Republic Services (RSG) Tops Q4 EPS by 3c, Revenues Miss; Offers FY20 EPS Guidance

Republic Services (NYSE: RSG) reported Q4 EPS of $0.91, $0.03 better than the analyst estimate of $0.88. Revenue for the quarter came in at $2.58 billion versus the consensus estimate of $2.63 billion.

Fourth Quarter and Full-Year Highlights:

• Fourth quarter EPS was $0.90 per share, and adjusted EPS, a non-GAAP measure, was $0.91 per share, an increase of 14 percent over the prior year.
• Full-year EPS was $3.33 per share, and adjusted EPS was $3.34 per share, an increase of 8 percent over the prior year. Adjusted EPS exceeded the Company\'s upwardly revised full-year guidance range.
• Full-year cash provided by operating activities was $2.4 billion and adjusted free cash flow was $1.2 billion. Adjusted free cash flow exceeded the Company\'s full-year guidance range.
• Cash flow invested in acquisitions was $526 million, or $463 million net of divestitures. The year-to-date annual revenue acquired, net of divestitures, was approximately $181 million.
• Full-year cash returned to shareholders through dividends and share repurchases was $891 million and total shareholder return was 27 percent.
• Full-year core price increased revenue by 4.7 percent. Core price consisted of 5.7 percent in the open market and 3.2 percent in the restricted portion of the business. This is the highest level of core price the Company has achieved in over a decade.
• Full-year revenue growth from average yield was 2.8 percent, driven by small-container yield of 3.9 percent and landfill municipal solid waste of 3.3 percent.
• Full-year adjusted EBITDA, a non-GAAP measure, was $2.9 billion and adjusted EBITDA margin was 28.3 percent, an increase of 30 basis points over the prior year. Underlying margin expanded 70 basis points after normalizing for the 40 basis point headwind from lower recycled commodity prices.
• Republic continued to convert CPI-based contracts to more favorable pricing mechanisms for the annual price adjustment. The Company now has approximately $780 million in annual revenue, or 31 percent of its legacy $2.5 billion CPI-based book of business, tied to the water-sewer-trash index or a fixed-rate increase of 3 percent or greater.
• The Company continued to reprice and de-risk its recycling collection and processing businesses. Through the end of the year, the Company repriced approximately 36 percent of its recycling collection contracts and 55 percent of its contracted recycling processing volume. The Company also implemented a recycling processing charge to its open market customers. As a result, the Company's earnings sensitivity to changes in recycled commodity prices is expected to decrease in 2020.
• The Company was named to the prestigious CDP Climate "A List" for its science-based goals, strategies and actions to lower greenhouse gas emissions and mitigate climate risks.

"The Republic Services team finished the year strong, and we are well-positioned for continued success in 2020. By focusing on delivering superior service to our customers and increasing employee engagement, we profitably grew our business and outperformed our adjusted EPS and free cash flow guidance for the year," said Donald W. Slager, chief executive officer. "In 2019, we invested over $525 million in value-enhancing acquisitions to expand our leading market position and increase the scale of our service offerings. Our acquisition pipeline remains strong, and we could see another outsized year of investment in 2020."

GUIDANCE:

Republic Services sees FY2020 EPS of $3.48-$3.53, versus the consensus of $3.50.

Republic\'s financial guidance is based on current economic conditions and does not assume any significant changes in the overall economy in 2020. Please refer to the Information Regarding Forward-Looking Statements section of this document.

Full-year 2020 financial guidance is as follows:

• Adjusted Diluted Earnings per Share: The Company expects adjusted diluted earnings per share to be in the range of $3.48 to $3.53. This guidance includes a benefit from CNG tax credits of approximately 4-cents. Detail relating to the computation of adjusted diluted earnings per share is contained in the Reconciliation of 2020 Financial Guidance section of this document.
• Adjusted Free Cash Flow: Republic expects adjusted free cash flow to be in the range of $1,175 million to $1,225 million. This guidance includes a net benefit from CNG tax credits of approximately $30 million. Detail relating to the computation of adjusted free cash flow is contained in the Reconciliation of 2020 Financial Guidance section of this document.
• Revenue: Republic expects an increase in revenue of 4.25 to 5.00 percent. The expected change in revenue is comprised of the following:
• 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 20 to 40 basis points.
• Taxes: The Company expects an effective tax rate of approximately 21 percent and a non-cash charge of approximately $110 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 and $120 million in solar energy investments that qualify for tax credits. Additionally, the Company expects to return approximately $925 million of cash to shareholders through approximately $525 million of dividends and $400 million in share repurchases.

"We increased our 2020 adjusted EPS and free cash flow guidance relative to the outlook we provided last October," added Mr. Slager. "We have a lot of positive momentum heading into 2020, including one of the strongest acquisition pipelines we have seen in quite some time. Additionally, this year we will continue the steady roll-out of our 'RISE' platform and in-cab technology. Through this technology, we look to further enhance the customer experience, empower our employees and increase productivity."

For earnings history and earnings-related data on Republic Services (RSG) click here.

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