Republic Services Earnings: Strong Pricing Continues; Likely Another Outsize Year for Acquisitions

Following Republic Services’ RSG first-quarter earnings release, we’ve increased our fair value estimate by approximately 1% to $120 per share. Our fair value increase was mostly driven by the time value of money since our last update.

Like the other two waste collection and disposal firms we cover (Waste Management and Waste Connections), Republic continued to flex its pricing muscle, which has supported strong top-line growth. Core price on total revenue increased 8.2% compared with a 6% gain during the year-ago quarter. We continue to see Republic’s pricing power as a feature of its wide economic moat, rooted in intangible assets (landfill permits) and a cost advantage (route density).

Acquisitions (most notably, the US Ecology acquisition) was another primary growth driver this quarter, accounting for 11% year-over-year sales growth. Volumes increased 1.6% year over year, and lower recycling revenue was offset by increased environmental solutions revenue and the favorable effect of an additional workday compared with the prior-year quarter. All told, Republic realized nearly a 21% increase in revenue to $3.6 billion.

Consolidated adjusted EBITDA margin narrowed by 140 basis points year over year to 29%. Margin headwinds included acquisitions (130 basis points), lower recycled commodity prices (60 basis points), and the unfavorable effect of an additional workday (30 basis points). These margin headwinds were partially offset by lower fuel expenses (40 basis points) and margin expansion in Republic’s core business (40 basis points).

Management said it has a robust acquisition pipeline and there’s an opportunity to deploy more than $500 million on acquisitions this year, primarily within solid waste, environmental solutions, and recycling. We believe outsized acquisition activity could help Republic exceed the full-year financial targets it unveiled with its fourth-quarter 2022 earnings release.