Masco Corporation - Zacks Investment Research
| Republic Services Inc. |(RSG-NYSE) | $67.24 |
Note: FLASH REPORT; more details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.
Reason for Report: FLASH UPDATE: 1Q18 Earnings Update; Lags Expectations
Prev. Ed.: 4Q17 Earnings Update
Flash News Update [Note: earnings update in progress; final report to follow]
Republic Services reported strong first-quarter 2018 results with earnings and revenues surpassing the Zacks Consensus Estimate.
Earnings per share came in at 74 cents compared with 55 cents in the year-ago quarter. Earnings beat the Zacks Consensus Estimate by 5 cents. The bottom line grew on higher revenues and the U.S. tax reform that decreased the company’s effective tax rate to 23.5% in the reported quarter.
Total first-quarter 2018 revenues of $2,427.5 million beat the Zacks Consensus Estimate of $2,404 million. The figure was up 1.5% year over year. Top-line growth includes a positive impact of 3.8% internal growth and 1.8% from acquisitions. All the segments recorded impressive performance in the reported quarter.
Internal growth was basically driven by 2.2% increase in average yield, 2% volume growth and increase in energy services revenues by 40 basis points. However, there was a negative impact of fuel recovery fees, which rose by 50 basis points.
During the quarter, Republic Services invested $26 million for tuck-in acquisitions.
Revenues by Segment
Collection segment revenues were up 3% year over year to $1,823 million. It accounted for 75% of total revenues.
Transfer and Disposal segment revenues improved 9.5% year over year to $119.7 million. It contributed 4.9% of total revenues.
Landfill segment revenues increased 14.2% year over year to $306.5 million. It accounted for 12.6% of total revenues.
Energy Services segment revenues increased 77.7% year over year to $47.8 million. Segment revenues were driven by an increase in drilling activity in the Permian Basin. It contributed 1.9% of total revenues.
Other segment revenues increased 4.7% to $130.5 million. It accounted for 5.4% of total revenues.
Operating Results
Adjusted EBITDA was $699.4 million, up 7% from the prior-year quarter. Adjusted EBITDA margin of 28.8% marked an improvement of 140 basis points from the year-ago quarter.
Operating income for first-quarter 2018 was $404.2 million compared with $388.1 million in the year-ago quarter. Operating margin was 16.7% compared with 16.2% in the year-ago quarter.
Total selling, general and administrative expenses were $261.2 million compared with $253.5 million in the year-ago quarter.
Balance Sheet and Cash Flow
Republic Services exited first-quarter 2018 with cash and cash equivalents of $62.6 million compared with $83.3 million at the end of December 2017. As of Mar 31, 2018, long-term debt (net of current maturities) was $7,499.7 million compared with $7,480.7 million as of Dec 31, 2017.
The company generated $581.4 million of cash from operating activities in the reported quarter compared with $444.4 million in the year-ago quarter. Adjusted free cash flow was $355.7 million in the reported quarter compared with $240.3 million in the year-ago quarter.
Share Repurchase and Dividend Payout
During the reported quarter, Republic Services returned $350 million to its shareholders through dividends and share repurchases. The company repurchased almost 3.5 million shares at an aggregate cost of $235.6 million and an average price of $66.55 per share. As of Mar 31, 2018, the company had $1.6 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 34.5 cents per share, payable on Jul 16 to shareholders of record as of Jul 2.
As of Mar 31, 2018, the company’s quarterly dividend payable was $113.3 million to shareholders of record on Apr 2. The dividend was paid on Apr 16. In January, the company paid a cash dividend of $114.4 million to shareholders of record as of Jan 2, 2018.
MORE DETAILS WILL COME IN THE IMMINENT EDITIONS OF ZACKS RD REPORTS ON RSG
Portfolio Manager Executive Summary [NOTE: Only highlighted material has been changed]
Republic Services Inc. is the second largest domestic non-hazardous solid waste disposal company in the United States. It manages its operations through four geographic operating segments: Eastern, Central, Southern and Western. The company’s various operating units are focused on providing environmentally sound and cost-effective services to commercial, industrial, residential and municipal customers. The company is also involved in landfill services.
Of the eight firms in the Digest Group covering the stock, five assigned positive ratings and three rendered Neutral ratings, while none of the firms provided a negative rating on the stock.
