Republic Services Inc. (RSG) reported first quarter 2011 adjusted EPS of 42 cents, a penny above the Zacks Consensus Estimate and the prior-year EPS of 41 cents.
Adjusted EPS in the first quarter 2011 excluded a loss on extinguishment of debt of 1 cent. The prior-year quarter’s EPS excluded loss on extinguishment of debt of 22 cents, and costs to achieve synergies and restructuring charges of a penny each. Excluding these items, EPS in the reported quarter was 41 cents compared with 17 cents in the year-ago quarter.
Revenue in the first quarter inched up a meager 0.4% to $1,964.9 million. Reported revenue missed the Zacks Consensus Estimate of $1,983 million.
Accretions from core price increase (1%), fuel surcharges (0.6%) and higher commodity pricing (1%) were offset by decreases in core volume (0.7%) and a negative impact of 0.1% from divestitures. Further, the end of Republic Services’ San Mateo County collection contract and disposal and transportation contract with the City of Toronto, effective December 31, 2010, resulted in a 1.4% drag on revenues.
Even though volumes declined 0.7%, it sequentially improved 40 basis points, including a 110 basis point improvement in collection. This is the fourth straight quarter of sequential volume improvement in the Collection business.
Revenues from Collection dipped 0.4% to $1,505.3 million, pulled down by a drop in all its businesses, barring Industrial and Others. Industrial Collection revenue increased 2% to $353.6 million. Commercial Collection dipped 1% to $618.1 million and Residential Collection suffered a 1.7% decline to $525.7 million. Revenue at its Transfer and Disposal business also slipped 2.6% in the quarter to $674.1 million.
Cost of operations increased 2% year over year to $1,159.7 million. Gross profit declined 2% to $805.2 million in the quarter with gross margin contracting 90 basis points to 41% in the quarter. Selling, general and administrative expenses improved 3% to $203.9 million in the quarter. The company’s adjusted operating income still dropped 3% to $375.8 million and operating margin contracted 70 basis points to 19.1%.
Financial Update
Republic Services ended the first quarter with a cash and cash equivalent balance of $67.9 million, down from $88.3 million at the end of fiscal 2010. Cash from operations generated during the quarter was $433.7 million compared with $299.1 million in the prior-year quarter. Free cash flow upped 48% year over year to $143.4 million in the quarter. Republic Services repurchased approximately 5 million shares in the quarter for approximately $148 million. Under the existing repurchase program, $212 million remains available, which the company expects to complete in 2011.
Full-Year 2011 Guidance
Republic Services reaffirmed its 2011 adjusted EPS guidance range of $1.86 to $1.89. The company estimates a revenue spike of 1.5% with 1.0% to 1.5% resulting from core price increases, flat to up 0.5% from volume expansion and a 1% fillip from fuel surcharges and commodities pricing, partially offset by a decline of 1.5% due to the loss of significant contracts. EBITDA margin is pegged at roughly 31.6%, an increase of 50 basis points from 2010. Adjusted free cash flow for 2011 is forecast between $875 million and $900 million.
We expect the company’s solid cash position, lower debt levels and share buyback program to help deliver better results going forward. However, revenue declines at the majority of its business lines remain a concern. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Republic Services is the second largest domestic non-hazardous solid waste company in the U.S. It provides non-hazardous solid waste disposal services for commercial, industrial, municipal and residential applications through a network of 375 collection companies in 40 states and Puerto Rico. Republic Services competes with Waste Management Inc. (WM) and privately held Waste Industries USA, Inc.
REPUBLIC SVCS (RSG): Free Stock Analysis Report
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