In 2019, the company invested more than $525 million in value-enhancing acquisitions, and in 2020, it could see another outsized year of investment.

Mallory Szczepanski, Vice President of Member Relations and Publications

February 14, 2020

7 Min Read
Republic Reports Strong M&A Activity for 2019, Guidance for 2020

Phoenix-based Republic Services, Inc. has announced its fourth quarter 2019 earnings results, in addition to its full-year 2019 highlights and its guidance for 2020. During a call with investors on February 13, Republic’s leadership spoke about the company’s strong merger and acquisition activity in 2019 and how 2020 could be another strong year for growth.

"In 2019, we invested over $525 million in value-enhancing acquisitions to expand our leading market position and increase the scale of our service offerings,” said Donald W. Slager, CEO of Republic Services, in a statement. “Our acquisition pipeline remains strong, and we could see another outsized year of investment in 2020."

“While our guide only has $200 million spend in it, I personally wouldn't be surprised if we matched or exceeded last year's performance,” said Slager on the call with investors. “There's a good pipeline of really good companies, and we've got a really good team that is across the nation looking at deals. As I always say, we look at everything, and we sort out what we're most attracted to. And we're out there talking to a lot of people. We've got a lot of interest right now.”

The company reported net income of $289.3 million, or $0.90 per diluted share, for the three months ended December 31, 2019, versus $301.0 million, or $0.92 per diluted share, for the comparable 2018 period. Excluding certain benefits and expenses, on an adjusted basis, net income for the three months ended December 31, 2019, was $291.7 million, or $0.91 per diluted share, versus $260.0 million, or $0.80 per diluted share, for the comparable 2018 period.

For the year ended December 31, 2019, net income was $1,073.3 million, or $3.33 per diluted share, versus $1,036.9 million, or $3.16 per diluted share, for the comparable 2018 period. On an adjusted basis, net income for the year ended December 31, 2019, was $1,075.1 million, or $3.34 per diluted share, versus $1,014.9 million, or $3.09 per diluted share, for the comparable 2018 period.

"The Republic Services team finished the year strong, and we are well-positioned for continued success in 2020. By focusing on delivering superior service to our customers and increasing employee engagement, we profitably grew our business and outperformed our adjusted EPS and free cash flow guidance for the year," said Slager in a statement.

Additional Q4 and full-year 2019 highlights include:

  • Fourth quarter EPS was $0.90 per share, and adjusted EPS was $0.91 per share, an increase of 14 percent over the prior year.

  • Full-year EPS was $3.33 per share, and adjusted EPS was $3.34 per share, an increase of 8 percent over the prior year. Adjusted EPS exceeded the company's upwardly revised full-year guidance range.

  • Full-year cash provided by operating activities was $2.4 billion, and adjusted free cash flow was $1.2 billion. Adjusted free cash flow exceeded the company's full-year guidance range.

  • Cash flow invested in acquisitions was $526 million, or $463 million net of divestitures. The year-to-date annual revenue acquired, net of divestitures, was approximately $181 million.

  • Full-year cash returned to shareholders through dividends and share repurchases was $891 million, and total shareholder return was 27 percent.

  • Full-year core price increased revenue by 4.7 percent. Core price consisted of 5.7 percent in the open market and 3.2 percent in the restricted portion of the business. This is the highest level of core price that Republic has achieved in more than a decade.

  • Full-year revenue growth from average yield was 2.8 percent, driven by small container yield of 3.9 percent and landfill municipal solid waste of 3.3 percent.

  • Full-year adjusted EBITDA was $2.9 billion, and adjusted EBITDA margin was 28.3 percent, an increase of 30 basis points over the prior year. Underlying margin expanded 70 basis points after normalizing for the 40 basis point headwind from lower recycled commodity prices.

  • Total volume in the quarter decreased 20 basis points versus the prior year.

  • On the collection side of the business, large container volumes increased 80 basis points versus the prior year, and underlying small container volumes increased approximately 60 basis points after normalizing for broker-related losses. As expected, residential collection volumes decreased 2.2 percent due to non-regrettable contract losses.

  • On the disposal side of the business in the fourth quarter, municipal solid waste volumes increased 40 basis points, and construction and demolition volumes increased 16 percent versus the prior year. As anticipated, special waste volumes were relatively flat versus the prior year.