Buy or equivalent outlook – (5/8) The firms believe that the company has a strong cash deployment strategy and appreciate that Republic Services’ operational execution and capital return has led to the earnings growth and value creation over time. Although the company’s margins have been slightly range bound due to commodity headwinds and gradual acceleration in organic growth, these firms expect that the company’s market position will strengthen and alongside expect greater expansion. These firms believe that the company is committed to grow via tuck-in acquisitions in its 240 established markets. The company has a history of returning cash to shareholders. It is likely to improve its route density, internalization and EBITDA margins.
Neutral or equivalent outlook – (3/8) These firms believe that Republic Services’ growth is partially dependent on its merger and acquisition (M&A) program. The acquisition process involves integration and valuation risk. Adverse changes in the market condition may have a negative impact on Republic Services. Alongside, the company carries a fair amount of debt, which is a concern per the firms.
Mar 06, 2018
Overview [NOTE: Only highlighted material has been changed]
Based in Fort Lauderdale, FL, Republic Services Inc. is one of the leading waste management companies in the United States. The company’s operating units are focused on providing services to commercial, industrial, municipal and residential customers. The company provides non-hazardous solid waste collection, transfer and disposal services in North America. Following the merger with Allied Waste, Republic Services operates in 39 states and Puerto Rico with 32,000 employees servicing more than 13 million customers.
Republic Services also owns and/or operates 199 transfer stations, 190 solid waste landfills, 69 landfill gas projects and 64 recycling facilities. It serves millions of residential customers under terms of contracts with more than 3,000 municipalities for waste collection and residential services. The company operates under four businesses — Collection, Transfer and Disposal, Recycling and Landfill. Additional services include remediation and other heavy construction services through its subsidiary located in Missouri. Republic Services also has a compost, mulch and soil business in Texas where waste is processed, packaged and sold as various products.
More information on the company is available at its website: .
Analysts identified the following factors for evaluating the investment merits of Republic Services:
|Key Positive Arguments |Key Negative Arguments |
|Republic Services continues to generate significant free cash flow, which is |More aggressive pricing by the industry’s largest competitors could put |
|utilized for increased dividend payment, repurchasing shares and strategic |pressure on the company’s margins. |
|acquisitions. | |
|A series of quality acquisition opportunities, primarily of recycling assets |If regulations become more stringent, or there are any amendments in current|
|may act as growth catalyst for the company within its top 25 markets. |laws, or new laws are formulated there might be an increase in the company’s|
| |costs, thereby significantly affecting its results. |
|The initiative to increase efficiency by converting to compressed natural gas| |
|collection vehicles and conversion of rear-loading trucks to automated-side | |
|loaders will reduce cost and boost margins. | |
Note: The Company’s fiscal year coincides with the calendar year.
Mar 06, 2018
Long-Term Growth [NOTE: Only highlighted material has been changed]
Republic Services is able to maintain its high-performance business culture with field management retaining full accountability and P&L responsibility. The company’s revenues are highly concentrated in the Sun Belt region, which allows it to grow faster than its peers, according to the brokerage firms. Moreover, nearly one-third of its revenues are generated from long-term franchise contracts within municipalities, where prices are linked with the consumer price index (CPI). A portion of the remaining two-thirds of its revenues is derived from regions where the company has a dominant presence. Such a defensive nature of business mix allows the company to withstand downturns better than its peers and led to strong growth since its IPO in 1988, according to the firms.
Going forward, Republic Services is committed to its long-term strategy, which involves the maintenance of a healthy cash flow and a disciplined approach to cash utilization. The company has strong underlying fundamentals and is set to achieve consistent earnings growth and create shareholder value.
Republic Services is currently increasing its operational efficiency by converting to compressed natural gas collection vehicles and conversion of rear-loading trucks to automated-side loaders, which is likely to reduce costs while improving profitability. The company's collection services include curbside collection of waste, supply of waste containers and renting of compactors. It also operates 71 landfill gas and renewable energy projects.
Target Price/Valuation [NOTE: Only highlighted material has been changed]
A summary of target price/valuation as compiled by Zacks Research Digest is as follows:
|Rating and Valuation Distribution |
|Positive |62.50% ↑ |
|Neutral |37.50% ↓ |
|Negative |0.0%↔ |
|Avg. Target Price |$71.25↑ |
|Digest High |$73.00 |
|Digest Low |$70.00 |
|No. of Firms with Target Price/Total |4/8 |
Risks to achieving the price objective include a severe decline in economic activity that outweighs the benefits of the company’s competitive positioning, more aggressive pricing by the industry’s largest competitors that could weigh on margins and operational missteps that may result in a slowdown in earnings growth. Further, as the waste industry is highly regulated, any amendments in current laws or formulation of new laws might increase the company’s costs.
