Republic Services (RSG)

Q3 2011 Earnings Call

October 27, 2011 5:00 pm ET

Executives

Donald W. Slager - Chief Executive Officer, President and Director

Edward A. Lang - Senior Vice President and Treasurer

Tod C. Holmes - Chief Financial Officer and Executive Vice President

Analysts

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

Hamzah Mazari - Crédit Suisse AG, Research Division

Michael E. Hoffman - Wunderlich Securities Inc., Research Division

Scott J Levine - JP Morgan Chase & Co, Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

William H. Fisher - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good afternoon, and welcome to the Third Quarter Call for Investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your host for today's call are Don Slager, President and CEO; Tod Holmes, CFO; and Ed Lang, Republic's Senior Vice President and Treasurer. This call is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Lang. Good afternoon, Mr. Lang.

Edward A. Lang

Thank you. Welcome, good afternoon, and thank you for joining us. This is Ed Lang, and I would like to welcome everyone to Republic Services' Third Quarter 2011 Conference Call. Don Slager, our CEO; and Tod Holmes, our CFO, are joining me as we discuss our third quarter performance.

Before we get started, I would 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 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 October 27, 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 W. Slager

Thanks, Ed. Based on our third quarter performance, Republic Services is on track to achieve the earnings and cash flow guidance provided earlier this year. Financial and operational highlights include: Revenue of approximately $2.1 billion for the quarter; total price growth in the quarter was 3.6%, with core price of a 0.7%; our MSW landfill price was up by 3%, which is an improvement from Q2 levels; Q3 had positive volume growth, this is the ninth consecutive quarter of collection volume improvement; our third quarter adjusted EPS was $0.53 and $1.43 year-to-date; our third quarter adjusted free cash flow was $266 million; we repurchased 6 million shares in the third quarter for $167 million.

During the past 12 months, we have repurchased 16 million shares or 4% of our stock for $470 million. We remain committed to an efficient cash utilization strategy, which includes increasing cash returns to our shareholders through repurchase and dividends. Total cash returned to the shareholders in the quarter was $242 million and $657 million year-to-date.

We continue to be successful in retaining a high percentage of our existing contracts, and have secured a number of new contracts that will improve our performance in 2012. During the third quarter, we started a new contract that privatized a residential collection operations of Toledo, Ohio. Privatization continues to be a source of revenue growth and assist municipalities with allocation of financial resources. Additionally, we will begin servicing a number of new contracts during 2012, including San Jose in Fresno, California and Hernando County in Florida.

Our field organization continues to target profitable growth and effectively manage our cost structure. We saw a 20-basis-point sequential improvement in our collection volumes. Our industrial collection volumes are now positive on a year-over-year basis.

Our cost of operations, as a percentage of revenue, improved by 50 basis points after adjusting for the net impact of higher fuel. SG&A expense was 9.8%. We have increased the automated portion of our residential fleet by 15% this year. 58% of our residential fleet is now automated, which is already ahead of our full goal. Our safety performance continues to improve with our frequency rate down 7% year-over-year. I would like to thank our field operations for their continued success in executing our strategy of achieving profitable growth, controlling costs and maintaining a safe work environment for our people.

Tod will now update our financial performance.

Tod C. Holmes

Thanks, Don. Third quarter 2011 revenue was approximately $2.1 billion, a $55 million increase in the third quarter reflects internal growth, which totaled approximately 2.5%. This is the highest level reported since 2008. The change in revenue from prior periods includes the following key components: Core price growth of 0.7%. Our commercial and industrial price were on average, up about 1%, with residential remaining more competitive due to municipal and franchise contract pricing environment and the lagging impact of prior year's CPI.

Since our price on an index-based contract tends to lag, we are impacted by the lower CPI environment of 2010, which is not fully anniversaried. Given the current CPI environment, we expect index-based pricing to modestly improve in the second half of 2012.

Our landfill MSW price, as Don indicated, was about 3%, a slight improvement from the second quarter. Within that component of our business, our third-party open market landfill customers where we are increasing prices in the range of 4% to 5%.

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