A month has gone by since the last earnings report for Republic Services (RSG). Shares have added about 3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Republic Services due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Republic Services Q2 Earnings In Line, Revenues Lag
Republic Services reported mixed second-quarter 2018 results, with earnings in line with the Zacks Consensus Estimate and revenues missing the same.
Adjusted earnings per share of 73 cents came in line with the Zacks Consensus Estimate and improved 19.7% year over year. The bottom line was positively impacted by a 12 cents benefit from the tax reform.
Total revenues of $2.52 billion beat the consensus mark by 8 million. The top line figure declined marginally year over year on non-adjusted but increased 3.9% proforma basis. Top-line growth includes a positive impact of 2.1% internal growth and 1.8% from acquisitions.
Internal growth was basically driven by 2.1% increase in average yield, volume growth of 60 basis points, increase in fuel recovery fees by 60 basis points and increase in energy services revenue by 20 basis points.
During the quarter, Republic Services invested more than $120 million in value-enhancing acquisitions. The company invested $56 million and an additional $42 million in July for tuck-in-acquisitions.
Revenues by Segment
Collection segment revenues delivered year-on-year rise of 1.5% on non-adjusted basis and 3.3% on proforma basis to $1.8 billion. It accounted for 75.1% of total revenues.
Transfer segment revenues registered year-over-year increase of 6.7% on non-adjusted basis and 7.8% on proforma basis to $139 million. It contributed 5.5% of total revenues.
Landfill segment revenues increased slightly on non-adjusted basis and 1.7% on proforma basis to $315.3 million. It accounted for 12.5% of total revenues.
Energy services segment revenues delivered year-over-year increase of 39.1 on non-adjusted basis and 40.2% on proforma basis to $50.2 million. It contributed 2% of total revenues.
Other segment revenues declined 32.9% on non-adjusted basis and improved 2.1% year over year to $122.9 million. It accounted for 4.9% of total revenues.
Adjusted EBITDA was $690 million compared with $708.6 million in the year-ago quarter. Adjusted EBITDA margin was 27.4% of total revenues compared with 28% in the prior-year quarter. Operating income for second-quarter 2018 was $408.2 million compared with $425.5 million in the year-ago quarter. Operating margin was 16.2% compared with 16.8% in the year-ago quarter.
Total selling, general and administrative expenses were $252.9 million compared with $262.9 million in the year-ago quarter.
Balance Sheet and Cash Flow
Republic Services exited second-quarter 2018 with cash and cash equivalents of $61.3 million compared with $36 million in the year-ago quarter. As of Jun 30, 2018, long-term debt (net of current maturities) was $8.2 billion compared with $7.1 billion in the year-ago period.
The company generated $1191 million during the first half of the year compared with $879.2 million as of Jun 30, 2017. Adjusted free cash flow was $323.1 million in the reported quarter compared with $118.4 million in the year-ago quarter.
Share Repurchase and Dividend Payout
In the quarter, Republic Services returned $328 million to shareholders through dividends and share repurchases. The company repurchased almost 3.2 million shares at an aggregate cost of $214.9 million and an average price of $67.62 per share. As of Jun 30, the company had $1.4 billion available under its share repurchase authorization.
Additionally, on the same day of earnings release, the company's board of directors announced a quarterly cash dividend of 37.5 cents per share payable on Oct 15, 2018, to shareholders of record as of Oct 1, 2018.
As of Jun 30, 2018, the company's quarterly dividend payable was $112.3 million to shareholders of record as of Jul 2. The dividend was paid on Jul 16. In April, the company paid a cash dividend of $113.3 million to shareholders of record as of Apr 2, 2018.
Adjusted EPS guidance of $3.05-$3.10 billion and free cash flow guidance of $1.09-$1.11 billion have been reaffirmed. The company expects to invest $200 million for tuck-in-acquisitions. Adjusted tax rate for the full year is estimated to be around 24%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Republic Services has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value and momentum investors while growth investors may want to look elsewhere.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Republic Services has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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