Waste management firm Republic Services, Inc. RSG reported GAAP net income of $172.4 million or 49 cents per share in first-quarter 2015 versus $132.5 million or 37 cents per share in the year-ago quarter to start the year on a positive note. The year-over-year increase in earnings was primarily attributable to higher revenues. The earnings for the reported quarter comfortably exceeded the Zacks Consensus Estimate by 5 cents.
Republic Services Inc. - Earnings Surprise | FindTheCompany
Top-Line Performance
Revenues improved 4.4% in the reported quarter to $2,169.4 million from $2,077.2 million in the prior-year period. The year-over-year increase was driven by a 2.1% rise in average yield, a 1.9% increase in volume and accretive acquisitions (net of divestitures) of 2.1%, partially offset by lower fuel recovery fees of 0.7% and lesser recycling commodity revenues of 1.0%. The average yield was the highest in the last four years and represented a significant improvement for the company. Revenues for first-quarter 2015 beat the Zacks Consensus Estimate of $2,133 million.
Adjusted EBITDA for the reported quarter was $625.9 million (28.9% of revenues) versus $547.8 million (27.7%) in the year-ago quarter. The improvement was led by changes in net fuel and commodity and reduction in risk insurance expense due to favorable claims development and continued improvement in safety related performance.
Segment Details
Revenues from the Collection segment increased 4.8% year over year to $1,690.2 million as all its sub-segments, namely Residential, Commercial, and Industrial fared relatively better in the reported quarter. The Transfer segment revenues improved 4.8% year over year to $93.3 million. Revenues from the Landfill segment were up 4.9% to $238.9 million, while sales from the Other segment declined 10.7% year over year to $123.2 million.
By the end of the reported quarter, about 15% of the total fleet was operating on natural gas. Approximately 69% of the residential fleet was automated and 64% of the fleet was certified under the ‘One Fleet’ maintenance program. Republic Services has implemented its priority based selling (PBS) program in approximately 60% of its markets and expects to fully implement the same by the end of the year.
During the quarter, Republic Services completed the acquisition of Tervita, LLC – an environmental waste solutions subsidiary of Tervita Corporation, for an undisclosed amount. Tervita offers oilfield waste services and operates three kinds of waste management and disposal facilities. It has a proven track record of efficient safety and regulatory compliance across its entire operational footprint in North America. The acquisition is expected to strengthen Republic Services’ presence in the E&P (Exploration & Production) waste sector and positions it well for harnessing future growth opportunities.
Republic Services is expected to benefit from Tervita's expertise and penetration in the U.S markets. With the help of Tervita, Republic Services is expected to improve on its environmental protection front while achieving growth in its major activities of waste handling, recovery and disposal. Such quality acquisitions, primarily of recycling assets, are likely to act as a catalyst for healthy long-term growth within its top 25 markets. The company is also focusing on enhancing its operations by streamlining the cost structure, improving revenue quality and seeking growth through profitable investment opportunities.
Balance Sheet & Cash Flow
Cash and cash equivalents at quarter end were $134.3 million, while long-term debt (net of current maturities) stood at $7,554.5 million.
Cash from operating activities totaled $496.1 for the reported quarter compared with $396.4 million in the prior-year period. Adjusted free cash flow for the quarter was $240.8 million versus $185.6 million in the year-earlier quarter.
Share Repurchase
Republic Services has a share repurchase program in place since Nov 2010. During first-quarter 2015, the company repurchased 2.1 million shares under this program for $86.1 million at an average price of $41.01 per share.
Moving Forward
Although Republic Services did not clearly shed any light on its full year guidance issued last quarter, management remained confident to achieve its set goals for the year. The company is likely to give an update on the guidance with the second-quarter results.
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 #3 (Hold). Other stocks that look promising now in the Industrial Goods sector include Stericycle, Inc. SRCL, Compass Diversified Holdings CODI, and Icahn Enterprises, L.P. IEP, each carrying a Zacks Rank #2 (Buy).
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