Republic Services Inc. (RSG) reported earnings per share from continuing operations of 33 cents, excluding restructuring charges, costs to achieve synergies, loss on disposition of assets and impairments, net, remediation charges and the tax effect of permanent items. This matches the Zacks Consensus Estimate.
Revenue for the three months ended Dec 31, 2009 increased to $1,999.0 million compared to $1,244.4 million for the same period in 2008. This increase in revenue is attributable to the company’s merger with Allied.
Core price for the three months ended Dec 31, 2009 (assuming the merger with Allied had occurred on January 1, 2008) increased 2.5% and commodity pricing increased 0.7%. Offsetting this growth of 3.2% for the three months ended Dec 31, 2009 were decreases of 9.7% in core volume and 2.2% in fuel charges.
Residential and commercial volumes experienced low-to-mid single digit declines. Volume loss was most significant again in the industrial and landfill lines of its business, which experienced mid-teen year-over-year volume declines, both reflection of the weak economy and also some weather-related issues across the countries late in the fourth quarter of 2009.
Operating Metrics and Cash Flow
Fuel expense improved 10 basis points primarily due to an 8% decrease in the cost of fuel. The 10 basis point improvement in margin relates to a 70 basis point benefit from finalizing actuarial assumptions associated with new the combined health and welfare plans, and this is partially offset by cost increasing as a percentage of revenue in the post collection business.
Disposal expense decreased in absolute dollars, but increased by 50 basis points as a percentage of revenue. Next transportation and subcontract expense declined resulting in 140 basis point improvements in margin results.
Finally, there were favorable actuarial adjustments to health and welfare benefits in the current year of about $4.4 million. Overall this led to 340 basis points of EBITDA margin expansion in the fourth quarter of 2009 compared to the corresponding prior-year quarter.
Free cash flow for the quarter was $109.3 million. During 2009, the company repaid $740 million of its debt. It also took advantage of the favorable interest rate environment by issuing $1.25 billion of new debt and using the proceeds to repay existing debt.
Integration with Allied
In overlapped markets, which represent approximately 1/3rd of the company’s revenue base, it has eliminated 70 routes through optimization tools used to enhance labor productivity. It has redirected approximately 13,000 tons of waste per day within its transfer station and landfill network. All divisions are utilizing the same billing and operating system, which is driving further productivity initiatives.
Looking at information technology, many of its large-scale conversions are behind it. Its detailed planning efforts, completed in 2008, provided the foundation for solid execution. In Q4, it moved all human resource and payroll systems to a single platform, which was fully operational for the first payroll in January 2010.
Additionally, the company converted 63% of its divisions to a common billing and operating system.
Guidance
The company expects 2010 revenue to decrease by approximately 0.5% to 2.0%. This consists of an increase of 2.0% to 2.5% resulting from price increases offset by a decline of 3.0% to 4.0% percent due to 2009 volume declines and divestitures.
It expects adjusted 2010 earnings per diluted share to be in the range of $1.63 to $1.67. Adjusted earnings per diluted share exclude restructuring charges, costs to achieve synergies and loss on extinguishment of debt.
During 2009, its integration schedule with Allied and subsequent financial savings ran ahead of plans. Target of $150 million is one year ahead of schedule. It expects run rate synergies achieved by the end of 2010 to be $165 million to $175 million.
Republic Services, Inc. provides non-hazardous solid waste collection and disposal services in the United States. The company primarily engages in residential collection operations that include curbside collection of refuse from small containers into collection vehicles for transport to transfer stations or directly to landfills. Major competitor is Waste Management Inc. (WM).
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