  • In the fourth quarter, the company’s average commodity price per ton was $66. This represented a $6 sequential decrease from the third quarter and a $40 per ton decrease versus the prior year.

  • In 2019, Republic improved its overall employee engagement score by more than 100 basis points to 86 percent and reduced driver turnover by 130 basis points versus the prior year.

  • In 2019, the company began to roll out its new RISE platform to dispatch operations. “This new technology equips our dispatchers with more real-time routing information and enhanced data visualization tools,” said Jon Vander Ark, president of Republic, on the call with investors. “It also supports additional mobile and in-cab technology, which we will begin rolling out in our large container business later [in 2020].”

  • The company announced its next-generation sustainability strategy, which includes long-term goals designed to address global macrotrends related to Republic's sustainability risks and opportunities. “We believe each new goal has the potential to significantly benefit the environment and society while enhancing the foundation and profitability of our business over the long term,” said Vander Ark.

  • Republic continued to convert CPI-based contracts to more favorable pricing mechanisms for the annual price adjustment. The company now has approximately $780 million in annual revenue, or 31 percent of its legacy $2.5 billion CPI-based book of business, tied to the water-sewer-trash index or a fixed-rate increase of 3 percent or greater.

  • Republic continued to reprice and de-risk its recycling collection and processing businesses. Through the end of the year, the company repriced approximately 36 percent of its recycling collection contracts and 55 percent of its contracted recycling processing volume. It also implemented a recycling processing charge to its open market customers. As a result, Republic’s earnings sensitivity to changes in recycled commodity prices is expected to decrease in 2020.

  • On the call with investors, Slager addressed contamination: “We have to have honest discussions with generators about whether the material really does have real sustainable environmental value at the end of the day or if we are just basically burning more rubber and more fuel to make ourselves feel good. … We’ve done a great deal of work in creating tools and training to point people to the right place to learn how to [recycle] right. But frankly, municipalities, consumers and customers have to take responsibility for this contamination.”

  • The company was named to the CDP Climate "A List" for its science-based goals, strategies and actions to lower greenhouse gas emissions and mitigate climate risks.

2020 guidance:

  • Republic expects adjusted diluted earnings per share to be in the range of $3.48 to $3.53. This guidance includes a benefit from compressed natural gas (CNG) tax credits of approximately 4 cents.

  • The company expects adjusted free cash flow to be in the range of $1,175 million to $1,225 million. This guidance includes a net benefit from CNG tax credits of approximately $30 million.

  • Revenue is expected to increase 4.25 to 5 percent.

  • Average yield is expected to be approximately 3 percent.

  • The company expects total volume growth of approximately 75 basis points to 100 basis points.

  • The company anticipates receiving $1.2 billion of property and equipment, net of proceeds from the sale of property and equipment.

  • Adjusted EBITDA margin is expected to expand by approximately 20 to 40 basis points.

  • Republic expects an effective tax rate of approximately 21 percent and a non-cash charge of approximately $110 million related to solar energy investments that qualify for tax credits. The charge will be recorded as a loss from unconsolidated equity method investments.

  • Republic expects to invest approximately $200 million in tuck-in acquisitions and $120 million in solar energy investments that qualify for tax credits.

  • The company expects to return approximately $925 million of cash to shareholders through approximately $525 million of dividends and $400 million in share repurchases.

  • The company anticipates approximately 30 basis points of headwind going into 2020. These headwinds include lower recycled commodity prices, a decrease in upstream environmental services revenues and an additional workday.

"We increased our 2020 adjusted EPS and free cash flow guidance relative to the outlook we provided last October," concluded Slager. "We have a lot of positive momentum heading into 2020, including one of the strongest acquisition pipelines we have seen in quite some time. Additionally, this year we will continue the steady roll out of our 'RISE' platform and in-cab technology. Through this technology, we look to further enhance the customer experience, empower our employees and increase productivity."

About the Author(s)

Mallory Szczepanski

Vice President of Member Relations and Publications, NWRA

Mallory Szczepanski was previously the editorial director for Waste360. She holds a bachelor’s degree in journalism from Columbia College Chicago, where her research focused on magazine journalism. She also has previously worked for Contract magazine, Restaurant Business magazine, FoodService Director magazine and Concrete Construction magazine.

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