Republic Services' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Republic Services (RSG)

Q4 2011 Earnings Call

February 09, 2012 5:00 pm ET

Executives

Edward A. Lang - Senior Vice President and Treasurer

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

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

Analysts

Hamzah Mazari - Crédit Suisse AG, Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

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

Vance Edelson - Morgan Stanley, Research Division

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

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

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

Barbara Noverini - Morningstar Inc., Research Division

Presentation

Operator

Good afternoon, and welcome to the Fourth Quarter 2011 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. Today's 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, Holly. Welcome, good afternoon and thank you for joining us. This is Ed Lang, and I would like to welcome everyone to Republic Services' Fourth Quarter 2011 Conference Call. Don Slager, our CEO, and 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 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 that 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 9, 2012. 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. I am pleased to report our fourth quarter and full year performance met and exceeded our guidance. Before discussing our fourth quarter achievements, I will review our financial performance.

Revenue of $2 billion for the quarter and $8.2 billion for the full year. Total price growth in the quarter was 1.5%, with core price up 0.6%, including MSW landfill price of about 3%. Volumes increased by 0.2% excluding the impact of fewer workdays. Our fourth quarter adjusted earnings per share was $0.53. Full year adjusted earnings per share was $1.96. Our fourth quarter adjusted free cash flow was $208 million. Our full year adjusted free cash flow was $909 million, which exceeded our guidance.

We repurchased 1 million shares in the fourth quarter for $29 million. During the past 12 months, we repurchased 15.7 million shares or 4% of our stock for $460 million. We have $650 million remaining under our authorization to return to our shareholders over the next 2 years. We remain committed to an efficient cash utilization strategy, which includes increasing cash returns to our shareholders through share repurchase and dividends. Total cash returned to the shareholders was approximately $770 million during 2011. Based on our current market capitalization, this represents a 7% cash yield.

During the fourth quarter, we settled with the IRS on the legacy Allied exchange of partnership tax issue. This settlement allowed Republic to reduce tax reserves in the quarter.

Our field organization continues to target profitable growth and effectively manage our cost structure. In the fourth quarter, we saw a 20 basis point sequential improvement in our total Collection volumes. Our industrial Collection volumes were positive on a year-over-year basis for the quarter and for the full year. Our cost of operations as a percentage of revenue was flat on a year-over-year basis after adjusting for the impact of higher fuel expense. SG&A expense was 10.6% in the quarter and 10.1% for the full year. Our safety performance continues to improve with a 4.5% favorable reduction in our frequency rate.

Some of our operational achievements during 2011 include: we increased the automated portion of our residential fleet by 8%. 59% of our residential fleet is now automated, which exceeded our year-end goal. We continue to invest in our CNG fleet and natural gas infrastructure, with 6% of our fleet now operating on natural gas. In 2012, we expect about 65% of the trucks we purchase to be fueled by CNG.

We increased recycling capacity by investing $46 million in developing and upgrading our recycling centers in 2011 and are planning on spending an additional $60 million in 2012. These investments will add approximately 12% of incremental recycling volume over the next 18 months. These are new tons to the company that were not previously delivered to a Republic recycling facility or disposal site.

I would like to thank our field operations for their continued support in executing our strategy of achieving profitable growth and maintaining a safe working environment. Tod and Ed will now update our financial performance.

Tod C. Holmes

Thanks, Don. Fourth quarter 2011 revenue, as Don said, was approximately $2 billion. This reflects the following components of internal growth: core price growth, up positive 0.6%; commercial and industrial price was on average up 1%, with residential remaining more competitive due to the municipal and franchise contract pricing environment and also the lagging impact of prior year's CPI. Since our price on index-based contracts tends to lag, we are impacted by the lower CPI environment of 2010, which has not fully anniversaried. Given the current CPI environment, we expect index-based pricing to modestly improve in the second half of 2012.

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