Phoenix-based Republic Services Inc. has reported its fourth quarter 2018 earnings. The company’s revenue was approximately $2.5 billion, an increase of $65 million, or 2.6 percent, over the prior year.
"We are very pleased with our strong finish to the year, which positions us well for 2019. Despite significant headwinds from recycling, we achieved our EPS guidance and exceeded our free cash flow guidance, demonstrating the underlying strength of the solid waste business," said Donald W. Slager, president and CEO of Republic Services, in a statement. "We delivered double-digit growth in earnings and free cash flow per share, invested over $200 million in value-enhancing acquisitions and increased our return on invested capital and cash returned to shareholders. Our solid results continue to reflect the positive contributions from effectively investing in the business and successfully executing our strategy of profitable growth through differentiation."
Republic also reported net income of $1,036.9 million, or $3.16 per diluted share, versus $1,278.4 million, or $3.77 per diluted share, for the comparable 2017 period. On an adjusted basis, net income for the year ended December 31, 2018, was $1,014.9 million, or $3.09 per diluted share, versus $822.2 million, or $2.43 per diluted share, for the comparable 2017 period.
In addition, the company gave details on its 2019 financial guidance.
"Our 2019 financial guidance is consistent with the preliminary outlook we provided last October, demonstrating the visibility we have into our business and the stability of our earnings and cash flows," added Slager. "In 2019, we expect to continue to profitably grow our business through the advancement of our strategy, which includes attracting and retaining the best people, strengthening our market position and leveraging technology to enhance the customer experience and improve operational efficiency."
Other earnings highlights:
- Full-year cash provided by operating activities was $2.2 billion and adjusted free cash flow was $1.2 billion, which exceeded Republic's full-year guidance.
- Fourth-quarter revenue growth from average yield was 2.7 percent, the company’s highest level in nearly 10 years, and volume decreased 70 basis points.
- Full-year revenue growth from average yield was 2.4 percent, and volume increased 40 basis points.
- Full-year adjusted EBITDA was $2.8 billion and adjusted EBITDA margin was 28 percent.
- Average yield in the collection business was 3.4 percent, which included 3.2 percent in the small container business, 4.5 percent in the large container business and 2.6 percent in the residential business.
- Average yield in its post-collection business was 1.5 percent, which included landfill municipal solid waste (MSW) of 2.1 percent.
- Full-year core price as a percentage of related-business revenue was 3.9 percent. Core price as a percentage of related-business revenue for the three-months and year ended December 31, 2018, respectively, was 4.3 percent.
- Core price consisted of 5.1 percent in the open market and 2.9 percent in the restricted portion of its business.
- Large container volume increased 80 basis points, and residential collection volume decreased 1.9 percent, which was expected in result to not renewing certain contracts that fell below the company’s return criteria. Small container volume decreased 80 basis points and included a 130-basis point headwind from intentionally shedding certain work performed on behalf of brokers. Excluding these losses, small container volume would have increased by 50 basis points.
- Landfill MSW volume increased 7.2 percent, while special waste decreased 11.6 percent and construction and demolition decreased 10.7 percent.
- Fuel recovery fees increased 70 basis points due to the rise in the cost of fuel. The average price per gallon of diesel fuel increased to $3.26 in the fourth quarter from $2.87 in the prior year, an increase of 14 percent. The current average diesel price is $2.97 per gallon.
- Recycling processing and commodity revenue decreased 40 basis points. The change in revenue primarily relates to a decrease in the number of tons sold and lower recycle commodity prices. This decrease was partially offset by the new recycling processing fee rolled out to the company’s open market recycling collection customers.
- The company invested $200 million in acquisitions during 2018.
- Republic opened its first next-gen recycling processing center in Plano, Texas, which uses state-of-the-art technology to extract items that are recyclable and features a 5,000-square-foot learning resource center.
- Republic is partnering with Mack Trucks to design and test electrification in a fully integrated garbage truck with zero diesel propulsion components.
- Addressing the labor shortage, Slager said, “We do have some pockets where we’ve got some labor shortage just because maybe there’s local economic issues. Our turnover is essentially flat year-over-year. It's up a little bit with the growing economy, but that's to be expected. We're not sitting on our hands. We're still working hard to improve the work environment. … The driver shortage, so to speak, isn’t keeping us up at night. We’re working hard to retain and attract the best people, and I think we’re on a good track.”