Republic Services, Inc. (RSG) reported fiscal 2011 second quarter results, posting an EPS of 12 cents in the quarter, declining sharply from 42 cents in the year-earlier quarter.
The quarter noted some special items including 32 cents related to a loss on extinguishment of debt and 5 cents pertaining to loss on disposal of assets and impairments. Excluding these items adjusted EPS amounted to 49 cents compared with 43 cents in the year-ago quarter, a penny above the Zacks Consensus Estimate.
Total revenue for the quarter was $2.08 million up, from $2.07 million in the prior-year quarter. Sales improved due to a 1% increase in core prices, 1.1% contribution from fuel surcharges and 1.3% from commodities pricing. However, these increases were offset by 1% from core volume and 1.4% due to the expiration of our contracts with San Mateo County and the City of Toronto.
Costs and Margins
Cost of goods sold was $1.24 billion in the reported quarter, slightly up from $1.22 billion in the year-ago quarter. Selling, general and administrative expenses declined to $200.1 million from $210.8 million in the year-ago quarter.
Operating income improved marginally to $401.2 million, during the quarter, from $400.8 million in the prior-year quarter. However, operating margins declined 20 basis points year over year to 19.2% in the quarter.
Segmental Performance
Total revenue from collection segment was essentially flat at $1.56 billion from the year-ago levels. During the quarter, residential collections dipped 1.6% year over year to $537.6 million; while commercial collections improved 0.8% year over year to $627.6 million.
Industrial collections also increased 1.9% year over year to $390.6 million and other collections improved substantially by 14.3% year over year to $8.0 million.
Transfer and Disposal segment reported total revenue of $379.3 million, declining from $391.1 million in the year-ago quarter.
Other segment of the company reported total revenue of $143.5 million, improving substantially from $116.2 million in the year-earlier quarter.
Financial Update
As of June 30, 2011, cash and cash equivalents soared to $320.5 million, from $88.3 million as of December 31, 2010.
As of June 30, 2011, debt-to-capitalization ratio increased to 47.4%, from 44.3% as of March 31, 2011 and 42.8% as of December 31, 2011.
During the month of April, Republic Services paid a cash dividend of $75.8 million to stockholders of record as of April 1, 2011, while in the month of July it paid a dividend of $75.3 million to stockholders of record at the close of business on July 1, 2011.
Besides, the board of directors also approved a 10% increase in quarterly dividend and increased dividend of 22 cents per share will be paid on October 17, 2011 to stockholders of record on October 3, 2011.
Cash from operations also improved to $795.6 million at the end of the second quarter, from $594.8 million, during the year-ago period.
Free cash flow also improved to $186.8 million at the end of the second quarter from $125.4 million at the end of year-earlier period.
As of June 30, 2011, the company used $303.2 million under the program to repurchase 10.1 million shares at an average cost of $30.08.
Outlook
Management reaffirms its full year guidance with expected earnings in the range of $1.86-$1.89 per share and free cash flow in the range of $875 million to $900 million.
Our Take
The company is strongly positioned with its cash balance and cash flows, and expects to deliver better results going forward. Besides, share repurchases are sure to bring benefits to the company in the upcoming quarters.
However, revenue declines at the majority of its business lines remain a concern. We currently have a Zacks #3 Rank (short-term hold rating) on the stock.
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.
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