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
To read this article on Zacks.com click here.
Zacks Investment
Research