Republic Services Delivers 22.6 Percent Revenue Growth in Q3 2022

Phoenix-based Republic Services (NYSE: RSG) reported 22.6 percent revenue growth in Q3 2022, attributing 12 percent to a robust acquisition pipeline.

The company has filtered $2.6 billion into acquisitions year to date, most notably the $2.2 billion purchase of US Ecology. The integration of the environmental services provider is expected to create "at least $40 million in cost synergies," stated CEO Jon Vander Ark.

"Our initial pricing actions have been successful," he told investors. We will continue to increase prices to ensure that all stages of the value chain earn an appropriate return. We are also gaining traction cross-selling our products and services, achieving over $25 million in new sales to-date."

Republic's acquisition strategy along with broader operational measure to effectively manage cost structure attributed to the company's strong third-quarter results. Inflationary pressures remain "elevated and more persistent" than expected.

"In the face of those cost headwinds, we are leveraging our tools and technology to price ahead of cost inflation and drive margin expansion in the underlying business," Vander Ark said. "From our perspective, customer demand remains strong and supportive of continued volume growth. The sound fundamentals in our business, together with a laser focus on the customer, position us well to capitalize on growth opportunities in the market."

Adjusted EBITDA margin in Q3 2022 reached 29.2 percent, down from 30.5 percent year over year. Margin performance experienced a 150 basis point decrease from acquisitions as well as 90 basis points related to US Ecology and a 40 basis point headwind from lower commodity prices, according to CFO Brian DelGhiaccio.

"These margin headwinds were partially offset by a 10 basis point increase from net fuel and underlying margin expansion of 50 basis points," he added.

Core price for Q3 was 6.9 percent, comprised of: small container of 10.7 percent, large container of 7.6 percent and residential of 6.7 percent. DelGhiaccio noted that price adjustments in new and existing business have staved off higher levels of inflation via operating costs and capital expenditures.

Commodity prices fell to $162 ton per quarter, down from $230 per ton in Q3 2021. Recycling, processing and commodity sales acted as a 130 basis point headwind to internal growth during the quarter. 

"We are now forecasting fourth quarter commodity prices to be approximately $90 per ton," DelGhiaccio said. "This would result in a full-year average commodity price of $165 per ton."

Despite persisting inflationary pressures and drop in recycled commodity prices, Vander Ark said Republic "remains comfortable" with the full-year guidance released in July 2022.

"Looking forward to 2023, the fundamentals of our business remain strong," he noted. "Recent decreases in recycled commodity prices, increased interest rates and rising fuel costs will have a direct impact on our business. While these headwinds may modulate our performance expectations, we remain confident in our ability to price ahead of cost inflation."

Other Q3 2022 Highlights

Revenue growth: 22.6 percent
Cash provided by operating activities: $2.4 billion.
Adjusted free cash flow: $1.665 billion
Net income: $416 million 
Adjusted EBITDA: $1.1 billion