Q2 Earnings

Republic Services reported another round of successful earnings in its second quarter, with adjusted EBITDA of $726 million, core price increase of 4.6% and an 8% boost in its quarterly dividend. Executives cited positive results on all fronts — even recycling — and shared plans of further expansion.

Acquisition uptick

• Republic reported spending $129 million on unspecified acquisitions during Q2 and now expects to hit $550 million for 2019. Compared to prior expectations of $300 million set last quarter — let alone original plans for $200 million — this is a notable jump.
• During the earnings call, executives attributed this to being patient for the right deals as well as becoming a "preferred buyer" because of a reputation for treating employees well. "We've got a higher number of referrals to buy companies than we ever have," said President Jon Vander Ark. "Owners care about money, but they don't care just about the money. They also care about legacy."
• CEO Don Slager described the deals in question as well within Republic's "core capability" and signaled minimal interest in going outside that. "It's all waste, it’s all environmental service, it's all the industrial waste," he said.

Republic's deal activity has been quieter than some of its other large competitors in recent quarters. But after Waste Management announced its plans to acquire Advanced Disposal earlier this year, Slager made it clear his company was still "in the hunt" for the right opportunities.

During this latest call, he reiterated the philosophy of there being a "natural buyer" for every company. He stood by a self-described rational approach of not wanting to chase deals at the higher prices some private equity players might be willing to pay. Slager also expressed confidence in Republic's current leverage to do more as needed. 

"[As] long as you're buying really good cash flow at the right multiple with the right returns, we've got frankly a lot of dry powder to do that. There really is no limits on us from that perspective," he said.

Slager reaffirmed that could involve picking up required divestments from the Waste Management deal as available.

Recycling reset

• Republic reported $71.9 million in Q2 recycling revenue, up 6% year-over-year (YoY). Average prices for commodities the company handles were down to $78 per ton, resulting in an $8 million headwind. Revenue was also below that of Q1.
• Average commodity prices for the first six months of 2019 were $86 per ton, down from $102 YoY. The company now anticipates it will settle around $75 per ton for the rest of the year. This would create an estimated $50 million headwind.
• Still, executives remain confident it can be offset by ongoing price renegotiations and better service. Increases have been locked in for about 55% of Republic's total contracted volume, including 29% of its municipal contracts.

Like Waste Management, Republic says it remains committed to making recycling work at a good return, and will continue targeted investments where appropriate. The company's new MRF in Plano, Texas (the last one burned down) was held up as an example of what could be done to reduce labor costs and improve material quality.

Similar to Waste Management's approach with a future facility in Chicago, Vander Ark previously told Waste Dive he could foresee building others if finances align. During that interview, Vander Ark also laid out why he believes Republic can take the lead on setting new price structures, and prepare for a future where recycling volume growth outpaces solid waste.

"[W]e're on a path to de-risk the business to a point where we're not going to spend a lot of time talking about it anymore," Slager said during Thursday's call. "We're going to be able to grow it and run it and do a great job for customers and the environment without having to talk about all this crazy volatility that exists."

Republic's new 2030 sustainability goals include a "circular economy" target to increase recycling volumes by 40% — counting organics, biogas and oil — but the topic received minimal attention during the earnings call.

Looking ahead

• While transfer and disposal costs rose 8.5% YoY — including ongoing leachate expenses — revenue increases were more than enough to cover them. Further price increases are expected in the future and Slager was confident customers will pay because "​these landfills are ultimately still few and far between."
• Republic expects to see more labor and maintenance efficiencies in the future, due in large part to successful implementation of its One Fleet program. The company has gone from seeing unscheduled maintenance issues drop from a rate of 80% to 10%. 
• The company reported $213 million in dividends and share repurchases during Q2. According to Republic, this is the tenth consecutive year with a dividend increase. As of June 30, the company still has board authorization for another $901.6 million in share repurchases.