Slagers Republic Message: Slow and Steady

Slagers Republic Message: Slow and Steady

Don Slager, president and CEO of Republic Services Inc., sat down with Waste Age during WasteExpo to discuss the state of the company and some of its biggest priorities.

Waste Age: What was your message to the Investor Summit Group (which had taken place earlier at WasteExpo)?

Slager: Our message is, the thing about Republic, it’s pretty consistent. That message really isn’t changing. We’re the guys who are focused on our core business, and that’s defined as North American waste and recycling. We’re not spending our money in other areas, we’re not necessarily on the leading edge of technology development. We’re trying to invest responsibly in our positions. We’re moving our growth platform out with recycling at a steady pace. We’re still focused on cash returns, taking advantage now of the return of the household formation, getting our fair share of that market growth. We’re growing our recycling structure again at a steady pace. So that message doesn’t really change much. As we talk to investors, everyone wonders, “When’s the uptick coming?” I think we’re in the uptick, but I think it’s a slow, steady change and not a sudden step change. So we spend time moderating expectations, because everyone wants us to be a leading indicator of the economy. Several years ago we decided we weren’t going to play economists. So we’re just going to report what we see in the business, and everyone has to do the math themselves.

WA: Does that apply to the greening of the company as well? The company has made a commitment for example to CNG (compressed natural gas) vehicles.

Slager: Yeah, we’re very committed to that. The CNG investments are very strong for us. I think it’s a great solution for us. We’re spending about half our fleet spend every year on CNG fleet, half the trucks that are coming in. We’re working our larger fleets down; at some point there’ll be diminishing returns. We’ve been asked how much of the fleet will you see being CNG. We can see maybe five years out maybe 30-35 percent, but we’re not really looking much past that today, there’s no real point in it.

WA: So a more slow evolution to it?

Slager: It’s going to depend on economics, it’s going to depend of what happens with CNG fuel costs, it’s going to matter what are the fueling stations costing as the technology improves, will another fleet manufacturer come into the fold, will there be another engine to bring the cost of that engine down, because those trucks are $35,000 more per copy, and there’s only one person out there building the engines. At some point we think PACCAR is going to bring something to market, and maybe somebody else, so as the economics change we could move further. But we’re not going to spend more than our normal fleet spend. So we’ll slowly migrate through that.

WA: So that’s part of the philosophy of slow and steady wins the race?

Slager: That’s who we are. That speaks about our capital spending. Even when the economy got tough, we never stopped replacing our fleet. We bought fewer roll-off trucks, because construction was down, but we kept our fleet age constant. Even though business contracted a little bit, we kept spending. We moved into the recycling arena and we’re spending at a very steady basis, three to five markets per year that we’re advancing or expanding our recycling infrastructure where it’s economical, where it can be cost advantageous and create value and growth for the company. We’re not running out ahead of any of those initiatives. We’ll be working for several years to come still on the automation initiative, the CNG conversion, on the recycling build-out, all those things are multi-year initiatives. Steady pace, a handful of priorities that we can manage and we can execute on effectively.

WA: Republic’s had some labor difficulties, some of it focused on the Central States Pension Fund; what’s your position on that?

Slager: Overall our position is we work very effectively, typically, with our local labor unions. In markets where we’re union we’re probably going to be union for a long time. In markets where we’re not we probably will not be. We’ve had very effective relationships with local officials. We’ve had a very good give and take with labor relations over the years. We bargain in good faith, and we’ve had a good situation normally. The Central States thing is a little more complicated. The fact is, it’s a fund that’s destined to fail, it’s going to be insolvent, there’s no mathematical way for it to be saved. And there’s a liability that goes along with that that we have to be concerned with. Equally, we have 800 employees who won’t have a pension, that are depending on a pension. We’ve had to educate them with the fact that we’re paying money on their behalf to a pension that won’t be there. We don’t want that for them, we want them to have a retirement deal they can count on. So we’ve been negotiating our way through the Central States issue, to get out of the plan, we don’t want any part of an insolvent plan, we don’t want to be holding the bag at the end of the day, and we want our people to have some kind of pension they can count on. So we’re about halfway through these negotiations with several CBAs (collective bargaining agreements) involved, and we think we’ll be through it by the end of the year.

