to report higher revenues due to improved demand for its products.
Whether this will lead to higher earnings for the quarter remains to be seen.
Republic Services has significantly expanded its product offerings in the e-commerce platform to address the evolving needs of customers. This low-cost sales channel is likely to aid the company in the quarter. In addition, it has improved the capabilities and functionality of the customer portal and mobile app. These value-driven interactive features are likely to lead to incremental orders and higher revenues in the to-be-reported quarter.
The strategic acquisition of ReCommunity Holdings II, Inc., the largest independent recycling-processing firm in the United States, is likely to offer unrivalled competitive advantage in the recycling business that continues to be one of the fastest growing segments of the waste stream. In addition, the acquisition will also facilitate Republic Services to gain control of multiple long-term municipal agreements of ReCommunity with processing fee-based structures. These agreements align perfectly with Republic Services' innovative recycling pricing model and are likely to generate incremental revenues.
At the same time, Republic Services is focused on increasing operational efficiency by converting its fleet to compressed natural gas collection vehicles and modifying rear-loading trucks to automated-side loaders, which will reduce costs and improve profitability. The company is realigning its field support functions by combining two organizational layers. It expects these initiatives to contribute approximately $25 million of annual cost savings from 2018.
As part of the realignment program, the company has centralized the management structure for recycling operations. The new organizational structure is likely to ensure a clear ownership for the recycling and processing market vertical. Republic Services is also transitioning to a fee-based recycling processing model to cover processing costs and generate a healthy ROI (return on investments).
The Zacks Consensus Estimate for Collection segment revenues is currently pegged at $1,862 million, up from $1,796 million generated in the year-ago quarter. Revenues from the Landfill segment are expected to be $294 million compared with reported revenues of $280 million in the year-earlier quarter. Revenues from the Transfer and Disposal Services segment are anticipated to be $133 million, up from $116 million reported in the year-ago quarter. Total revenues are likely to be up to $2,499 million from $2,379 million reported in the year-ago quarter.
Other Key Factors
However, margin pressure remains a bottleneck for the company. Margins are expected to remain constrained in the quarter as Republic Services has more exposure to Collection services and less to Disposal services. Typically, Disposal generates the highest margins and Collection the lowest. The company’s performance is also likely to be hurt by protracted weakness in special waste, industrial volumes and tight municipal budgets. In addition, increased competitive pressure remains a concern for the company.
Our proven model conclusively shows that Republic Services is likely to beat earnings this quarter as it possesses the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is perfectly the case here as you will see below:
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and Zacks Consensus Estimate, is +1.31%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Republic Services has a Zacks Rank #1. This increases the predictive power of ESP and makes us reasonably confident about an earnings surprise.
Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Exelon (EXC - Free Report) is expected to release fourth-quarter 2017 results on Feb 7. The company has an Earnings ESP of +0.88% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ni Source (NI - Free Report) is expected to release fourth-quarter 2017 results on Feb 20. The company has an Earnings ESP of +1.45% and a Zacks Rank #3.
Dynegy (DYN - Free Report) is expected to release fourth-quarter 2017 results on Feb 22. The company has an Earnings ESP of +22.35% and a Zacks Rank #3.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2018 today >>