Republic Services, Inc. (RSG) reported solid second-quarter 2014 results with healthy year-over-year increases in both revenues and earnings, backed by a diligent execution of its operational plans. Adjusted earnings for the reported quarter improved to $181.8 million or 51 cents per share from $156.7 million or 43 cents in the year-earlier quarter. The year-over-year increase in earnings was primarily attributable to higher revenues and stringent cost-cutting measures. Adjusted earnings for the reported quarter beat the Zacks Consensus Estimate by a couple of cents.
GAAP net income for the reported quarter more than tripled to $179.0 million or 50 cents per share from $56.3 million or 15 cents per share in the year-ago quarter. The year-over-year rise in GAAP net income was driven by decent top-line growth and positive yield across the board.
Revenues improved 5.4% to $2,225.3 million in the reported quarter from $2,111.7 million in the prior-year period. The year-over-year increase was driven by a 1.4% rise in average yield, a 2.6% increase in volume, higher fuel recovery fees of 0.2%, higher recycling commodity revenues of 0.6% and accretive acquisitions (net of divestitures) of 0.6%.
Revenues for second-quarter 2014 exceeded the Zacks Consensus Estimate of $2,200 million. Adjusted EBITDA was $631.3 million (28.4% of revenues) versus $582.1 million (27.6%) in the year-ago quarter. The year-over-year improvement in margin was largely due to lower SG&A expenses and was in line with the expectations of the company.
Segment Performance
Revenues from the Collection segment increased 4.3% year over year to $1,691.2 million as all its sub-segments, namely Residential, Commercial, and Industrial fared relatively better. The Transfer segment revenues decreased 1.5% year over year to $107.6 million. Revenues from the Landfill segment were up 8.8% to $281.9 million, while sales from the Other segment climbed 15.3% year over year to $144.6 million.
Financial Update
Cash and cash equivalents at quarter end were $49.5 million, while long-term debt (net of current maturities) stood at $7,042.1 million. During the quarter, Republic Services entered into a new $1.25 billion unsecured revolving credit facility to replace its existing $1.0 billion credit facility that was scheduled to mature in Apr 2016. The new credit facility will mature in Jun 2019.
Cash from operating activities totaled $722.3 for the first six months of 2014 compared with $761.5 million in the prior-year period. Adjusted free cash flow for the first half of the year was $246.6 million versus $311.6 million in the prior-year period. The company invested $55 million in acquisitions year to date, generating about $28 million of revenues at a post-synergy EBITDA multiple of 5 times.
Republic Services increased its quarterly dividend by 7.7% year over year to 28 cents per share. The dividend hike is consistent with the historical practice of raising the quarterly payout in the mid- to high-single digit range.
Share Repurchase
Republic Services has a share repurchase program in place since Nov 2010. By the end of second-quarter 2014, the company had repurchased 42.9 million shares under this program for $1,295.1 million at an average price of $30.18 per share, including 3.6 million shares bought back for $123.7 million at $34.85 per share during the reported quarter. The company expects to spend about $400 million on share repurchases in 2014.
Outlook
Republic Services is focused on enhancing its operations by rationalizing the cost structure, improving revenue quality and seeking growth through profitable investment opportunities.
The company reiterated its guidance for full-year 2014, and expects earnings in the range of $1.93 to $1.98 per share. Revenues are expected to increase by 3.5–4.5% year over year with an average yield of 1% to 1.5%, volume growth of 1.5% to 2% and a 1% contribution from acquisitions. Adjusted free cash flow is expected to be within $675 million and $725 million for the ongoing year with an EBITDA margin of 28.5% to 29.0%.
Moving Forward
Republic Services is committed to its long-term strategy, which involves the maintenance of a healthy cash flow and a disciplined approach to cash utilization. The company has strong underlying fundamentals and is set to achieve consistent earnings growth and create shareholder value.
Republic Services currently has a Zacks Rank #2 (Buy). Other companies in the industry that are worth mentioning include Waste Management, Inc. (WM), Clean Harbors, Inc. (CLH) and Convergys Corporation (CVG), each carrying a Zacks Rank #2 (Buy).
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