WA: How many locations?

Slager: Less than 15. So we’re working through it, and we’re offering a number of solutions. In some cases our employees are choosing 401K, in some cases there’s another pension.

WA: There was a case where the Teamsters even rejected a Teamster pension.

Slager: It’s interesting. There’s a lot of emotion that gets worked up in this, and there’s a number of constituents involved. There’s management, there’s labor, there’s local labor, there’s national labor, there’s regional – a lot of stuff going on. The trustees with the pension are different than the union themselves, so a lot of cooks in the kitchen. Our goal is to get to a place, like it always is, where we can run a going concern, a business that can be profitable, a great place to work for our people, market wages that are fair to our team, good benefits, health insurance and retirement benefits that are fair to market and allow the company to stay strong and grow. That’s what we want everywhere. We’ll work through it; these things are emotional, but you’ve got to set your heart and mind to it. At the end of the day we’ll be fine and everyone will be covered, and we’ll be back to business as usual; it’s just that you’ve got to go through some hardship sometimes.

WA: Commodity prices have been tough. Do you see that improving?

Slager: I think part of the noise could be around this Green Fence thing. It’s still above the 10-year average, commodity prices, that’s kind of how we look at it – what’s that 10-year average look like, and how is it playing in there. It’s kind of at where we thought it would be after the year, so it doesn’t really affect our financial plan negatively. We always like it to go up, because as that works out we share more of the upside with ourselves, because we have more of the downside than customers want to take. So as it’s going up it’s a better scenario for us. We’re not going to invest more or less in recycling because of the spikes or the valleys. We chosen this path – again, steady as she goes – using a 10-year average, how do these things perform, and if they perform around that 10-year average can we make good investments and make profit, or not. And that’s the route we’ve chosen to take.

WA: Are there any particular areas that you see for growth?

Slager:Well, recycling has been a good area for growth for us. Recycling tons have grown about 8 percent in the last quarter. So it’s one of the fastest growing parts of our business as it relates to volume measuring units, in this case tons. So we’re going to continue to invest in that. We’re directing our capital into all these other improvement areas of the business that not only carry growth but to generate margin improvement for the bottom line. And I would say acquisitions. We said we’re going to spend $100 million on tuck-ins like we did last year, and we’re on track to do that. We’ve got the potential to do more. There are a lot of really good companies out there yet who at some point come to market, it would fit our fold pretty well, so we’re excited to have conversations with those companies about potentially joining the Republic team. That to me is probably more the upside potential than anything else, because we don’t control the economy. We generally just hope to get our fair share to grow. We’re going to get what comes to us substantially because of our logistical situation of where our landfills are. We may get a little more growth depending on which customers we’re attached to. Fairly speaking, all competitors get a fair share, that’s how the market works. And we’re ok with that. There’s no one area of the business that we think is that compelling that’s going to grow faster than others, other than the return of housing development, which will grow our construction and demolition back to maybe where we were before the fall.

WA:There’s not an area that you maybe want to pull away from long-term?

Slager: Not really. We’ve rationalized the asset base fairly well over the years, buying and selling, in and out of markets, consolidating. We haven’t done much dabbling into other space. I’m not big on dabbling. I’m ok with piloting, but then, making a decision if we’re going to go or not go. We’ve divested on some of those dabbling operations over the years. We don’t have these things that don’t fit our core space. There might be a minor example here or there that we can deal with, but it’s not our headline. It’s more about getting better every day operationally, driving down cost, improving quality to customers, investing responsibly in the build-out of our landfills or our infrastructure, including recycling. And then, the acquisitions. What can we buy that enhances our market position, makes us stronger – good quality companies for good quality revenue streams. And we’re looking to do more of that. It’s the North American solid waste and recycling, which is all in our wheelhouse. And it’s really the lower 48, with a little bit north of the border. How can we grow and double down in current markets; it’s always the best return on our investment, rather than going into new markets where we don’t have management. If we have management and we have real estate infrastructure and we double down on that, the return on investment is the best. Lowest risk, best return; we don’t have to be everywhere in this business.

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