Republic Services sees gains in Q3 financial report

The company saw an increase in net income, revenue and free cash flow.

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Kheng Guan Toh | Dreamstime

Republic Services Inc., Phoenix, has released the financial results for the third quarter, which ended Sept. 30. 

“Our business continues to perform well, even with increased volatility in the broader marketplace,” says Jon Vander Ark, president and chief executive officer of Republic. “Our third-quarter performance demonstrates our ability to price more than cost inflation while simultaneously growing volumes and delivering margin expansion in the underlying business.”  

The company reports net income of $416.9 million, or $1.32 per diluted share, in 2022, compared with $350.3 million, or $1.10 per diluted share, for the 2021 period. Excluding certain benefits and expenses, on an adjusted basis, net income for Q3 was $425.4 million, or $1.34 per diluted share, compared with $357.7 million, or $1.12 per diluted share, for the comparable 2021 period.  

The company says its total revenue growth was 22.6 percent and includes 10.2 percent of organic growth and 12.4 percent growth from acquisitions. The third-quarter revenue growth from average yield was 5.6 percent, and volume increased revenue by 2.2 percent.  

The core price during the third quarter was 6.9 percent, which included open market pricing of 8.7 percent and restricted pricing of 4 percent. The components of the core price included small container at 10.7 percent, large containers at 7.6 percent and residential at 6.7 percent. The average yield on total revenue was 5.6 percent, an increase of 60 basis points compared with second-quarter performance. Republic says the average yield on related revenue was 6.3 percent.  

Year-to-date cash provided by operating activities was $2,383.4 million. Adjusted free cash flow, a nongenerally accepted accounting principal measure, was $1,665.2 million, an increase of 22.8 percent versus the prior year.  

Total company adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) margin for the third quarter was 29.2 percent compared with 30.5 percent in the prior year. Margin performance during the quarter included a 150 basis point decrease from acquisitions, including 90 basis points related to US Ecology and a 40 basis point headwind from lower commodity prices. These margin headwinds were partially offset by a 10 basis point increase from net fuel and an underlying margin expansion of 50 basis points.  

The adjusted EBITDA margin in the Recycling and Solid Waste business was 30.5 percent. Selling, general and administrative expenses, excluding transaction costs from US Ecology, were 9.8 percent of revenue. This is a 30 basis point improvement over the prior year and reflects continued cost management as the company grows the business. Year-to-date adjusted free cash flow was $1.67 billion, an increase of $309 million or 23 percent compared with the prior year. This was driven almost exclusively by EBITDA growth in the business.  

Year to date, Republic says it invested $2.6 billion in acquisitions, which included the acquisition of US Ecology. The company says the integration of US Ecology is progressing as planned and it is confident at least $40 million of cost synergies will be realized.  

“Apart from US Ecology, we have invested over $400 million of acquisitions this year,” Vander Ark said during a Q3 conference call the company held with investors Oct. 27. “Substantially, all of these deals are in the recycling and solid waste space.”  

Brian DelGhiaccio, chief financial officer for Republic, said the company’s third-quarter volume increased by 2.2 percent. The components of volume included an increase in small containers of 2.3 percent, an increase in large containers of 1.7 percent and an increase in landfill of 6.8 percent. Republic’s customer retention rate remained strong at more than 94 percent.  

The company’s commodity prices were $162 per ton in the quarter compared with $230 per ton in the prior year. This represents a decrease from the second quarter of 2022 of $56 per ton and a decrease of $68 per ton over 2021. Recycling, processing and commodity sales were a 130 basis point headwind to internal growth during the quarter.   

“We are now forecasting fourth quarter commodity prices to be approximately $90 per ton,” Delghiaccio said during the conference call. “This would result in a full-year average commodity price of $165 per ton.”  

Looking forward to 2023, recent decreases in recycled commodity prices, increased interest rates and rising fuel costs will have a direct impact on Republic, according to Vander Ark. While these headwinds may dampen performance expectations, the company says it remains confident in its ability to price ahead of cost inflation. Republic still expects to deliver above-average levels of growth in revenue, EBITDA and free cash flow.   

The company says it plans to provide detailed 2023 guidance on its fourth-quarter earnings call in February. 

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