Q3 Earnings

Republic Services continued to express confidence in the pace of pandemic recovery for its business, with a positive third quarter earnings report and multiple signs of momentum heading into 2021.

CEO Don Slager said the results "clearly demonstrate the strength and resiliency of our business," adding during the company's earnings call that "pricing continues to exceed cost inflation, volumes continue to recover and margins are outstanding."

COVID economy

• Overall volumes were down 3.4% in the third quarter – as compared to a 7.4% decline in the prior quarter – and down 2.7% through September. During the quarter, small container rates were down 4.8% and large container rates down 5.4%.
• Republic's landfill volumes were down 3.1%; pulled down by decreases of 2.5% in C&D and 11.7% in special waste, but offset by a 3.3% increase in MSW. Executives said the special waste pipeline remains strong, with many jobs delayed rather than canceled.
• Residential weights remain up by around 10%, consistent with the second quarter, and the company reported more than 100 communities have agreed to new contract terms due in part to this new normal. “We're relentless, we are not going to stop continuing to ask for that price increase," said President Jon Vander Ark.

Like others in the sector, Republic reported ongoing signs of sequential recovery from the pandemic along with multiple signs it is far from over.

According to Vander Ark, an estimated 80% of customers that initially paused service had now returned and 45% of those that decreased service have resumed it. Clients in the education, hospitality and restaurant sectors were said to be the greatest sources of ongoing volume declines due to the varying state of recovery on a regional basis. CFO Brian DelGhiaccio said 20% of the company's small container volume declines during the quarter were due to educational customers.

On the residential side, the company's push to rework municipal contracts fits into a years-long effort to move toward different price increase indexes and reshape the terms around processing recyclable commodities. Ongoing progress there, combined with newfound operational savings in other areas during recent months, made the company bullish on next moves.

"All those things adding up, those are all going to come to fruition I think regardless of COVID," said Slager. "Then COVID sort of kicked us into another gear, we found new agility that we didn't have and made some other operational changes because we frankly had to, and those are going to carry into future periods."

Other news

• Republic's quarterly recycling revenue was $75 million. This was up from last year due in part to a 38% increase in commodity values, but offset by a 7% decline in inbound volumes. The company's E&P revenue was $24.1 million, down by more than half year-over-year.
• On the labor side, the company reported overtime expenses were down by 10% (a less pronounced rate than the prior quarter) and the rate of safety incidents declined 20% year-over-year. Vander Ark said recent experiences had led to a "different level of performance in terms of productivity and safety."
• Initial implementation of Republic's new RISE platform – which includes tablets in trucks, enabling different ways of communicating within the company and with customers – is now 97% finished. Investment in this "digital transformation" was cited as one example of where the company plans to accelerate spending. Overall capital expenditures are expected to remain at normal levels, despite the pandemic, due in part to this technology push.

Looking ahead

• Based on the third quarter performance, Republic raised its guidance for adjusted free cash flow to $1.15-1.2 billion. The company's board also authorized $2 billion in share repurchases for 2021-2023. Republic still has $606 million in previously authorized repurchases through the end of 2020.
• Republic reported spending $154 million on acquisitions to date and raised its full-year expected spend to $850 million to $900 million. This is an increase from prior expectations of up to $650 million, and includes expected closings on Santek Waste Services and Randy's Environmental Services. 
• Like many times before, executives forecasted ample acquisition opportunities ahead but said they wouldn't pursue any "unnatural" deals that some competitors may be more eager to do for their own reasons. On the election, Vander Ark said speculation about potential tax changes hadn't notably changed the pipeline and Slager projected a possible break in general economic stagnancy going forward.
• "There's been a lot of chaos this year, COVID, social unrest, the election … things are going to start to settle down, America ends up conquering all in the end," said Slager. "As things get back to normal and we get on a path and the economy recovers and people find a way to continue to sort of save and grow their businesses… we're going to be right there with it."