Republic Services (RSG, Financial) is a shareholder-friendly company. It has returned nearly $780 million of net cash to the key stakeholders in the year, representing a cash delivery of 6%.
The significant share repurchase program of Republic includes 11 million shares bought back for $400 million. It concluded the year with overall shareholder return of approximately 24.7%, the greatest level achieved in the solid waste industry and much above the S&P 500 average.
The significant and continued share buy back program of Republic is in line with the focused commitment of the company in delivering superior shareholder value.
Cost cutting moves in focus
Currently, 14% of its fleet is working on natural gas. In 2014, Republic added seven new CNG fuelling stations, and currently runs a net of 36. Republic grew the automated segment of its residential fleet to about 69%, from the previous 66% last year. During 2014, Republic grouped and certified 14% of its fleet under Single Fleet maintenance program.
Republic is continuously making significant investments in recycling facilities to enhance productivity, and grow capabilities while downsizing underperforming assets. Republic shut down seven aged recycling facilities, which failed to deliver sufficient returns in 2014.
The ongoing focused efforts of Republic in rightsizing its fleet, and continued investments to expand its production capabilities is estimated to deliver significant top line growth for the company and increase shareholder returns.
Republic invested approximately $231 million to achieve 132 million of solid waste revenue, including the strategic acquisition of Rainbow Disposal, which is a superior quality franchise business that matches its robust Southern California operations.
The planned acquisitions executed by Republic are expected to slightly hurt the free cash flows of the company but, hugely expand the market presence of Republic, going forward.
Customer focus will drive results
In 2014, Republic improved its focus on the customers by diversifying its service deliveries, develop customer loyalty, and enhance readiness to pay. For instance, it recently introduced the "My Resource customer portal", allowing its customers with online access to their accounts and its key services. More than 500,000 customers have already registered to date.
In addition, Republic has released the "My Resource mobile app", which is an extension of its customer’s online management portal. The app enables customers to plan services and get push notifications leveraging a mobile tool. Republic executed the tablet-based Capture pricing tool, developing improved professional sales practice, and assists in achieving enhanced pricing levels at the sales point. This key implementation is successfully achieved in 17 of its 20 core areas.
The strategic release of new mobile app, converging with the rapidly changing global technologies is forecasted to benefit Republic in a long-term, attracting several new customers and expanding shareholder returns.
Recently, Republic introduced priority based selling, or PBS, which allows it to recognize end user buying preferences, and draw customers, who are comfortable in paying premium for improved deliveries. Republic estimates PBS to be completely implemented by 2015 conclusion.
Republic has also provided the financial guidance for the fiscal year 2015 and estimates full year adjusted free cash flow to be in $710 million to $740 million range.
The planned introductions of new technologies to grab significant market share is believed to enable Republic to successfully execute on its fiscal year 2015 financial guidance.
Conclusion
Overall, the investors are advised to invest into Republic Services, Inc. looking at the company’s logical valuation with the trailing P/E and forward P/E ratios of 26.44 and 18.39 respectively and marginally better than the industry’s average P/E of 29.09. The PEG ratio of 3.42 depicts slower and costlier company growth compared to the industry’s average of 2.57. The profit margin of 6.23% is satisfactory. However, Republic needs to optimize its hugely debt-laden balance sheet with significant total debt of $7.06 billion against weak total cash of $75.20 million only, restricting the company to plan for future growth investments.
