Republic Services Earnings: Pricing Remains Robust Despite Lagging Volumes

Wide-moat-rated Republic Services RSG reported third-quarter operating results in line with our estimates, as sales and operating income were within 1% of our projections. Management increased full-year adjusted EPS guidance by 2% to $5.48 per share (midpoint) due to a lower-than-anticipated tax rate while leaving guidance unchanged for sales, adjusted EBITDA, and free cash flow. We’ve increased our fair value estimate to $129 per share from $127 due to the time value of money.

Pricing has remained robust for Republic Services, as the core price for related business increased 8.6%. We continue to believe that Republic Services can exert pricing power for the foreseeable future, as the firm continues to benefit from its wide economic moat from intangible assets (landfill permits) and cost advantages (route density).

We do note, however, that volume growth came in at 0.1%, its lowest level since the first quarter of 2021. This is largely due to declines in construction and demolition volumes that fell 6.2% year over year due to weakness in the economy. Additionally, residential collection volumes declined 1.5% year over year, which is the worst-performing quarter on a volume basis since the fourth quarter of 2019.

Adjusted EBITDA margins have remained robust for Republic Services, increasing 70 basis points year over year (to 29.9%), largely due to continued operational improvement, which we expect to continue for the foreseeable future. Republic Services relied less on acquisitions during the quarter, as acquisitions only accounted for 1.7% of the company’s year-over-year growth; however, management emphasized that it continues to seek acquisition opportunities. Also of note, Republic announced that the board of directors approved a $3 billion share repurchase plan effective at the start of 2024 through the end of 2026. This is in addition to the remaining purchase capacity under the prior repurchase plan of $1.4 billion, which extends through the end of 2023.