Higher Prices and Volumes Drove Republic Services, Inc. to Its Best Quarter in 8 Years

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Republic Services (NYSE: RSG) once again benefited from its ability to collect greater volumes even as it pushes through higher prices. Those dual fuels propelled revenue up 7.5% in the second quarter -- its best growth rate in eight years -- while earnings notched a double-digit gain. That strong performance allowed the company to boost its full-year profit outlook.

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Republic Services results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$2.5 billion

$2.4 billion

7.5%

Adjusted net income

$205.9 million

$189.5 million

8.7%

Adjusted EPS

$0.61

$0.55

10.9%

What happened with Republic Services this quarter? 

Republic Services' new pricing mechanism is paying big dividends.

  • Driving the robust revenue growth was a 2.5% increase in average yield, 1.9% higher volumes, and a 4.1% core price increase. One of the factors driving the improved pricing is the company's continued conversion of contracts from CPI (Consumer Price Index) to a more favorable pricing mechanism for the annual price adjustment.
  • At the same time, the company is improving productivity and reducing costs via several fleet-based initiatives, including steadily increasing the percentage of its fleet that runs on cheaper natural gas as well as increasing fleet automation.
  • Republic Services collected $358 million in adjusted free cash flow during the quarter, up from $240 million last quarter and $177.3 million in the year-ago period. The company returned most of that cash to shareholders, sending back a combined $247 million via dividends and share repurchases. The company also spent $36 million on acquisitions.
  • Speaking of the dividend, the company announced an 8% increase in the quarterly payout, which is the eighth straight year it has raised the dividend.

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What management had to say 

CEO Donald Slager said, "Our second-quarter performance underscores our ability to grow both price and volume, increase earnings and free cash flow, and consistently improve cash returns to shareholders."

The refuse industry as a whole is thriving right now thanks to a growing economy, which is churning out higher volumes of waste, enabling trash companies to push through price increases. Rival Waste Management, for example, captured 3.4% higher volumes and collected a 4.7% higher core price during its recently completed second quarter. Those dual fuels pushed the company's revenue up 7.4% while earnings jumped almost 10%, matching Republic's great quarter. That strong start enabled Waste Management to increase its full-year guidance.

Looking forward 

Republic Services' excellent second-quarter showing also positioned the company to boost its full-year profit guidance. It now sees adjusted earnings in the range of $2.36 to $2.39 per share, which is up from its prior range of $2.32 to $2.36 per share.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Waste Management. The Motley Fool recommends Republic Services. The Motley Fool has a disclosure policy.