Republic CEO on Q1: 'You can't have sustainability without profitability'
- Republic Services reported a 6.4% increase in revenue for the first quarter of 2017 as compared to the previous year. This was spurred by a 4.1% core price (its highest in five years), volume increases of 1% and average yield of 2.3% with particular strength in the container business.
- The company's commodity revenue was up 2.1%, with a 61% increase in prices excluding glass and organics. Though as seen recently these improvements may not last and Republic has reworked about 50% of its recycling collection contracts for a more "fair" cost-sharing arrangement, with more to come. "We still think it's a good business, where we have good partners, specifically municipal partners who want to be forward-thinking in their sustainability plans," said CEO Don Slager during the earnings call. "...[but] you can't have sustainability without profitability."
- New progress on internal operations was also reported, with future potential for big savings in fleet maintenance. The percentage of vehicles certified under its OneFleet standardized maintenance program is now up to 96%. Within that fleet, 18% of the fleet now runs on compressed natural gas and 75% of the residential fleet is automated.
Results from the start of 2017 marked another positive quarter for Republic, though were dampened somewhat by heavy rains in the West and other smaller factors. Like its competitors, Republic saw a 17.1% increase in construction and demolition waste volume at its landfills. Overall landfill volume increased by 2.8%, which was lower than some others recently reported. Acquisition activity during the quarter was $55 million, mainly focused on tuck-ins in existing markets.
The company's leadership said all of these results fit into their projections and emphasized the benefits from ongoing operational changes, such as fleet standardization and customer service center consolidation. By extending the average life of its fleet by one year, Republic estimates a one-time savings of $200 million and an ongoing annual savings of $20-25 million. Republic's position against brokers, which became a focus last year, was noted repeatedly during the call, and leaders also touted a high customer retention rate.
"Our position again is that brokers don't really offer any real value or advantage to customers. We believe we should be owning that customer interface directly with all of our capabilities, the breadth of our products and all of our digital tools, the customers will be better served dealing directly with us and not through a broker," said Slager. "Some of the things that brokers used to sell above and beyond are things that we can all do ourselves now, and we're not done yet."
Looking ahead, Slager noted the benefits of Republic's "balanced portfolio" which includes business in 240 vertically integrated markets, about 25% of that in franchise markets. Though it wasn't discussed, this strength in franchise markets was recently demonstrated by the award of a new 10-year contract in Las Vegas. The process was contentious, and even inspired a state bill that would have limited franchise activity, but Republic won out in part because it agreed to bring single-stream capabilities to the city.
Other recent events, such as the decision to reverse course and not accept coal ash at a Georgia landfill and renewed interest in the West Lake Landfill from the Environmental Protection Agency weren't discussed either, showing that they may not be seen as major news for the financial industry at this time.
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