Republic Services Inc., Phoenix, has released its fourth quarter financial results for 2018. The company reports net income of $301 million, or 92 cents per diluted share, for the three months ended Dec. 31, 2018, versus $664.4 million, or $1.98 per diluted share, for the comparable 2017 period. Excluding certain benefits and expenses, on an adjusted basis, net income for the three months was $260 million, or 80 cents per diluted share, versus $203.8 million, or 61 cents per diluted share, for the comparable 2017 period.
For the year, net income was a little more than $1 billion ($1,036.9 million), or $3.16 per diluted share, versus nearly $1.3 billion ($1,278.4 million), or $3.77 per diluted share, for the comparable 2017 period. On an adjusted basis, net income for the year was a little more than $1 billion ($1,014.9 million), or $3.09 per diluted share, versus $822.2 million, or $2.43 per diluted share, for the comparable 2017 period.
"We are very pleased with our strong finish to the year, which positions us well for 2019. Despite significant headwinds from recycling, we achieved our earnings per share (EPS) guidance and exceeded our free cash flow guidance, demonstrating the underlying strength of the solid waste business," says Donald W. Slager, the president and chief executive officer of Republic Services. "We delivered double-digit growth in earnings and free cash flow per share, invested over $200 million in value-enhancing acquisitions, and increased our return on invested capital and cash returned to shareholders. Our solid results continue to reflect the positive contributions from effectively investing in the business and successfully executing our strategy of profitable growth through differentiation."
Fourth quarter and full-year highlights include:
- Fourth quarter adjusted EPS, a non-GAAP (generally accepted accounting principles) measure, was 80 cents per share, an increase of 31 percent over the prior year.
- Full-year adjusted EPS was $3.09 per share, an increase of 27 percent over the prior year.
- Full-year cash provided by operating activities was $2.2 billion and adjusted free cash flow was $1.2 billion. Adjusted free cash flow increased 26 percent over the prior year and exceeded the upper-end of the company's full-year guidance range.
- Fourth quarter revenue increased 2.6 percent over the prior year, excluding the impact of the new revenue standard. Revenue growth from average yield was 2.7 percent, the company's highest level of average yield in nearly 10 years. Volume decreased 70 basis points, in line with management's expectations.
- Full-year revenue increased 4 percent over the prior year, excluding the impact of the new revenue standard. Revenue growth from average yield was 2.4 percent. Volume increased 40 basis points.
- Full-year adjusted earnings before interest, tax, depreciation and amortization (EBITDA), a non-GAAP measure, was $2.8 billion and adjusted EBITDA margin was 28.0 percent. The solid waste business contributed 70 basis points of margin expansion, which was more than offset by a 140 basis point headwind from the recycling business, excluding the impact of the new revenue standard.
- Republic returned $1.2 billion to shareholders in 2018 through share repurchases and dividends, representing a cash yield of 5.1 percent.
- Total shareholder return was 9 percent for the full year as compared to the S&P 500's negative return of 4 percent.
- The company invested over $200 million in acquisitions during 2018.
- Republic continued to convert CPI-based contracts to more favorable pricing mechanisms for the annual price adjustment. The company now has approximately $660 million in annual revenue tied to either a waste-related index or a fixed-rate increase of 3 percent or greater.
- Republic received many notable awards for its continued leadership in environmental, social and governance (ESG) matters in 2018.
Republic's financial guidance is based on current economic conditions and does not assume any significant changes in the overall economy in 2019.
Full-year 2019 financial guidance is as follows:
- Adjusted diluted earnings per share --The company expects adjusted diluted earnings per share to be in the range of $3.23 to $3.28.
- Adjusted free cash flow -- Republic expects adjusted free cash flow to be in the range of $1,125 million to $1,175 million.
- Revenue -- Republic expects an increase in revenue of 4.25 to 4.75 percent.
- Property and equipment -- The company anticipates receiving $1.2 billion of property and equipment, net of proceeds from the sale of property and equipment.
- Adjusted EBITDA margin -- Republic expects adjusted EBITDA margin to expand by approximately 30 to 50 basis points.
- Taxes -- The company expects an effective tax rate of approximately 24 percent and a non-cash charge of approximately $60 million related to solar energy investments that qualify for tax credits. The charge will be recorded as a loss from unconsolidated equity method investments.
- Cash utilization -- Republic expects to invest approximately $200 million in tuck-in acquisitions. Additionally, the company expects to return approximately $1.4 billion of cash to shareholders, through $500 million of dividends and $875 million in share repurchases.
"Our 2019 financial guidance is consistent with the preliminary outlook we provided last October, demonstrating the visibility we have into our business and the stability of our earnings and cash flows," Slager says. "In 2019, we expect to continue to profitably grow our business through the advancement of our strategy, which includes attracting and retaining the best people, strengthening our market position, and leveraging technology to enhance the customer experience and improve operational efficiency."
Republic announced that its board of directors declared a regular quarterly dividend of 37.5 cents per share for stockholders of record on April 1. The dividend will be paid on April 15.