Image Source: Gabriel Langton
By Brian Nelson, CFA
Republic Services remains our favorite garbage hauler. The company is a cash cow, and it continues to drive dividend growth as it buys back shares. When it reported third-quarter results on October 26, the firm showed strong adjusted earnings per share expansion, to $1.54, up from $1.34 in last year’s period. For the first nine months of the year, the firm grew cash flow from operations to ~$2.7 billion, up from ~$2.38 billion during the same period last year, driving strong adjusted free cash flow generation of ~$1.8 billion, materially higher than the ~$470 million in cash dividends it paid over the same period. The board authorized $3 billion for share repurchases, and its equity yields a very healthy ~1.4% at the time of this writing.
Here is what CEO John Vander Ark had to say on the third-quarter conference call:
Pricing realization in the Environmental Solutions business remains strong, and we continue to drive organic growth through cross-selling. EBITDA margin in the Environmental Solutions business improved sequentially to 22.7% in the third quarter and expanded 390 basis points over the prior year. The results we are delivering are made possible by executing our strategy in support of our differentiated capabilities.
Organic revenue growth remained strong during the quarter, with simultaneous increases in both price and volume. Core price and related revenue was 8.6% and average yield on related revenue was 7.2%, and organic volume growth and related revenue was 10 basis points.
The company’s ESG initiatives continue to bear fruit as well, as noted on the call:
Moving on to sustainability. We believe that our sustainability innovation investments in areas such as plastic circularity and renewable natural gas or a platform for profitable growth.
Development of our polymer centers remains on track. Construction of our Las Vegas Polymer Center is substantially complete, and we expect full scale operations to begin in November. Our Midwest Polymer center will be located in India. This center will be co-located with a Blue Polymers production facility with operations expected to begin in late 2024.
The renewable natural gas projects being co-developed with our partners are continuing to advance… and we expect eight additional projects to be completed in 2024. We are making progress in our efforts to reduce greenhouse gas emissions, including our industry-leading commitment to fleet electrification.
We expect to have 12 electric vehicles in operation by year-end and more than 60 EVs to be added to our recycling and waste collection fleet in 2024. We now have 6 facilities with commercial EV charging infrastructure with more than 40 additional sites in various stages of development.
Republic Services benefits significantly from its long-term disposal assets as these operations grow more attractive as time passes thanks to the increasing regulatory nature of the waste business, as well as citizen groups opposed to greenfield sites growing in number and strength. These disposal assets, including its Apex landfill in Nevada, which is the busiest facility of its kind in the US, represent the material barriers to entry that give the company a large portion of its moaty characteristics. Republic operates an essential business and roughly 80% of its revenue has an annuity-type profile. We continue to like Republic Services across several of our newsletter portfolios. Shares are up more than 23% year-to-date.
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, QQQ, and SCHG. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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