The waste industry has proved to be resilient throughout the COVID-19 pandemic, Republic Services CEO Don Slager told Michael E. Hoffman during the online Waste360/Stifel Investor Summit.
As the novel coronavirus spread throughout the world and arrived in the United States, the solid waste services provider enacted measures to ensure worker safety, continued growth and customer satisfaction.
"People are engaged with us in buying new services, bringing their companies back online, paying their bills on time – there's a whole great story to tell," Slager said.
The panelists who provided insight were:
- Brian DelGhiaccio
EVP & CFO, Republic Services, Inc.
- Don Slager
CEO, Republic Services, Inc.
- Tim Stuart
EVP & COO, Republic Services, Inc.
- Jon Vander Ark
President, Republic Services, Inc.
Hoffman, Stifel managing director, asked Republic Service executives about current economic conditions and what the continuing threat of the novel coronavirus might mean for the company, the waste industry and for American businesses.
Q: What would be your opinion of the U.S. economy as a result of the lens you get to look through every day versus what we were looking at in the beginning of the spring?
Slager: We said when we entered into this COVID unknown that the waste business was going to prove itself to be more resilient than what people give it credit for, and certainly about Republic. When we reported our Q2 earnings, I think we validated that. When we think of the economy being a bellwether for what’s going on with customer sentiment, waste generation and economic activity, we’re seeing clearly the month-on-month sequential improvement of waste volumes. We think of that specifically in our small container business. Think about who small container business serves and what kind of businesses those are, that’s a pretty telling story. We found the bottom pretty quickly. Unlike things we’ve witnessed in the past, we found the bottom here in a couple of months, and we’re already on the rebound. I think that bodes really well for the future and that says a lot about American business and the innovative mindset of people – fighting for their businesses, finding a way to work differently in this environment. I think it’s a very positive sign.
Q: The ability to pass on price, cover the cost of inflation - there's nothing structurally broken or unwinding about that either, is that correct?
Vander Ark: The vast majority of our pricing is with existing customers because our loyalty is so high. We treat customers very empathetically in terms of giving them extended payment terms, allowing them to take out-of-contract suspension of service where they needed it and our Committed to Serve program where we put $17 million in the hands of our front line people to spend money with our customers. We're an essential service. We showed up every day, in some cases in very challenging circumstances. Our drivers and technicians and front line people have operated, provided great service and customers have paid us for that. The fact that our NPS is increasing in this environment is a good telltale sign that customers understand what we're doing, they value the service and they're happy to pay that.
DelGhiaccio: While there were some benefits we realized as a result of the macroenvironment, there are some things that we did that we would expect to continue going forward. I think the easiest way to think about it is that we would fully expect to be more profitable emerging from this pandemic then how we entered it. Those are just some of the things we mentioned when you just think about within in particular on the SG&A side, some things that we did as far as a meeting like this which is now being conducted virtually which wouldn't have happened in the old environment. You talking about reductions in meeting expenses, travel and some of the other trainings that we can now do virtually as well as just the overall reduction in our real estate footprint as a result of being able to take some roles and be able to implement a full-time work-from-home program. There's a number of things we expect not only on the SG&A side but also the operating side that we would expect to continue going forward.
Vander Ark: I just point to productivity and safety - tremendous performance on both fronts, certainly benefitting from a shelter-in-place environment and then more work-from-home environment. Some of those savings will dissipate as the world comes back and congestion increases and there's more people we have to look out for, but we don't seed all those benefits, we think capture some of those going forward permanently.
Q: Can you help us a little bit about the exit momentum on volume out of Q2 and starting Q3, and what part of that volume are businesses like schools that might not reopen yet that there's going to be a longer cycle to the visibility on them?
Stuart: We saw the biggest decline in April, which we saw about 10 percent reduction, but we've seen nice improvement every month since then. We saw about a 50 basis point improvement in July. You mentioned schools. If you step back, schools are about 5% of our small container revenue, but if you look at customers that declined to suspended services that's about 20 or 25 percent of that. When schools do come back, obviously none of us on the call know exactly when that's going to be, but we'll see a nice pickup once those schools start getting back into the cycle. I'd say the last part is we're optimistic, the weights in small container continue to get heavier and heavier, again maybe a little bit of a negative thrust in the short term. That tells us the economy is coming back, businesses are back doing what they do and that's just good for everybody going forward.
Q: There's always been a relationship between household formation and new business formation, but this is very different – what we've gone through. Will that American spirit be there – the person that's always wanted to have their own bar – will we see that bar be put into that empty storefront in that empty strip mall, or is this going to be a slower recovery of that empty commercial real estate that absorbs new customer growth in the past?
Vander Ark: I think it's probably a little too early to tell. There's going to be some sifting and sorting out as we go. To Tim's earlier point, our weights for small container customer in the depth of the trough were down 20 percent year over year, they're now down about 7 and a half percent. On one hand, that's a meaningful number. You think that's astounding that that's 92 and a half percent of the economic activity is going on which in the immediate terms it means we're not going to have some kind of impending container size reduction or service decrease. It also goes to show you there's just a ton of underlying economic activity. Now as some of the government money runs out and there were small businesses that were just hanging on who decide "I got to pack it up." Could there be some bankruptcies or foreclosures - of course, there could. The flip side is also true with commercial real estate never being cheaper, there are entrepreneurs who are going to say, "now is my time." I see an opportunity emerging out of this crisis. There's new ways of working. There's new things to do, and they're going to get into the business. So, I think we're optimistic in terms of where we see the economy going more broadly but with small businesses in particular.