Republic Services Revises Full-Year EPS on Surpassed Q2 Results

Phoenix-based Republic Services (NYSE: RSG) delivered a 21.4 percent increase in revenue, citing outsized growth through acquisitions and margin expansion measures.

As of August 4, the date of the earnings release, the waste services provider has invested $2.5 billion in acquisitions, most notably the purchase of US Ecology ($2.2 billion) which closed on May 2, 2022.

"We continue to effectively allocate capital by investing in value creating acquisitions and returning cash to our shareholders," noted CEO Jon Vander Ark. 

He added that the integration of US Ecology is progessing in a positive direction, with an expected $40 million of cost synergies.

The company's aggressive acquisition strategy is expected to continue in 2023. Republic Services has another $600 million in acquisitions in the works, primarily in the recycling and solid waste space.

"We have one of our most robust acquisition pipelines ever with opportunities to close transactions this year and into 2023," Vander Ark said.

Core price reached a record 6.2 percent for Republic, up from 5.2 percent in the previous year's quarter.

"This is the highest level of pricing in company history," Vander Ark explained. "At the same time, we're experiencing higher than expected inflationary pressures that continue to persist. That said, we expect to continue to price more than our internal cost inflation, ultimately leading to full-year results that are projected to exceed original expectations."

Adjusted EBITDA for Q2 was $1 billion, with adjusted EBITDA margin landing at 29.6 percent of revenue, down from 30.6 percent in the Q2 2021.

"It's important to note, that even though net fuel was diluted to margin, we recovered over 95% of the dollar change fuel expense through fuel recovery fees,"  said CFO Brian DelGhiaccio. "These margin headwinds were partially offset by a 30 basis point increase from recycled commodity prices, a 60 basis point contribution from relatively higher incentive compensation expense in the prior year, and most importantly, underlying margin expansion of 60 basis points."

Recycled commodity price reached $218 per ton in Q2, up from $170 per ton in the previous year. Commodity prices increased $17 per ton from the first quarter.

DelGhiaccio further reported that recycling, processing and commodity sales contributed 20 basis points to internal growth in Q2. 

In addition to achieving strong second-quarter results, Republic Services also touted its sustainability progress. The company released its 2021 Sustainability Report which highlighted its achievements and progress.

Vander Ark noted a 9 percent decrease in greenhouse gas emissions from Republic's 2017 baseline. He said that the company is "well positioned" to reach 10 percent reduction by 2025. Republic's focus on polymer centers and landfill gas projects also are "progressing as planned."

Because of the Republic's resiliency as high levels of cost inflation threaten growth, the company is continuing to drive margin expansion in underlying parts of the business and has adjusted it's full-year guidance.

Republic Services estimates full-year 2022 adjusted EBITDA margin to be 29.3 percent based on the impact of the US Ecology acquisition and fuel costs. Full-year adjusted diluted earnings per share (EPS) guidance is estimated at $4.77 to $4.80. Full-year adjusted free cash flow guidance is expected to reach between $1.7 billion and $1.725 billion.

"The fundamentals in our business remains strong and we remain well positioned to capitalize on additional growth opportunities in the marketplace." said Vander Ark.

Q2 2022 Highlights

Revenue: $3.414 billion
Net income: $371.8 million 
Adjusted EBITDA: $1 billion
Adjusted Free Cash Flow: $1.152 billion
Core Price: 6.2 percent