Republic Services (RSG)

Q4 2010 Earnings Call

February 10, 2011 5:00 pm ET


Tod Holmes - Chief Financial Officer and Executive Vice President

Edward Lang - Senior Vice President and Treasurer

Donald Slager - Chief Executive Officer, President and Director


Scott Levine - JP Morgan Chase & Co

Hamzah Mazari - Crédit Suisse AG

Michael Hoffman - Wunderlich Securities Inc.

Vance Edelson - Morgan Stanley

Albert Kaschalk - Wedbush Securities Inc.

William Fisher - Raymond James & Associates

Corey Greendale - First Analysis Securities Corporation

Jonathan Ellis - BofA Merrill Lynch



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Previous Statements by RSG
» Republic Services CEO Discusses Q3 2010 Results - Earnings Call Transcript
» Republic Services, Inc. Q2 2010 Earnings Call Transcript
» Republic Services, Inc. Q1 2010 Earnings Call Transcript

Good afternoon, and welcome to the Fourth Quarter and Year End Conference Call for Investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your hosts for this afternoon's call are Don Slager, President and CEO; Tod Holmes, CFO; and Ed Lang, Republic's Senior Vice President and Treasurer. [Operator Instructions] At this time, it is my pleasure to turn the call over to Mr. Ed Lang. Good afternoon, Mr. Ed Lang.

Edward Lang

Thank you, Jacqueline. Welcome, and good afternoon, and thank you for joining us. This is Ed Lang, and I would like to welcome everyone to Republic Services' Fourth Quarter 2010 Conference Call. Don Slager, our CEO; Tod Holmes, our CFO, are joining me as we discuss our fourth quarter and full year performance.

Before we get started, I would like to take a moment to remind everyone that some of the information that we discussed on today's call contains forward-looking statements, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that would cause actual results to differ materially from expectations.

Additionally, the material we discuss today is time-sensitive. If in the future you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is February 10, 2011.

Please note that this call is the property of Republic Services, Inc. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited.

With that, I would like to turn the call over to Don.

Donald Slager

Thanks, Ed. Republic Services has concluded a very successful fourth quarter and fiscal year. Financial and operational highlights include revenue of approximately $2 billion for the quarter and $8.1 billion for the full year. This is the third consecutive quarter with positive internal growth. Sequentially, volume improved 140 basis points, including a 90 basis point improvement in collection and a 680 basis point improvement in landfill. We secured price increases across all lines of business and continued our focus on retaining existing business that generates appropriate returns.

This resulted in record EBITDA margin performance of 31.1% in 2010. Our fourth quarter EPS was $0.42 and $1.71 for the full year. Our full year performance exceeded the guidance that we provided in February of 2010. Our fourth quarter free cash flow was $197 million and $776 million for the full year. Our strong free cash flow allowed Republic to increase its dividend and authorize a $400 million share repurchase program. We repurchased over 1.4 million shares in the fourth quarter for approximately $41 million. We are on track to complete the existing authorization before the end of 2011. We remain committed to an efficient cash-utilization strategy, which includes increasing cash returns to our shareholders. Our field organization continues to effectively manage our cost structure. Productivity has improved, which reflects the gradual conversion of our residential fleet to automated collection. We expect that 55% of our residential routes will be automated by the end of 2011.

Maintenance expenses were 40 basis points lower than 2010 when compared to the prior year. We adjusted our maintenance staffing levels to the proper ratio of collection routes resulting in lower maintenance costs per engine hour. We continue to see reduction in frequency of insurance claims. Our accident and injury frequency improved by approximately 12% as compared to 2009.

In 2010, we increased our investments in single-stream recycling facilities, alternative fuel trucks and landfill gas-to-energy projects. These investments are not only environmentally beneficial but are good business decisions, which enhance infrastructure and generate solid returns. We will continue to pursue these investments in 2011.

I would like to thank our field operations for their commitment to a high level of execution in all aspects of our business and delivering another year of outperformance for Republic Services.

Before turning the call over to Tod, I'll provide our 2011 financial guidance. Consistent with our comments on the third quarter call, we expect 2011 EPS to be in a range of $1.86 to $1.89 or a 9% to 11% increase compared to 2010. Free cash flow for the full year is expected to be in a range of $875 million to $900 million. This is a 13% to 16% increase over 2010 performance. This includes the benefit we expect from the recent extension of tax bonus depreciation.

Revenue is expected to improve by up to 1.5% with total internal growth of 2% to 3%, offset by the impact of San Mateo and Toronto contract losses. Net capital expenditures in 2011 are expected to be $735 million. This level of spending allows us to maintain our current fleet age of less than seven years. Our EBITDA margin guidance for the full year 2011 is 31.6%, which is a 50 basis point improvement over 2010.

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