Republic Services, Inc. Went Over the Top in 2016

Republic Services (RSG 0.42%) cleaned up during the fourth quarter, reporting double-digit earnings growth that pushed its full-year results above the top end of its guidance range. The company expects this momentum to continue in 2017, so it issued guidance that was even better than the initial glimpse it gave last quarter.

Republic Services results: The raw numbers

Data source: Republic Services, Inc.

What happened with Republic Services this quarter? 

Rising revenue and expanding margins enabled Republic Services to exceed expectations:

• Revenue continued its consistent growth thanks to a combination of volume and price increases. For the quarter, revenue growth from the average yield was up 2.2%, and volumes edged up 0.5%, again showing the company's ability to grow price and volumes at the same time.
• Rising revenue, when combined with a margin improvement of 70 basis points, helped fuel the double-digit increase in earnings.
• The strong showing in the quarter pushed Republic's full-year adjusted earnings up to $2.22 per share, which exceeded its updated guidance range of $2.19 to $2.20 per share and came in well ahead of its original guidance range of $2.13 to $2.17 per share.
• The garbage hauler collected $885 million in adjusted free cash flow for the full year, which was also above the high end of its updated guidance range of $840 million to $850 million.
• The company returned the bulk of that cash to investors last year, using $820 million for share repurchases and dividends.

Image source: Getty Images.

What management had to say 

As CEO Donald Slager said about the company's performance:

We finished the year strong and delivered fourth-quarter and full-year results that exceeded the upper-end of our guidance. Our positive momentum continued throughout 2016 which resulted in full-year margin expansion, high-single digit earnings and free cash flow growth, and improved return on invested capital. Our solid results continue to reflect positive contributions from reinvesting back into the business and successfully executing our strategy of profitable growth through differentiation.

Republic's reinvestments in its business were an important driver of its ability to improve margins. Last year, for example, the company completed several fleet-based initiatives to improve productivity and lower costs. These included increasing the percentage of its fleet running on cheaper natural gas from 16% to 18% and improving the percentage of its automated residential fleet from 72% to 74%. It also increased the portion of its fleet certified under its standardized maintenance program from 78% to 92%, with plans to reach 100% by next quarter.

Looking forward 

Republic expects to maintain its momentum in 2017 and sees revenue rising 4.5% to 5% thanks to a combination of volume and yield improvements as well as other drivers. Meanwhile, the company expects its margin expansion to continue and anticipates an improvement of another 20 to 40 basis points over last year. These factors should push adjusted earnings up to a range of $2.32 to $2.36 per share, which is $0.01 per share better on the low end than its preliminary guidance last quarter. Finally, the company expects to generate about $900 million in free cash flow, all of which it plans to return to investors, evenly split between dividends and share repurchases.