We reiterate our Neutral recommendation on
Republic Services Inc.
) following the company's mixed results in second-quarter 2012.
The company's adjusted earnings were 59 cents per share in the
quarter, beating the Zacks Consensus Estimate of 49 cents. The
results were also ahead of the year-ago quarter's adjusted
earnings of 49 cents. Total revenues decreased 1.2% year over
year to $2.06 billion, lagging the Zacks Consensus Estimate of
REPUBLIC SVCS (RSG): Free Stock Analysis
WASTE MGMT-NEW (WM): Free Stock Analysis
To read this article on Zacks.com click here.
Volume declined 130 basis points year over year in the second
quarter. Volume growth is expected to remain sluggish in the
upcoming quarters due to weak economic conditions prevailing in
the U.S. Therefore, soft volumes will be headwinds for Republic
Services moving ahead.
Margins are expected to remain constrained in the second half as
Republic Services has more exposure to Collection services and
less to Disposal services. Typically, the Disposal services
generate the highest margins and the Collection services generate
the lowest margins.
Moreover, the company plans to invest extensively in certain
areas in 2012 like improving capacity in the recycling centers,
automation of the residential fleet and conversion of the fleet
into CNG from diesel. These initiatives being capital intensive
are expected to pressure margins further.
However, Republic Services repurchased 6 million shares during
the second quarter for $163.2 million at an average cost of
$27.06 per share. The company further intends to repurchase
shares up to $750 million through December 31, 2013.
This is an addition to the $400 million repurchase program that
the company announced in November 2010. In addition, the company
increased quarterly dividend by 7% to 23.5 cents per share in
July 2012 adding value to the shareholders.
Republic Services has a healthy balance sheet to finance
acquisitions. The company completed acquisitions worth $73
million during the second quarter, representing annual revenue
run rate of $47 million. These acquisitions are considered to be
highly accretive and would prove beneficial for the company over
the long run. The company aims to complete $100 million of
acquisitions in the remainder of 2012.
Republic Services faces competition from
Waste Management, Inc.
). The stock retains a short-term Zacks #4 Rank (Sell).