Republic Services (RSG)

Q3 2010 Earnings Call

November 04, 2010 5:00 pm ET


Donald Slager - President and Chief Operating Officer

Tod Holmes - Chief Financial Officer and Executive Vice President

James O’Connor - Chairman and Chief Executive Officer


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, Inc. Q2 2010 Earnings Call Transcript
» Republic Services, Inc. Q1 2010 Earnings Call Transcript
» Republic Services, Inc. Q4 2009 Earnings Call Transcript

Good afternoon, and welcome to the Third Quarter 2010 Conference Call for Investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your host this afternoon are Republic Chairman and CEO, Mr. Jim O'Connor; and Republic President and COO, Mr. Don Slager. [Operator Instructions] At this time, it is my pleasure to turn the call over to Mr. O'Connor. Good afternoon, Mr. O'Connor.

James O’Connor

Good afternoon, Lisa. Welcome and good afternoon, and thank you for joining us. This is Jim O'Connor, and I'd like to welcome everyone to Republic Services Third Quarter Conference Call. Don Slager, our President and Chief Operating Officer; Tod Holmes, our Chief Financial Officer; and Ed Lang, our Treasurer, are joining me as we discuss our third quarter and year-to-date performance.

Before we get started, I’d like to take a moment to remind everyone that some of the information that we discuss 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 could cause actual results to differ materially from expectations. Additionally, the material that we discuss today is time sensitive. If in the future you listen to a rebroadcast or a recording of this conference call, you should be sensitive to the date of the original call, which is November 04, 2010.

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.

I'm very pleased to report that we continue to achieve record performance in a weak but stable economy. We are raising our free cash flow guidance to $800 million due to the benefit of bonus depreciation. We're on target to achieve the revised upward earnings guidance of $1.69 to $1.71 we provided you in July. We remain on track to meet or exceed the full year EBITDA margin guidance, and we continue to see improvement in year-over-year volumes.

Based on our strong earnings and cash flow visibility, our Board of Directors has authorized a share repurchase program of $400 million. In less than two years since the closing of our merger, we have completed the first successful large implementation integration in the solid waste industry on a timely basis. All operating locations are on a single IT platform. We have achieved $190 million of run rate synergies and exceeded our goal by 27%, and we have repaid $1.1 billion of debt and have the highest credit ratings in the industry. And we returned to Republic's long-term strategy of paying free cash flow to shareholders through share repurchase now and our annual dividend.

Now I'd like to turn the call over to Don Slager to discuss our third quarter highlights.

Donald Slager

Thanks, Jim. Our third quarter results reflect our continued focus on safety, cost control, systems integration and intelligently pricing our business. Financial highlights for the third quarter and year-to-date are revenue of approximately $2.1 billion. This is the second consecutive quarter with [ph] positive internal growth. Net income adjusted primarily for merger-related expenses was $173 million, or $0.45 per share. Adjusted EBITDA margin in the third quarter was 30.8%. As Jim just mentioned, we are on track to meet or exceed our full year EBITDA margin guidance.

Our field organization has maintained their focus on pricing, and continues to achieve open market pricing in excess of inflation. Core price increase for the third quarter was 1.5%. If we adjust for a few isolated areas were required to divest of operations, core price was approximately 2%.

Our total price improvement, including fuel surcharges and higher commodity values was 2.6%. We continue to use our ROI pricing tools to be sure all business activity meets our requirements. Our volumes declined year-over-year by 2.5%, which is an 80 basis point improvement versus the second quarter. The areas that showed the strongest volume improvement were in the Commercial and Industrial businesses, with sequential improvements of 110 and 230 basis points respectively.

Landfill special waste continues to be strong, which resulted in year-over-year volume growth in the Landfill business for the second quarter in a row. Third quarter adjusted free cash flow was $177 million and $579 million on a year-to-date basis. Adjusted free cash flow per share of $1.51 for the year is 117% of adjusted book earnings. As you know, free cash flow is the best measure of the quality of earnings.

I would now like to mention a few of our achievements in the quarter that demonstrate our ongoing focus on cost controls. We continue to experience positive results from our safety initiatives, as accident frequency is down more than 15% compared to last year. Ensuring a safe environment is key to our long-term success. Our field management has continued to achieve labor productivity gains over the prior year, and reduce labor costs in an absolute dollars, as well as a percentage of revenue.

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