Higher Prices and Volumes Drove Republic Services, Inc. to Its Best Quarter in 8 Years
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.
Republic Services results: The raw numbers
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.
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.
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.
10 stocks we like better than Republic ServicesWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Republic Services wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of July 6, 2017
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.