Republic Services benefits from higher recycled commodity prices, lower fuel costs in Q3
Republic Services has reported net income of $260.0 million for the three months ending September 30, 2020, versus $298.3 million for the comparable 2019 period. Excluding certain gains and expenses, on an adjusted basis, net income for the three months ended September 30, 2020 was $319.3 million versus $290.3 million for the comparable 2019 period. The company was also certified as a Great Place to Work for the fourth consecutive year.
The company continued to convert CPI-based contracts to more favorable pricing mechanisms for the annual price adjustment. The company now has approximately $855 million in annual revenue, or 34 percent of its approximately $2.5 billion CPI-based book of business, tied to a waste-related index or a fixed-rate increase of 3 percent or greater.
Additionally, the company's average recycled commodity price per ton sold in the third quarter was $99. This represents an increase of $27 per ton versus the prior year. Lower fuel costs also benefited the bottom line.
"During the third quarter, we expanded adjusted EBITDA margin 230 basis points and delivered double-digit growth in adjusted earnings and adjusted free cash flow. We continued to provide quality service to our customers while effectively managing our costs, and we are extremely pleased with our results," said Donald W. Slager, chief executive officer. "Given the continued strength of our business and steadfast execution by the entire Republic team, we are raising our 2020 full-year adjusted free cash flow guidance. I am proud of our team and the dedication and resiliency they have demonstrated, which has positioned us well for continued profitable growth."
2020 Financial guidance
Republic reinstated its full-year 2020 adjusted EPS guidance. It expects to generate $3.37 - $3.40 of adjusted EPS for the full year. The company now expects to generate $1.15 billion to $1.20 billion of adjusted free cash flow for the full year. This guidance assumes continued gradual improvement in economic activity through the remainder of the year.
Third-quarter 2020 highlights include:
- Third quarter EPS was $0.81 per share. Adjusted EPS, a non-GAAP measure, was $1.00 per share, an increase of approximately 11 percent over the prior year.
- Year-to-date cash provided by operating activities was $1,909 million, an increase of 6.8 percent versus the prior year. Adjusted free cash flow, a non-GAAP measure, for the same period was $1,109 million, an increase of 13.8 percent versus the prior year.
- Year-to-date cash flow invested in acquisitions was $154 million, or $119 million net of divestitures. The company expects to invest $850 million to $900 million in acquisitions for the full year.
- Third quarter core price increased revenue by 4.5 percent, which consisted of 5.4 percent in the open market and 3.2 percent in the restricted portion of the business.
- Third quarter average yield was 2.6 percent.
- Third quarter adjusted EBITDA margin was 30.3 percent of revenue and increased 230 basis points over the prior year. This included a 70 basis point benefit from higher recycled commodity prices and lower fuel costs.
Traditionally, waste management companies have operated using a simple "management of waste" approach to operating a MRF. Throughput targets and continuous operation (minimal downtime) were the main driving forces. The industry has changed however, and the focus moving forward is now on optimizing system performance and reliability, in conjunction with increasing recycling rates and a drive for a "greener" and more sustainable tomorrow.
When considering the addition of, or upgrade to, an "intelligent" MRF, for municipalities or private operators, the main factors should always be the client's (operator) current requirements, and evolving market needs, which include throughput, reliability, output quality, and adaptability. Equally important is a full understanding of what is really expected from any proposed system. Having an engaged and focused mindset for the project with the client from the beginning, will impact and drive the entire design process. This then impacts the overall project result, through to the productive, efficient, ongoing operation of the facility itself.