Republic CEO upbeat after highest Q2 revenue growth in 8 years
- Republic Services posted $2.5 billion in revenue for the second quarter of 2017, a 7.5% increase and their highest level of growth in eight years. Adjusted EBITDA increased by $42 million, core price was 4.1%, average yield was 2.5% and volumes were up by 1.9%.
- On the recycling side, Republic benefited from a 35% increase in average commodity prices from last year. CEO Don Slager said the recent news of a scrap import ban in China wasn't an imminent concern, in part because the company only sends about 35% of their material to the country and is confident in its quality. "This is not the first time we've seen this kind of thing from China. We've been through this a number of times in our past. So we have a very high quality pack that we make, whether it's fiber or plastics. We've never had an issue with quality rejection in our history," Slager said during the earnings call.
- The company's fleet updates continue, with 100% of vehicles now certified under the OneFleet maintenance program and 19% running on compressed natural gas. Republic has also realized $100 million in capital expenditure savings by extending the life of the fleet by one year and expects to save another $100 million in the coming years. Slager also reported that driver and technician turnover is down — and hiring isn't viewed as a major issue — due in part to OneFleet.
After outperforming expectations for the second quarter, Republic's executive team members were optimistic about the year ahead and saw few issues — aside from some unexpected leachate costs, which were described as temporary. This can be taken as a sign that their recent strategy of moving away from brokers and reworking recycling contracts to minimize commodity risk may be paying off. As Slager has said before, "you can't have sustainability without profitability." This general sentiment was echoed multiple times during the call. For example, CFO Charles Serianni said that "...business is strong, the growth is good, pricing is good, operating team's doing a great job." He expressed confidence that Republic would finish the year strong and move "nicely" into 2018.
The company is also ahead of schedule on their acquisition spending – with $91 million of a planned $100 million invested so far — and about 53% of the way through their capital expenditure budget. One part of this spending is a plan to introduce 1,000 new vehicles per year, with an increasing interest in natural gas options. When asked about technology priorities during the call, Slager said the company would be looking at ways to improve both the driver and customer experience. Though unlike Waste Management, which has been trying to position itself as "the leader in the industry" on technology, Republic is taking a more measured approach to some of the flashier new fleet concepts. Slager said his team is following all of the new trends, but thinks there will be "a lot of other industries" that experience automation before the waste industry does.
It's too early to know how that technology conversation will play out, and whether the shift may happen sooner than some expect. But, for now, Republic has multiple results to show that their approach is working, in addition to positive Q2 numbers. Republic cracked the top 300 on the Fortune 500 list this year, Slager was recently recognized as a top-rated CEO by Glassdoor and a major long-term contract extension was secured in Las Vegas.
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