By the numbers
Q3 net income: $480.2M
Up 15.2% year over year
Acquisition spending: $947.4M
Republic still anticipates surpassing $1B in spending this year
- Results: Republic Services executives said the company had a strong third quarter during a Thursday earnings call, reporting adjusted free cash flow of nearly $1.83 billion. CEO Jon Vander Ark said these results, and multiple efforts in progress, position the company for “continued outsized growth” heading into 2024.
- Pricing: Like others in the sector, Republic’s pricing remains elevated. The company reported that core price increases on related business revenue was 8.6%, including 10.4% for open market business and 5.7% for restricted business. Looking ahead, Vander Ark said that “pricing will come down nominally as inflation comes down, but we’ll still be pricing ahead of our cost inflation.”
- Cost: Vander Ark said labor costs have moderated slightly this year. Maintenance expenses remain elevated year over year and may remain higher as new truck deliveries still are delayed due to supply chain issues. Republic believes it has a competitive advantage over smaller players that don’t have the same buying power. "Anybody who is a spot buyer of vehicles is really in a challenged spot certainly through the end of next year, and probably into '25 or '26 depending on how fast the supply chain can recover,” he said.
- Volume: Overall volumes were up slightly year over year, offset by a 1.7% decrease for large containers. Landfill C&D volumes were down by 6.2%, due to the muted pace of residential and commercial construction starts.
- Recycling: Republic reported $76.3 million in revenue from recycling in Q3, with an average commodity price of $112 per ton, down $50 year over year. The current average price is $120 per ton, driven by what CFO Brian DelGhiaccio described as a “steady recovery” in values for fiber and plastics. He said this trend could continue to improve in Q4.
- EVs: Republic anticipates having 12 electric vehicles by the end of the year, with 60 more coming in 2024. It now has commercial charging infrastructure at six facilities, and 40 more sites are in development.
- Polymer centers: The company’s Las Vegas plastic processing facility construction is “substantially complete” and Vander Ark expects full-scale operations to begin in November. The company’s next polymer center will open in Indianapolis late next year and will be co-located with a related facility that is part of a joint venture with Ravago.
- Environmental solutions: Overall revenue was $424 million for the quarter, up from $411 million in Q3 of 2022. Petrochemical clients have remained strong, though automotive clients have seen some effects from recent strikes. US Ecology, which Republic acquired in 2022, had a notable presence in the Midwest auto manufacturing market. Vander Ark said so far the number of customers canceling or decreasing service as a result of the UAW strikes has been relatively limited.
- M&A: Republic remains bullish on acquisition potential in all categories, even though it hasn’t closed any new environmental solutions deals yet this year. Vander Ark said the pipeline for such deals is “strong” and more could be coming by next year.
- Shareholders: Republic has resumed stock buybacks after reducing its debt leverage to a rate of 2.9x, following an elevation from the US Ecology transaction. So far this year, the company spent $201.1 million on buybacks and $469.5 million on dividends. It has authorization for another $1.4 billion worth of potential buybacks by the end of year, and another $3 billion for 2024-2026.
- Looking ahead: While Vander Ark said the company remains cautious about how global events could affect the U.S. economy, he anticipates that Republic is well positioned to expand its margins in 2024. “I think we’re closer to a soft landing than we certainly were a quarter ago,” he said. “We’re not firing on every cylinder, but we’re cautiously optimistic that we’re going to grow out of this coming into next year.”
