Analyst Note| Brian Bernard, CFA, CPA |
Wide-moat rated Republic Services reported strong second-quarter results as its end markets continue to recover. Revenue increased almost 15% year over year as the firm benefited from strong pricing, a significant rebound in volume, favorable recycled commodity prices, and acquisitions. Core price increased 5.2% during the second quarter, compared with 4.3% last quarter and 4.7% during the year-ago quarter. While volume had an easy prior-year comparison due to the pandemic (second quarter 2020 volume was down over 7%), the 8% year-over-year volume gain during the quarter exceeded management's expectations. Republic Services' recycling operations contributed 100 basis points to revenue growth as recycled commodity prices increased 68% year over year to $170 per ton. Finally, the company has spent $567 million on acquisitions so far during 2021, which accounted for 200 basis points of revenue growth during the second quarter. Management said the firm has a full acquisition pipeline, and "well over" $600 million is earmarked for acquisitions in 2021. Republic Services' adjusted EBITDA margin expanded 110 basis points to 30.6% primarily due to strong pricing and operating leverage. Favorable recycled commodity prices accounted for 50 basis points of EBITDA margin improvement.