2018 Earnings

Q4 Earnings

Republic Services reported a "strong finish" to 2018 during the company's Q4/annual earnings call, with a growing air of confidence that showed few signs of immediate concern.

The Arizona company recorded free cash flow of $1.2 billion for the year. $1.2 billion went back to shareholders via stock repurchases and dividends. For the fourth quarter, Republic saw core price of 4.7% and average yield of 2.7% — described as "our highest pricing level in nearly a decade." Volumes were up in most categories, including a 7.2% increase at landfills.

"The Republic Way"

According to CEO Don Slager, this steady growth through discipline is all part of "the Republic Way." Not often one to seek a high profile, Slager's attitude heading into 2019 had a ring of conservative confidence as he expounded on a variety of topics. 

• Speaking on how Republic had achieved its best pricing levels in years — as well as a record-low customer defection rate — Slager said relationship-building was the key: "We're spending a lot of time on customer experience, and so I don't believe you can just raise a customer's price. I think you've got to raise a customer's willingness to pay."
• The company reported $87 million in acquisitions during Q4 ($200 million for the year) and divested $79 million worth of assets. This includes a recent buy-sell deal with Waste Management in Texas. Going forward, Slager said, it will be about waiting for companies to be ready to sell on their terms, and Republic will "kind of stay in our lane" with more tuck-ins.
• On labor, an area that has been challenging industry-wide, Slager said turnover was flat YoY, hiring wasn't especially challenging outside of a few markets, and that driver shortage "isn't keeping us up at night."
• Following the announcement that Republic is partnering with Mack Trucks to design and build a fully electric collection vehicle, Slager said the company is "involved in pilots and tests" for other emerging concepts, but that digitizing operations is still a main priority.

Recycling Responsibility

Recycling processing and commodity sales accounted for an estimated 3% of Republic's revenue in 2018 — down from 5.4% in 2017. Executives cited recycling as a $145 million headwind last year, but sounded increasingly confident that new pricing structures and growing number of renegotiated municipal contracts were beginning to pay off. 

"...Last year, we spent a lot of time wringing our hands over this China thing. We're no longer dependent on China. Our team's done a lot of work moving material to new ports, opening new lanes. All of our material that we collect is handled and recycled ethically. So we've overcome the operational hurdle of that, and now we're settling into sort of a new cost model," said Slager.

• Republic reported recycling revenue of $78 million for Q4 and $298 million for the year. Excluding glass and organics, average commodity prices were down 15% YoY. Heading into 2019, comps will continue to become more favorable.
• Citing it as a sign of optimism and investment, the company pointed to a newly opened "next-gen" MRF in Plano, Texas that uses positive sort technology. Slager said the contract with Plano, in which the city pays for processing and then gets any commodity value back via rebate, is an "example of our new recycling business model."
• Slager was confident that model would continue to take hold this year, though he believes behavior from other competitors and customers is still an unknown factor. "Every homeowner is going to have to pay us about $1 more a week, and they're going to have to give us about two minutes more a day of their good, responsible time," he said. "And if they don't want to do that, we'll be glad to provide trash service instead of recycling service because we're really good at that."

Looking Ahead

• Projecting what's in store for 2019, Republic affirmed expectations for free cash flow in the range of $1.125 billion to $1.175 billion for the year. The company expects revenue to increase by 4.25% to 4.75%, and an estimated $1.4 billion will be returned to shareholders via dividends and buybacks.
• One area where Slager thinks costs will remain higher is landfill operations — specifically, leachate processing at wastewater treatment plants. "I think that's going to be something, again, that affects all people in our business," he said. "More than likely, you'll see more companies turning to some kind of price action to recover some of those costs."
• Following 2018's pattern, Republic expects to invest another $200 million in tuck-in deals, and the company's pipeline was described as continually strong. "We've sort of built our momentum up over the last few years, and we've got the appetite to do very big deals," said Slager. "It's just a matter of whether or not it's their time."