Republic Services, Inc. (RSG)

Q2 2010 Earnings Call Transcript

July 29, 2010 5:00 pm ET


Jim O'Connor – Chairman and CEO

Don Slager – President and COO

Tod Holmes – EVP and CFO

Ed Lang – SVP, Treasurer


Scott Levine – JP Morgan

Hamzah Mazari – Credit Suisse

Jonathan Ellis – Banc of America/Merrill Lynch

Vance Edelson – Morgan Stanley

Corey Greendale – First Analysis

Michael Hoffman – Wunderlich

Kevin [ph] – Wedbush Securities



Good afternoon and welcome to the second quarter 2010 conference call for investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your hosts this afternoon are Republic Chairman and CEO, Mr. Jim O'Connor; and Republic President and COO, Mr. Don Slager.

Today’s call is being recorded and all participants are in a listen-only mode. There will be a question-and-answer session following Republic’s summary of quarterly earnings. (Operator instructions)

At this time, it is my pleasure to turn the call over to Mr. O'Connor. Good afternoon, Mr. O'Connor.

Jim O'Connor

Good afternoon, Holly. Welcome and good afternoon and thank you for joining us this. I would like to welcome everyone to Republic Services' second 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 second quarter and first half year performance.

Before we get started, I’d like to take a moment to remind everyone that some of the information that we discuss today 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 July 29th, 2010. Please note that this call is the property of Republic Services Incorporated. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited.

I am very pleased to report that Republic Services has again outperformed in the second quarter of 2010 due to our continued commitment on – to improving return on investment, expanding EBITDA margins, and generating additional free cash flow. We have seen a 370-basis point sequential improvement in our volume. And although core price is slightly due to the impact of CPI, total price exceeds costs and EBITDA margins continue to expand.

Accordingly, we are raising our EPS and free cash flow guidance. We are increasing our adjusted EPS guidance to a new range of $1.69 to $1.71 per share from $1.63 to $1.67 per share. Our adjusted free cash flow guidance is increasing by $25 million – the new range – to a new range of $725 million to $750 million.

Additionally, our Board of Directors has approved a 5% increase in our quarterly dividend to $0.20 per share, payable October 15th, 2010. This action represents the Board executing the first phase of our cash utilization strategy and we expect to finalize the second phase relating to share repurchase in the next Board meeting in early part of November. We will discuss the share repurchase plan at that time.

As we complete our integration process this year, Republic has significant operating leverage to benefit from the economic recovery and is positioned to achieve record margin performance.

Now, I would like to turn the call over to Don Slager, our President and Chief Operating Officer, to discuss the second quarter highlights. Don?

Don Slager

Thanks, Jim. Our second quarter results reflect our continued focus on safety, cost control, operating efficiency, customer service, and pricing.

Financial highlights for the second quarter are, we had revenue of approximately $2.1 billion, Republic had positive internal growth of 0.9%. This is the first time we have had positive internal growth since Q3 2008. We expect to have positive total revenue growth in the second half of 2010. Net income, adjusted primarily for merger related expenses, was $166.4 million or $0.43 per share. Our adjusted EBITDA margin was 31.3%. This strong performance demonstrated the strength of our field organization to maintain the focus on pricing in a low-inflation environment and cost-competitive structure, while completing the integration process.

Our total price improvement, including fuel surcharges and higher commodity values, was 4.2%. Core price increase for the second quarter was 1.6%. Our pricing was down sequentially due to the impact of lower CPI on our index-based business, which represents 50% of total revenue. We continue to use our ROI pricing tools to be sure all business activity meets our requirements.

Our volumes declined year-over-year by 3.3%, which is a 370 basis points improvement versus first quarter. Our commercial collection business has started to see increases in service frequency and we continue to see volume improvement in our industrial and landfill lines of business. We expect that by the fourth quarter our volumes will be flat to slightly positive.

Year-to-date, adjusted free cash flow was $402 million or $1.05 per share. This is a 124% of adjusted book earnings. As you know, free cash flow is the best measure of quality earnings. We remain on track to meet our synergy target of $185 million to $190 million by year-end. This strong performance has enabled us to increase our quarterly dividend and increase our earnings and free cash flow guidance as Jim just mentioned.

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