3rd Quarter Profits
|Income||$ 2.934 billion|
|Change from year to year||14.1%??|
|Net revenue||$ 350.3 million|
Third quarter earnings results at Republic Services has exceeded expectations, with the company citing volume returns, high prices and its growing business of environmental solutions as catalysts.
Executives also noted that at $ 922 million, its investment in third-quarter acquisitions is the highest level in more than a decade. The company expects to exceed $ 1 billion by the end of the year. The pipeline comprises a mix of small and mid-sized deals and is “more heavily focused on recycling and waste,” said CEO Jon Vander Ark, but noted “a lot of opportunities” in environmental solutions.
The latest impacts of the pandemic
- CEO Jon Vander Ark noted a handful of “modest” effects from the current stage of the pandemic. He said one of the impacts of the delta variant was an increase in spending on paid time off, as some workers stayed at home. Overall, labor costs and related benefits increased by 20% compared to last year.
- He also noted the potential effects on roads as traffic picked up, but said the company’s implementation of the RISE platform, its dispatch operations technology, had helped offset that. Executives noted on the call that about 70% of their large and small container fleet so far has been equipped with tablets, with plans to expand the residential fleet afterwards.
- Republic reported $ 295.6 million in capital spending in the quarter and said it expects to make “a disproportionate amount” of its capital spending for the entire year in the fourth quarter. When asked about the current supply chain challenges facing companies across industries, Vander Ark said this is only having a gradual impact on the business, one example being delays in a solar project. scheduled for this year due to equipment lockouts.
Volumes and prices
- Overall volumes increased 4.3% from the previous year. In collections, volumes of small and large containers increased, while residential volumes experienced a negative year-over-year variation. Landfill volumes increased 6.6%. Small container and MSW volumes in the third quarter exceeded their pre-pandemic 2019 benchmarks. Vander Ark said the company would have looked for more opportunities to increase volume had it had the workforce. to support them.
- Republic said its total base price remains at an all-time high of 5.2%. Company maintains it can “price higher than cost inflation,” Vander Ark said, and will recognize other benefits as index-based contracts arrive for annual increases in 2022. .
- Prices for recycling raw materials were $ 230 per tonne, compared to $ 99 per tonne in the third quarter of 2020. Recycling related revenue totaled $ 119.9 million, up 4.1% year-over-year.
- The company has again raised its free cash flow expectations for 2021 to $ 1.475 billion to $ 1.5 billion, from the last quarter projection increased from $ 1.45 billion to $ 1.475 billion.
M&A and other key investments
- Environmental solutions revenue more than doubled from a year ago to $ 51.4 million in the third quarter, driven by both organic growth and acquisitions, including the purchase of ACV Enviro in August and anonymous offers in June. As to the value outlook for this segment: “I think $ 1 billion in three years, I think that’s a reasonable target,” Vander Ark said.
- Republic currently has 17 landfill gas projects underway “with more opportunity down the road.” The company’s participation in these investments will be different than in the past, said Vander Ark, noting that the company will not become full ownership but will take stakes. “We have a limited number of landfills. So this is a great growth opportunity to pursue, but there is a cap to that. “
- Regarding potential antitrust hurdles for mergers and acquisitions, he said the company has “a very clear view on the regulatory position,” adding: “So yes, there is increased scrutiny over it. like four or five years ago on larger trades, but more broadly, it hasn’t slowed us down at all from what I think is a different acquisition level than we’ve done historically. “
- Regarding environmental solutions agreements specifically, Vander Ark said that while these companies often have a lower margin profile than solid waste and recycling targets, they are also less capital intensive and “we think there is. certainly an opportunity to increase those margins over time. “