Republic Services (RSG 0.82%) is one of the many beneficiaries of the significant reduction in the U.S. corporate tax rate at the end of last year. However, while the tax cut made the quarter look better than it was, Republic would have still delivered strong earnings and cash flow growth without that boost, thanks to the underlying performance of its business.
Republic Services results: The raw numbers
|
Metric |
Q1 2018 |
Q1 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$2.43 billion |
$2.39 billion |
1.5% |
|
Adjusted net income |
$246.3 million |
$187.3 million |
31.5% |
|
Adjusted earnings per share |
$0.74 |
$0.55 |
34.5% |
Data source: Republic Services, Inc.
Image source: Getty Images.
What happened with Republic Services this quarter?
Republic Services benefited from higher prices and volume, as well as lower taxes:
- Revenue edged up nearly 2% versus last year's first quarter, thanks to a 2% increase in volume and a 3.8% increase in core price. It would have been up 5.6% year over year if not for a change in how the company recognizes revenue.
- The company did a good job keeping a lid on costs by pushing selling, general, and administrative (SG&A) expenses down by 20 basis points. Because of that, and the improvement in revenue, earnings before taxes, interest, depreciation, and amortization (EBITDA) rose 7% versus the prior year to $699.4 million.
- Those factors, when combined with a nearly 33% reduction in the provision for income taxes, helped drive earnings up more than 30% versus last year's first quarter. Meanwhile, earnings per share rose even more due to the impact of Republic's share repurchase program.
- Republic Services generated $355.7 million in adjusted free cash flow during the quarter, an increase of 52% from the prior year. The company returned virtually all that money to investors via share repurchases and dividends, which totaled $350 million. The company also made $26 million in tuck-in acquisitions.
What management had to say
In the earnings release, CEO Donald Slager commented on the quarterly results: "We are pleased with our strong start to the year. Through the execution of our strategy we delivered solid growth in both price and volume, expanded EBITDA margins and produced double-digit growth in earnings and free cash flow per share independent of the benefit from tax reform."
One of the ways Republic Services has worked to increase earnings is by converting customers to contracts that have a more favorable annual price adjustment. The company now has about $570 million in yearly revenue tied to either a waste-related index or a fixed-rate increase that's more than 3%. With inflation running around 2%, these contracts enable the company to pass through higher price increases, which helps bolster its bottom line.
Looking forward
"Our first-quarter results position us well to achieve our full-year goals," said Slager. That includes delivering adjusted earnings in the range of $3.05 to $3.10 per share, which would be 27% higher than last year. It also includes the expectation that the company will generate between $1.09 billion and $1.115 billion in adjusted free cash flow this year, nearly all of which it plans to return to investors via dividends and buybacks.
