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Republic Services, Inc. Continued Its Steady Growth

Republic Services (NYSE: RSG) once again delivered higher revenue, earnings, and cash flow, even though it faced some hurricane-related headwinds. Because of that, the company remained on track to meet its full-year guidance. Meanwhile, its first glimpse at 2018 suggests that its steady growth should continue.

Republic Services results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$2.56 billion

$2.41 billion

6.3%

Adjusted net income

$225.2 million

$212.6 million

5.9%

Adjusted EPS

$0.67

$0.62

8.1%

Data source: Republic Services, Inc.

Image source: Getty Images.

What happened with Republic Services this quarter? 

Republic Services continues turning trash into cash:

  • Revenue rose versus the year-ago period thanks to higher volumes and prices. One of the drivers of the improved pricing is the steady conversion of customers to contracts that adjust on an annual basis instead of based on inflation data.
  • The company also continues to drive out costs by improving the productivity and the makeup of its fleet. One of those initiatives is increasing the percentage of its fleet fueled by cheaper natural gas, which has risen from 18% to 19% over the past year. In addition to that, the company continued the automation of its residential fleet, which has improved from 74% to 75%.
  • Those two factors drove the year-over-year increase in earnings, though profitability would have been $0.01 per share higher if it wasn't for the impact of several hurricanes during the quarter.
  • Republic Services continued to collect a growing stream of cash flow. Since the start of the year, it has generated $606 million in adjusted free cash flow, which is up 5% versus last year.
  • The company returned $227 million in cash to investors during the quarter via dividends and share repurchases, bringing its year-to-date cash return up to $682 million.
  • The share buybacks drove Republic's earnings up at a faster rate on a per-share basis, which should continue since the company's board authorized another $2 billion in share repurchases. When combined with the $95 million remaining under its previous authorization, the company could buy back as much as 10% of its shares outstanding.

What management had to say 

CEO Donald Slager commented on the quarter by saying that,

We are pleased with our third-quarter performance, which included high-single digit growth in earnings and free cash flow per share. Thus far in 2017, we have invested approximately $385 million in acquisitions, including the purchase of ReCommunity. Our pipeline for the remainder of the year and into 2018 is robust and will serve as a catalyst for future growth. Our continued ability to profitably grow the business both organically and through acquisitions illustrates the effectiveness of our strategy and our commitment to creating long-term shareholder value.

As Slager notes, Republic Services has been actively expanding its business via acquisitions this year. The biggest was the $165 million purchase of ReCommunity, which is the largest independent recycling-processing company in the country. Not only will it bolster Republic's recycling presence, but ReCommunity comes with several long-term, fee-based contracts with municipalities, which will provide it with stable cash flow so the company can continue returning money to investors while expanding its business.

Looking forward 

Republic Services is optimistic as it heads into 2018, which was evident in its preliminary guidance. Based on the view that current economic and business conditions will continue next year, when combined with its recent acquisitions, growth initiatives, and share repurchases, adjusted earnings per share should be in a range of $2.53 to $2.58 while adjusted free cash flow should be between $925 million and $950 million. Both numbers represent single-digit growth from 2017's anticipated levels.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Republic Services. The Motley Fool has a disclosure policy.