Republic Services (NYSE:RSG) Reports Q2 In Line With Expectations
Waste management company Republic Services (NYSE:RSG) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 8.6% year on year to $4.05 billion. The company's outlook for the full year was also close to analysts' estimates with revenue guided to $16.1 billion at the midpoint. It made a non-GAAP profit of $1.61 per share, improving from its profit of $1.41 per share in the same quarter last year.
Is now the time to buy Republic Services? Find out in our full research report.
Republic Services (RSG) Q2 CY2024 Highlights:
Revenue: $4.05 billion vs analyst estimates of $4.03 billion (small beat)
EPS (non-GAAP): $1.61 vs analyst estimates of $1.53 (5.5% beat)
EBITDA Guidance for the full year is $4.91 billion at the midpoint, above analyst estimates of $4.87 billion
Gross Margin (GAAP): 41.1%, up from 40.3% in the same quarter last year
Free Cash Flow of $458.4 million, down 14.3% from the previous quarter
Sales Volumes were flat year on year (0.4% in the same quarter last year)
Market Capitalization: $62.68 billion
"We continue to prioritize our differentiating capabilities – Customer Zeal, Digital and Sustainability – to help our customers achieve their operational and sustainability goals, and drive significant value for our stakeholders," said Jon Vander Ark, president and chief executive officer.
Republic (NYSE:RSG) provides waste management services for residences, companies, and municipalities.
Waste Management
Waste management companies can possess licenses permitting them to handle hazardous materials. Furthermore, many services are performed through contracts and statutorily mandated, non-discretionary, or recurring, leading to more predictable revenue streams. However, regulation can be a headwind, rendering existing services obsolete or forcing companies to invest precious capital to comply with new, more environmentally-friendly rules. Lastly, waste management companies are at the whim of economic cycles. Interest rates, for example, can greatly impact industrial production or commercial projects that create waste and byproducts.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Thankfully, Republic Services's 8.9% annualized revenue growth over the last five years was decent. This shows it was successful in expanding, a useful starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Republic Services's annualized revenue growth of 12.6% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Republic Services also reports its sales volumes, which show how much product it was pushing. Over the last two years, Republic Services's sales volumes were flat. Because this number is lower than its revenue growth, we can see the company benefited from price increases.
This quarter, Republic Services grew its revenue by 8.6% year on year, and its $4.05 billion of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 6.6% over the next 12 months, a deceleration from this quarter.
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Operating Margin
Read More Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Republic Services has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.1%. This isn't surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Republic Services's annual operating margin rose by 2 percentage points over the last five years, showing its efficiency has improved.
In Q2, Republic Services generated an operating profit margin of 20.1%, up 1.1 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with its general expenses like sales, marketing, and administrative overhead.
EPS
Read MoreWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Republic Services's EPS grew at a remarkable 13.9% compounded annual growth rate over the last five years, higher than its 8.9% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into Republic Services's earnings to better understand the drivers of its performance. As we mentioned earlier, Republic Services's operating margin expanded by 2 percentage points over the last five years. On top of that, its share count shrank by 2.3%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Republic Services, its two-year annual EPS growth of 14.5% is similar to its five-year trend, implying strong and stable earnings power.
In Q2, Republic Services reported EPS at $1.61, up from $1.41 in the same quarter last year. This print beat analysts' estimates by 5.5%. Over the next 12 months, Wall Street expects Republic Services to grow its earnings. Analysts are projecting its EPS of $6.02 in the last year to climb by 5.8% to $6.37.
Key Takeaways from Republic Services's Q2 Results
It was good to see Republic Services beat analysts' revenue and EPS expectations this quarter. On the other hand, its sales volumes missed. Overall, this was a fine quarter for Republic Services. The stock traded down 2.3% to $195 immediately following the results.
So should you invest in Republic Services right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.