We are downgrading our recommendation on
) to Underperform as we do not to see any near-term volume increase
in this tough pricing environment.
Republic Services' first-quarter 2012 adjusted earnings of 38
cents per share missed the Zacks Consensus Estimate of 42 cents.
Total revenues increased 0.9% year-over-year to $1.98 billion,
lagging behind the Zacks Consensus Estimate of $1.99 billion.
Republic Services expects a 1% increase in pricing and flat
volumes to lift revenues by 1% in fiscal 2012. The company had
earlier factored in a 1%-1.5% and 0.5% increase in pricing and
volumes, respectively, in its revenue guidance. Adjusted earnings
are projected to lie between $1.86 and $1.90 per share in fiscal
2012, down from the previous range of $1.98-$2.02.
Republic Services is facing stiff competition from companies
) and privately held Waste Industries USA, Inc. It has lost four
contracts during the quarter to its peers.
The company is implementing price increases to offset the higher
costs for improving its operating margin. But Republic Services may
still face a challenging situation if its competitors choose to
reduce their prices in an effort to expand their market shares.
We expect that volumes will remain flat year-over-year in the
second quarter on account of the contracts lost during the first
quarter. A difficult pricing environment coupled with constrained
volumes is expected to weigh on the company's margins.
Moreover, the ever increasing fuel cost proves to be a challenge
for the company. Fuel expenses soared 60 basis points as the
average price of fuel per gallon jumped 2.6% sequentially and 9%
year-over-year in the first quarter. The company, therefore, is
likely to face headwinds if fuel price remains at the current
Republic Services has been investing significantly to enhance
its capability in the recyclying centres. During the first quarter,
the company opened a centre at Anaheim, California, increasing its
capacity by 50,000 tons in that market per year.
During first quarter, Republic Services completed acquisitions
worth $65 million. These acquisitions are considered to be highly
accretive and would prove beneficial for the company over the long
Our long-term recommendation is in line with the short-term
Zacks #5 Rank (Strong Sell).
REPUBLIC SVCS (RSG): Free Stock Analysis Report
WASTE MGMT-NEW (WM): Free Stock Analysis Report
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