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WIKI ANALYSIS
Republic Services (NYSE: RSG) is the third largest trash company in the United States. The company operates a network of 135 subsidiary collection companies in 21 states, 93 transfer stations, 59 landfills, and 33 recycling facilities[1]. Like its major competitors, Waste Management (WMI) and Allied Waste Industries (AW), Republic serves its customers by collecting, transferring, and disposing of waste in both Republic-owned and third-party landfills. Although Republic operates fewer landfills than its competitors, the company's focus on markets with high population growth and its success in establishing trash collection and disposal monopolies in many of its key markets [2] has allowed the company to grow revenue by ~7% annually from 2002 to 2006[3].
Business Financials
In FY 2006, Republic Services had revenues of $3,070.6 million, up 7.2% from $2,863.9 million in FY 2005. Operating income for FY 2006 rose 8.9% to $519.5 million, compared to $477.2 million in FY 2005. Over the last five years, revenues have grown at nearly 7% annually and operating income has grown an average of 8% in each of the last three years.
Republic's operating ratio has been at least 16.7% for the last three years.
Key Trends and Forces
- Government Regulation - The waste management industry is tightly regulated by the Environmental Protection Agency (EPA), in addition to other federal, state, and local agencies. Waste management operations vary widely from market to market, and depending on the government level of of the regulating agency, new regulations can significantly impact Republic's revenue (i.e. changes to landfill regulation in California won't impact revenue as much as if the EPA were to change landfill regulations for the entire country). Violating governmental regulations can carry stiff penalties and fines plus the cost of cleanup of any hazardous materials[6].
- Waste Generation and Landfill Shortages - In the last decade, the amount of waste generated in the United States has increased by more than 17%[7], while the total number of active landfills has decreased by more than 43%[8]. Offsetting this disparity, in the last sixteen years, the amount of material recovery (recycling) has increased 18%[9]. The landfill permitting process has become so extensive that the current trend of landfill capacity decreasing while waste generation increases is expected to continue for the foreseeable future. Republic is in the process of applying to expand capacity at certain landfills. Approximately 56% of the waste collected by Republic Services is disposed of at Republic-owned landfills, a rate that is lower than its competitors; Republic must pay significant fees to third-party landfill operators, and as overall landfill capacity declines these fees are expected to increase. Since 2002, Republic has made a concerted effort to increase the percentage of collected waste that is disposed of at Republic-owned landfills.
- Recycling - The company currently operates 33 recycling facilities. Revenue from recycling is dependent on Commodities Prices, so in trying to reduce exposure to fluctuations in this market, Republic tries to use third-party recycling facilities when possible [10].
- Oil Prices - Republic Services operates a fleet of approximately 6,200 collection vehicles[11]., in addition to the transfer facilities and landfill machinery. The cost of these operations is dependent on fuel bought at open market prices, thus subject to the fluctuations of the oil market. Beginning in 2005, Republic became involved in fuel hedges meant to moderate oil price swings[12], but large swings in oil prices could still dramatically affect Republic's bottom line[13].
- IRS Audits - The IRS is currently auditing RSG's filings from 2001-2004. Depending on the outcomes of the investigation, Republic may face significant penalties [14].
Competition
Republic Services is the third largest waste management company in the United States (based on revenue). Its main corporate competitors are Waste Management (WMI) and Allied Waste Industries (AW). Additional smaller competitors exist in individual markets, such as Waste Connections in the Southern and Western United States.
Waste Management (WMI) offers a broader range of services and products including: hazardous waste landfills and disposal, renewable energy harvested from its landfills (natural gas), and other alternative energy options[15].
Allied Waste Industries (AW) is the middle competitor with a larger network of landfills, more collection companies, and more expansive market penetration [16]. Unlike Allied Waste Industries (AW), Republic doesn't have the same outstanding debts leftover from acquisition sprees in the late 1990's.
Because Republic operates the fewest landfills, it must pay significant fees for its collection companies to dispose of waste in third-party landfills.
| Waste Management (WMI)[17] | Allied Waste Industries (AW) [18] | Republic Services (RSG)[19] | |
| Collection Companies | 413 | 304 | 135 |
| Active Landfills | 283 | 168 | 59 |
| Transfer Stations | 370 | 161 | 93 |
| Recycling Facilities | 131 | 57 | 33 |
| Revenue - FY 2006 ($ mil) | $13,363 | $6,028.8 | $3,070.6 |
Market Share
The waste management industry is highly fragmented with three main public companies, thousands of private companies, and municipal government authorities competing for market share. The three main public companies, Republic Services, Waste Management (WMI), and Allied Waste Industries (AW), generate nearly 54% of the industry's total revenue[20].
Because the waste management industry is so fragmented, the best measure of each company's market share is the total number of customers served.
| Waste Management (WMI)[21] | Allied Waste Industries (AW)[22] | Republic Services (RSG)[23] | |
| Customers Served (approx. million) | 21 | 10 | 5.5 |
Notes
- ↑ RSG 2006 10-K, Item 1: Business, page 1
- ↑ RSG 2006 10-K, Item 1: Business, page 1
- ↑ RSG 2006 10-K, Item 6: Selected Financial Data, page 22
- ↑ RSG 2006 10-K, Item 6: Selected Financial Data, page 22
- ↑ RSG 2006 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 23
- ↑ RSG 2006 10-K, Item 1A: Risk Factors, pages 15-16
- ↑ EPA MSW 2006, Figure 1, page 1
- ↑ EPA MSW 2006, Figure 7, page 8
- ↑ EPA MSW 2006, Table 3, page 9
- ↑ RSG 2006 10-K, Item 1: Business, page 7
- ↑ RSG 2006 10-K, Item 2: Properties, page 17
- ↑ RSG 2006 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 45
- ↑ RSG 2006 10-K, Item 1A: Risk Factors, page 13
- ↑ RSG 2006 10-K, Item 1A: Risk Factors, page 16
- ↑ WMI Website, Overview
- ↑ AW 2006 10-K, Item 1: Business, page 1
- ↑ WMI Website, Overview
- ↑ AW 2006 10-K, Item 1: Business, page 1
- ↑ RSG 2006 10-K, Item 1: Business, page 1
- ↑ RSG 2006 10-K, Item 1: Business, page 1
- ↑ WMI Website, Overview
- ↑ AW Website, Overview
- ↑ RSG 2006 10-K, Item 1: Business, page 1
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