Mar 06, 2018
Recent Events [NOTE: Only highlighted material has been changed]
On Feb 13, 2018, The Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices, named Republic Services as one of 2018’s World's Most Ethical Companies. It is the sole recycling and solid waste services provider to be listed under the Environmental Services category for the given year.
On Feb 8, 2018, Republic Services reported 4Q17 results, wherein revenues improved 7.6% year over year to $2,560 million and exceeded the Zacks Consensus Estimate of $2,499 million. Adjusted earnings of 61 cents per share outpaced the Zacks Consensus Estimate by 4 cents.
On Dec 7, 2017, Republic Services appointed Jon Vander Ark as the Chief Operating Officer of the company, effective Jan 1, 2018. Henceforth, he will be responsible for operationalizing the company's strategy and executing its business plan across its field operations.
Revenues [NOTE: Only highlighted material has been changed]
Revenues improved 7.6% year over year to $2,560 million in 4Q17 compared with $2379.1 million in the year-ago quarter. The figure exceeded the Zacks Consensus Estimate of $2,499 million. The year-over-year increase in revenues was driven by a 2.4% rise in average yield and a 2.7% increase in volume. Core price increased revenues by 4.1% during the quarter.
Segment Performance
The Collection service unit provides commercial, residential, industrial and other services. Residential collection operations are performed under contracts with municipalities and include collection of wastes from containers into collection vehicles and dumping to transfer stations or landfills. On the commercial and industrial side, the company supplies its customers various products ranging from waste containers to large waste generators.
Revenues from Collection totaled $1,865.2 million, up 3.8% from the prior-year quarter. All the sub-segments fared relatively better in 4Q17.
The Transfer and Disposal service unit deposits waste at its transfer stations. These waste materials are compacted and transferred to trailers for transport to disposal sites or recycling facilities.
Revenues from Transfer improved to $130 million with a 12.6% rise from the prior-year quarter.
The Recycling facilities and other services unit sorts recyclable paper, aluminum, glass and other materials. The recyclable materials are salvaged, repackaged and sold to third parties, and the non-recyclable waste is disposed at landfills or incinerators.
Revenues from the Other segment increased to $190.1 million with a 15.6% rise from the prior-year quarter.
Landfill
Revenues from Landfill were up 11.4% to $573.8 million.
Margins [NOTE: Only highlighted material has been changed]
Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) in 4Q17 was $696 million compared with $664.2 million in the year-ago period.
Earnings per Share [NOTE: Only highlighted material has been changed]
GAAP earnings in the quarter were $664.4 million or $1.98 per share compared with $189.5 million or 55 cents per share in the year-ago quarter. The year-over-year increase in earnings was primarily attributable to higher revenues.
Excluding non-recurring items, adjusted earnings in 4Q17 were $203.8 million or 61 cents per share compared with $193.8 million or 57 cents per share in the year-earlier quarter. Adjusted earnings for the reported quarter exceeded the Zacks Consensus Estimate by 4 cents.
Outlook
For FY18, the company anticipates adjusted earnings per share in the range of $3.05 to $3.10.
Capital Structure/Solvency/Cash Flow/Governance/Other [NOTE: Only highlighted material has been changed]
Balance Sheet & Cash Flow
Cash and cash equivalents at year-end 2017 were $83.3 million compared with $67.8 million in the prior year. Long-term debt (net of current maturities) was $7,480.7 million in 2017 compared with $7,653.1 million at the end of the previous year.
Cash from operating activities for full-year 2017 totaled $1,910.7 million compared with $1,847.8 million in the prior year. Adjusted free cash flow for 2017 was $933.7 million compared with $885.1 million a year ago.
Share Repurchase
Republic Services has a share repurchase program in place since November 2010. During 4Q17, the company repurchased 4.4 million shares under this program for $287.9 million at a weighted average cost of $65.55 per share.
Mar 06, 2018
|Research Analyst |Sanjana Goswami |
|Copy Editor | |
|Content Ed. |Shuvra Shankar Dey |
|QCA | Maharathi Basu |
|No. of brokers reported/Total brokers | |
|Reason for Update |1Q18 Flash Update |
-----------------------
May 04, 2018
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related searches
- zacks investment research inc
- review of zacks investment research
- zacks investment research performance
- zacks investment review
- zacks investment management performa
- zacks investment management performance
- zacks investment management
- zacks investment scam
- zacks investment research
- zacks investment research stocks
- zacks investment research app
- zacks investment research ratings