Republic Services Reports Mixed 2Q - Analyst Blog

By Zacks Equity Research,

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Republic Services ' ( RSG ) second-quarter 2012 adjusted earnings were 59 cents per share, beating the Zacks Consensus Estimate of 49 cents and also ahead of the year-ago adjusted earnings of 49 cents.

Adjusted earnings excluded 18 cents, pertaining to extinguishment of debt and a 1 cent negotiation cost in the reported quarter. Adjusted earnings in the year-ago quarter excluded 32 cents pertaining to extinguishment of debt and 5 cents pertaining to asset impairment charges. Including these items, earnings were 40 cents per share in the quarter, compared with the year-ago earnings of 12 cents.

Total revenues decreased 1.2% to $2.06 billion, lagging the Zacks Consensus Estimate of $2.11 billion for the quarter. The decrease in the top line was attributable to a decrease of 0.1% in fuel surcharge, 1.3% in volumes and 1.0% in recycling commodities pricing, which were collectively offset by an increase of 0.6% in core prices and acquisitions, and net of divestitures of 0.6%.

Operational Update

Cost of operations remained flat at $1.24 billion. Selling, general and administrative expenses declined 1.0% to $198 million in the quarter.

Adjusted operating income increased 18.1% to $218.4 million. Consequently, operating margin soared 170 basis points to 10.6% in the reported quarter.

Segment Performance

Total revenues from the Collection segment increased 0.5% to $1.57 billion. Residential collections rose 0.7% to $541.1 million. Commercial collection increased 0.5% to $630.9 million and Industrial collection soared to $391.1 million from $390.6 million in the year-ago quarter.

Other collections increased marginally to $8.6 million in the quarter from $8.0 million in the year-ago quarter. The Transfer segment revenue dipped 5% year over year to $248.4 million.

Financial Update

Cash and cash equivalents were $69.3 million as of June 30, 2012, compared with $66.3 million as of December 31, 2011. Long-term debt excluding current maturities amounted to $7.08 billion as of June 30, 2012, compared with $6.89 billion as of December 31, 2011.

Cash from operating activities was $695.0 million for six months ended June 30, 2012, compared with $795.6 million for six months ended June 30, 2011. Adjusted free cash flow was $331.1 million for six months ended June 30, 2012, versus $435 million for six months ended June 30, 2011.

Share Repurchase

During the second-quarter 2012, Republic Services repurchased 6 million shares for $163.2 million at weighted average cost of $28.67. It has $750 million under its authorization to repurchase until December 31, 2013.

Outlook for 2012

Adjusted earnings are projected to lie in between $1.91-$1.93, up from the previous guidance of $1.86-$1.90 per share.

Our Take

Republic Services intends to enhance its capability in the recyclying centres and thus invest significantly to develop and upgrade these centers. During the first-quarter 2012, the company opened the refurbished single stream recycling center at Anaheim, California. With the opening of this centre, the recycling capacity increased by 50,000 tons in that market per year.

Increasing fuel costs, however, remains a problem for the company. During the quarter, volumes declined 130 basis points year over year. A difficult pricing environment coupled with constrained volumes is expected to weigh on its margins. Therefore, margin expansion will be a difficult task for the company moving ahead.

Republic Services faces tough competition from companies like  Waste Management  ( WM ) and privately held Waste Industries USA, Inc. The stock retains a short-term Zacks #4 Rank (Sell rating). Currently, we have a long-term Underperform recommendation on Republic Services.

REPUBLIC SVCS (RSG): Free Stock Analysis Report
WASTE MGMT-NEW (WM): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: RSG , WM

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