Why Is Republic Services (RSG) Down 14.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Republic Services (RSG). Shares have lost about 14.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Republic Services due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Republic Services Q4 Earnings Top Estimates, EPS View Up

Republic Services reported mixed fourth-quarter 2019 results wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.

Adjusted earnings per share of 91 cents outpaced the consensus mark by 2.2% and increased 13.8% year over year.

Revenues

Quarterly revenues of $2.58 billion lagged the consensus estimate by 1.7% but increased 1.8% year over year. A positive impact of 0.8% internal growth and 1% impact of acquisitions benefited the top line.

Revenues in the Collection segment totaled $1.94 billion, up 2.6% year over year. Transfer segment revenues of $141.6 million increased 6.4% year over year. Landfill segment revenues of $326.1 million increased 2.6% year over year. It contributed 13% to total revenues. Environmental services segment revenues of $48.1 million improved 6.7% year over year. Other segment revenues of $116.5 million decreased 13.4% year over year.

Operating Results

Adjusted EBITDA came in at $2.9 billion and adjusted EBITDA margin was 28.3% (up 30 basis points year over year) in 2019.

Operating income was $459.2 million compared with $483.3 million in the year-ago quarter. Operating margin came in at 17.8% compared with 19.1% in the year-ago quarter. Total selling, general and administrative expenses were $285.7 million compared with $284.5 million in the year-ago quarter.

Balance Sheet and Cash Flow

Republic Services exited fourth-quarter 2019 with cash and cash equivalents of $47.1 million compared with $55.6 million at the end of the prior quarter. Long-term debt was $7.76 billion compared with $7.71 billion at the end of the previous quarter.

The company generated $565.2 million of cash from operating activities and capex was $349.3 million in the reported quarter. Adjusted free cash flow was $226.1 million.

The company spent more than $525 million on acquisitions in 2019.

Share Repurchase and Dividend Payout

Republic Services returned $891 million to shareholders through dividends and share repurchases in 2019.

The company repurchased 0.5 million shares at an aggregate cost of $45.6 million and at average cost of $86.23 per share during the reported quarter. As of Dec 31, 2019, it had $704.6 million available under its share repurchase authorization.

In Oct 2019, the company paid out $129.3 million of cash dividend to shareholders of record as of Oct 1. The company paid out quarterly dividend totaling $129.2 million to shareholders of record as of Jan 2 on Jan 15, 2020.

Concurrent with the earnings release, the company’s board of directors declared a quarterly cash dividend of 40.5 cents per share, payable on Apr 15, 2020, to shareholders of record as of Apr 1, 2020.

2020 Guidance

Republic Services unveiled its 2020 guidance for revenues while raising the same for adjusted earnings and adjusted free cash flow. Revenues are expected to register 4.25-5% growth. The company now expects adjusted earnings in the range of $3.48-$3.53 per share compared with the prior guided range of $3.46-$3.51. Adjusted free cash flow is now anticipated in the range of $1,175-$1,225 million compared with the prior guided range of $1,150 million to $1,200 million. The company expects adjusted EBITDA margin to expand by approximately 20-40 basis points. Effective tax rate is expected approximately 21%. The company plans to invest roughly $200 million in tuck-in acquisitions and $120 million in solar energy investments, which qualify for tax credits. Further, it expects to return approximately $925 million of cash to shareholders, which includes nearly $525 million through dividends and $400 million through share repurchases.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Republic Services has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Republic Services has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.