Republic Services Inc. (RSG) reported fourth quarter 2010 adjusted EPS of 42 cents, in tune with the Zacks Consensus Estimate and up 27% from 33 cents in the prior-year quarter.
Adjusted EPS in the fourth quarter of fiscal 2010 excluded loss on extinguishment of debt of 2 cents per share, and costs to achieve synergies and restructuring charges of a penny each.
The prior-year quarter’s EPS excluded a loss on extinguishment of debt of 17 cents per share, costs to achieve synergies of 2 cents, restructuring charges of 1 cent and a loss on disposal of assets and impairments of 4 cents. Excluding these items, EPS in the quarter was 38 cents compared with 9 cents in the year-ago quarter.
Revenue in the fourth quarter was $2,020.8 million, up 1% from $1,999 million in the year-ago quarter. Reported revenue missed the Zacks Consensus estimate of $2,031 million.
Accretions from core price increase (1%), fuel surcharges (0.3%) and higher commodity pricing (1.4%) were offset by decreases in core volume (1.1%) and a negative impact of 0.5% from divestitures, leading to the overall decline.
Revenues from the Collection business dipped 1% to $1,535 million pulled down by a drop in all its businesses, barring Residential. Residential collection revenue inched up 0.4% to $544.7 million. Commercial Collection dipped 1% to $618 million and Industrial Collection suffered another 1% decline to $364.2 million. Revenue at its Transfer and Disposal business went down 0.2% in the quarter to $736.9 million.
Cost of operations improved 1% year over year to $1,184 million. Gross profit increased 5% to $836 million in the quarter with gross margin expanding 150 basis points to 41.4%. Selling, general and administrative increased 3% to $227.5 million in the quarter. The company’s adjusted operating income grew 11% to $383 million and operating margin soared 180 basis points to 19%.
Fiscal 2010 Performance
Republic Services’ fiscal 2010 adjusted EPS was $1.71, up 16% from $1.48 in the prior year. The EPS was ahead of the Zacks Consensus Estimate by a penny. The adjusted EPS was at the high end of the company’s guidance range of $1.69 to $1.71 per share.
The fiscal 2010 EPS excluded a loss on extinguishment of debt of 26 cents per share, costs to achieve synergies of 5 cents and restructuring charges of 2 cents.
The prior year’s EPS excluded a loss on extinguishment of debt of 22 cents per share, costs to achieve synergies of 6 cents, restructuring charges of 2 cents and a gain on remediation recoveries of 1 cent. Netting these items, Republic Services reported EPS of $1.32 in 2010 compared with $1.30 in 2009.
Revenues dipped 1% to $8,107 million in the fiscal year, short of the Zacks Consensus Estimate of $8,119 million.
Financial Update
Republic Services ended fiscal 2010 with cash and cash equivalent balance of $88.3 million, noticeably up from $48 million at the end of fiscal 2009. Cash from operations generated during the year was $1,433.7 million compared with $1,396.5 million in the prior year. Free cash flow upped 12% year over year to $676 million in the quarter.
During the year Republic Services initiated a share repurchase program under which it may repurchase up to $400 million of its outstanding shares of common stock. As of December 31, 2010, the company used $41.1 million under the program to repurchase 1.4 million shares at an average cost of $28.46. The remaining suthorization in this program will be utilized to repurchase shares during 2011.
Full-Year 2011 Guidance
Republic Services expects 2011 adjusted EPS to be in the range of $1.86 to $1.89. Revenues would be boosted by 1.5% with 1.0% to 1.5% resulting from core price increases, flat to up 0.5% from volume expansion and a 1% fillip from fuel surcharges and commodities pricing, partially offset by a decline of 1.5% due to loss of significant contracts.
EBITDA margin is pegged at roughly 31.6%, an increase of 50 basis points from 2010. Adjusted free cash flow for 2011 is forecast between $875 million and $900 million.
We expect the company’s solid cash position, lower debt levels and share buyback program to help deliver better results going forward. However, revenue declines at the majority of its business lines remain a concern. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Republic Services is the second largest domestic non-hazardous solid waste company in the U.S. It provides non-hazardous solid waste disposal services for commercial, industrial, municipal and residential applications through a network of 375 collection companies in 40 states and Puerto Rico. Republic Services competes with Waste Management Inc. (WM) and privately held Waste Industries USA, Inc.
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