Republic Services releases Q4, full-year financial results

By Katie Fletcher | February 12, 2016

On Feb. 11, Republic Services Inc. released financial results for the fourth quarter of 2015, reporting a net income of $172.3 million, or 49 cents per share, compared to $50.3 million, or 14 cents per share, for the comparable period in 2014.

Excluding certain benefits and expenses on an adjusted basis, Republic Services reported a net income of $175 million for the three months ended Dec. 31, or 50 cents per diluted share, compared to $178.5 million, or 50 cents per diluted share for the comparable period in the prior year.

Overall for the year, Republic Services reported a net income of $749.9 million, or $2.13 per diluted share, up from $547.6 million, or $1.53 per diluted share, for 2014. On an adjusted basis, net income for the year ended Dec. 31, 2015, was $722.3 million, or $2.06 per diluted share, versus $700.6 million, or $1.96 per diluted share for the comparable period in the prior year.

Fourth quarter and full-year financial highlights include a fourth quarter adjusted earnings per share (EPS) of 50 cents. Full-year adjusted diluted EPS was $2.06 and adjusted free cash flow was $813 million. Revenue growth during the quarter from average yield was 2.2 percent and volumes increased 0.9 percent.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin was 27.2 percent for the fourth quarter and full-year margin was 28.1 percent. An improvement of 10 basis points for the full-year margin reflects the company’s expansion in its solid waste business, primarily from lower fuel costs and pricing in excess of cost inflation, partially offset by lower recycling commodity prices and the impact of recent acquisitions. During 2015, delivered total shareholder return was 12.4 percent, and $808 million was reported as the total cash returned to shareholders through dividends and share repurchases, which represents a cash yield of approximately 5.6 percent.

During the earnings call, Donald Slager, president and CEO of the company, began with an overview of the company’s market position and revenue-enhancing initiatives.

Regarding Republic Services’ market position, the company invested $193 million in tuck-in acquisitions for the year, which Slager said was nearly two times the company’s original goal. The transactions finalized in 2015 represent annual revenue of approximately $143 million at a post-synergy EBITDA multiple of 4.3 times. Slager also mentioned, during the past year, the company acquired U.S. assets of Tervita, which he said serve as a platform acquisition in the exploration and production (E&P) waste sector, with attractive long-term fundamentals and opportunities for future growth.

The company’s revenue-enhancing initiatives include all of its markets using the capture cloud-based pricing tool and over 1.2 million customers are active and enrolled in the company’s MyResource customer portal and mobile app. According to Slager, in addition, the company now has over 500 contracts with approximately $250 million in annual revenue that use a waste-related index for the annual price adjustment. “We are realizing the benefits of these revenue enhancing initiatives,” Slager said on the call. “During 2015, we reported our highest level of average yield in over five years.”

Slager also mentioned the Republic Services’ fleet-based productivity and cost savings initiatives. According to the company, 16 percent of its total fleet now operate on natural gas, 72 percent of the residential fleet is currently automated and 78 percent of its total fleet has been certified under the company’s One Fleet maintenance program, up from 60 percent a year ago. “These initiatives require investment, but the payback is compelling and our financial performance reflects the benefits we are seeing,” Slager said.

Chuck Serianni, chief financial officer, discussed the company’s financial results. Revenue of approximately 2.3 billion, or an increase of 61 million over the prior year, was reported. The 2.7 increase in revenue includes internal growth of 90 basis points and acquisitions of 1.8 percent. Internal growth includes first, average yield growth of 2.2 percent; average yield growth in the collection business was 2.7 percent and average yield in the post-collection business was 70 basis points, which includes landfill municipal solid waste (MSW) of 1.5 percent.

Second, internal growth includes increased volumes of 90 basis points year-over-year. The collection business increased 90 basis points. The post-collection business, made up of third-party landfill in transfer station volumes, increased 1.8 percent; landfill increased 2.1 percent, which includes positive MSW volumes of 5.5 percent and construction and demolition of 8.2 percent, offset by a decline in special waste volumes of 2.1 percent. According to Serianni, the decrease in special waste relates to same-store E&P volumes, and excluding E&P waste streams, special waste increased 1 percent.

Fuel recovery fees decrease 170 basis points, due to a decline in the cost of fuel of approximately $33 million compared to 2014. Serianni disclosed on the earnings call that the average price per gallon of diesel decreased to $2.44 in the fourth quarter from $3.57 in the prior year, a decrease of 32 percent. The current average diesel price is $2.01 per gallon. “We recover approximately 80 percent of our total fuel cost through our fuel recovery fee program,” Serianni said. “Additionally, 20 percent of our diesel gallons are hedged using financial hedges.”

Commodity revenue also decreased. The 50 basis-point decline in commodity sales primarily relates to the decrease in recycled commodity prices, according to Serianni. Average commodity prices for all materials at the company’s recycling facilities decreased 16 percent to an average price of $95 per metric ton in the fourth quarter from $113 per metric ton in the prior year. Excluding glass and organics average commodity prices decreased 14 percent to an average price of $108 per metric ton in the fourth quarter from a $126 per metric ton in the prior year.

The company ended its report providing 2016 fiscal year guidance. Republic Services expects adjusted free cash flow to be around $820 million to $840 million. Adjusted diluted EPS is expected to be in the range of $2.13 to $2.17, and revenue is expected to increase 2.5 to 3 percent.