By the numbers
2022 net income: $1.49B
Q4 revenue: $3.53B
Up 19.5% year over year
2023 revenue guidance: $14.65B-$14.8B
- Pricing: CEO Jon Vander Ark reported during a Wednesday earnings call that last year’s 8.4% core price increase was the “highest level of pricing in company history,” adding that when combined with high customer retention rates, these results were particularly “staggering.” Pricing was driven by a 10.4% increase for open market customers and a 5.1% increase in segments restricted by contract terms.
- Economic outlook: CFO Brian DelGhiaccio said the company expects inflation to “remain sticky” this year. Vander Ark said the pricing and quality of Republic’s customer portfolio was healthier due to intentional volume shedding, and so far he isn’t seeing smaller competitors trying to undermine pricing, because they have similar inflationary pressures.
- Volumes: Q4 organic volume growth was 1.5%, and Republic is modeling positive volumes for all quarters. While Vander Ark reported a slight shift in the construction market as housing starts decline, he said industrial volumes remain “very, very strong,” and areas such as travel and leisure are “bursting at the seams.”
- US Ecology update: Revenue from this acquisition outpaced expectations by nearly $50 million, and Republic has seen $40 million in new business through cross-selling opportunities. A recent round of double-digit price increases has reportedly worked, with more to come. Total cost synergies from the deal are now expected to be close to $50 million.
- Environmental solutions: Q4 revenue was up $320 million year over year, largely driven by US Ecology. Vander Ark said this segment — which accounted for $1.26 billion in revenue last year — was “performing ahead of our plan” and could hit a $1.5 billion revenue run rate in 2023.
- Recycling: Average commodity pricing was $88 per ton in Q4, primarily driven by a drop in OCC pricing, and is modeled to be $125 per ton for the year. “We believe that current commodity prices are temporarily depressed due to a global supply/demand imbalance and that prices will recover in the second half of the year,” said DelGhiaccio, later adding “it’s still a profitable business at these levels.”
- Polymer centers: Republic now anticipates its first plastics recycling plant will open in Las Vegas by the end of the year, with another to come in the Midwest during 2024; two more are planned. By 2025, Vander Ark expects this to be a $250 million revenue business with margins north of 30%.
- Renewable natural gas: The company plans to open four new RNG projects by midyear, out of 57 total — many of which are now a joint venture with BP. Vander Ark said proposed changes to the U.S. EPA’s Renewable Fuel Standard program and the creation of a credit system to power electric vehicles was an added benefit because it gives the company multiple pathways for energy credits.
- Capital allocation: Expenditures were elevated in Q4, partially due to the accelerated polymer center timeline and delayed truck orders coming in. The company completed installation of a tablet system for all small- and large-container routes, as well as 37% of residential routes. Tablets for the remaining residential routes will be done by mid-year, all of which could lead to $50 million in annual savings, Vander Ark said.
- 2023 M&A: Republic anticipates spending at least $500 million on acquisitions this year, which Vander Ark said remain “the best use of our free cash flow.” Valuations are largely holding steady because the company is selective. “If it's something like a residential subscription business or a temporary roll-off business, we should go get that with our sales team, not pay a premium for that,” said Vander Ark, noting the focus is on infrastructure and route-based businesses with existing contracts.
- 2022 shareholder returns: Republic spent $203.5 million on stock buybacks and paid out $592.9 million in dividends. DelGhiaccio anticipates the company could resume buyback activity around midyear once the company’s leverage ratio returns to the desired range.
- Looking ahead: “We're a pretty broad-based barometer of the economy, and we're seeing a lot of strength right now,” said Vander Ark, when asked about a recession, while later recognizing that anything is possible. “We've been through a pandemic and war at the doorstep of Europe and China virtually shutting down and supply chain challenges and inflation. So I think we're prepared for uncertainty in a dynamic environment.”
