Garbage is a pretty consistent business and that consistency was on full display when Republic Services (RSG 0.78%) reported its fourth-quarter results after the closing bell on Thursday. While its adjusted earnings didn't really budge from the year-ago quarter, overall it was a strong end to a solid year, with the company exceeding its earnings and cash flow guidance. That solid performance is expected to continue next year, with the company guiding for both earnings and cash flow to edge higher next year too.
Republic Services results: The raw numbers
|
Q4 2015 Actuals |
Q4 2014 Actuals |
Growth (YOY) | |
|---|---|---|---|
|
Revenue |
$2.29 billion |
$2.23 billion |
2.7% |
|
Adjusted Net Income |
$175.0 million |
$178.5 million |
-2% |
|
Adjusted EPS |
$0.50 |
$0.50 |
N/A |
Data source: Republic Services.
What happened with Republic Services this quarter?
Republic Services results were very solid:
- Revenue growth was driven by both a higher yield, which increased 2.2%, and higher volumes, which increased 0.9%. Those dual growth drivers demonstrated that the company can grow both its price and volumes at the same time.
- Another growth driver was acquisitions with Republic Services completing $52 million of tuck-in acquisitions during the quarter and $193 million for the full year. These transactions represent $143 million in revenue on an annualized basis.
- Fourth quarter adjusted EBITDA margin was 27.2%, which was actually below its full year margin of 28.1%. That said, the company did boost its full year margin by 10 basis points over last year due to lower fuel costs and pricing in excess of cost inflation.
- With this solid finish to the year Republic Services exceeded its full-year guidance for earnings and adjusted cash flow guidance, which came in at $2.06 per share and $813 million, respectively.
- Republic Services returned nearly all of that cash back to investors with $808 million going toward buybacks and dividends.
What management had to say
In commenting on the quarter CEO Donald Slager said that:
I am pleased to report another year of profitable growth. We finished the year strong and delivered results that exceeded our EPS and free cash flow guidance ... Our performance reflects the positive contribution our multi-year initiatives are having on the business and the successful execution of our strategy. During the course of 2015, the business generated consistent earnings and free cash flow growth while increasing cash returns to shareholders. Importantly, we were able to achieve this while maintaining our strong capital structure.
Republic Services delivered solid, though unspectacular growth through a combination of acquisitions, margin expansion, and price increases. That said, for comparison sake, Republic Service does have room for improvement. Rival Waste Connections (WCN 0.01%) had a much better year, which according to its CEO Ronald Mittelstaedt was attributable to "favorable revenue trends and an approximate 180 basis points year-over-year margin expansion in solid waste", which pushed Waste Connection's margins well above those of Republic Services as they stood at 34.5% for the year. Waste Connections accomplished this through strong solid waste price plus volume growth of 4.8%, which "drove exceptional results in 2015," according to Mittelstaedt. Further, he noted that Waste Connections has "industry-leading organic growth, margins, and an almost 50% conversion of EBITDA to free cash flow," which "remain hallmarks of our differentiated market model." Suffice it to say, while Republic Services had a strong year by its standards, it was a bit behind Waste Connections in several key metrics.
Looking forward
That said, fast growth isn't Republic Services's game. Instead, it expects to deliver a further step-up in 2016 with revenue, earnings, and cash flow all expected to grow by low single-digits. Its current outlook is for revenue to grow by 2.5% to 3% while earnings per share grow to a range of $2.13 to $2.17. Meanwhile, adjusted free cash flow is expected to be in a range of $820 million to $840 million, which is actually a bit better than the guidance range of $790 million to $810 million it provided last quarter. While that's not industry leading growth, it is solid and dependable growth.
