Republic Services (RSG)

Waste management company Republic Services (NYSE:RSG) missed Wall Street’s revenue expectations in Q1 CY2025 as sales rose 3.8% year on year to $4.01 billion. Its non-GAAP profit of $1.58 per share was 3.1% above analysts’ consensus estimates.

Company Overview

Processing several million tons of recyclables annually, Republic (NYSE:RSG) provides waste management services for residences, companies, and municipalities.

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.

Competitors offering similar products include Waste Management (NYSE:WM), Waste Connections (NYSE:WCN), and Casella Waste Systems (NASDAQ:CWST).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Republic Services’s sales grew at a solid 9.3% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Republic Services’s recent performance shows its demand has slowed as its annualized revenue growth of 7% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its number of units sold. Over the last two years, Republic Services’s units sold were flat. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Republic Services’s revenue grew by 3.8% year on year to $4.01 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.6% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

Republic Services’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 41.5% gross margin over the last five years. That means Republic Services only paid its suppliers $58.47 for every $100 in revenue.

Republic Services’s gross profit margin came in at 42.3% this quarter, marking a 1.4 percentage point increase from 40.9% in the same quarter last year. Republic Services’s full-year margin has also been trending up over the past 12 months, increasing by 1.4 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

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 18.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Republic Services’s operating margin rose by 2.8 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Republic Services generated an operating profit margin of 20.1%, up 1.1 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Republic Services’s EPS grew at a spectacular 14.7% compounded annual growth rate over the last five years, higher than its 9.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Republic Services’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Republic Services’s operating margin expanded by 2.8 percentage points over the last five years. On top of that, its share count shrank by 2.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Republic Services, its two-year annual EPS growth of 14.4% is similar to its five-year trend, implying strong and stable earnings power.

In Q1, Republic Services reported EPS at $1.58, up from $1.45 in the same quarter last year. This print beat analysts’ estimates by 3.1%. Over the next 12 months, Wall Street expects Republic Services’s full-year EPS of $6.59 to grow 6.5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Republic Services has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 13.3% over the last five years.

Taking a step back, we can see that Republic Services’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Republic Services’s free cash flow clocked in at $566 million in Q1, equivalent to a 14.1% margin. This cash profitability was in line with the comparable period last year and its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Republic Services’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 10.4%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Republic Services’s ROIC averaged 1.8 percentage point increases over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Republic Services reported $83 million of cash and $13.28 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $5.08 billion of EBITDA over the last 12 months, we view Republic Services’s 2.6× net-debt-to-EBITDA ratio as safe. We also see its $254.2 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Republic Services beat analysts’ sales volume, EPS, and EBITDA expectations this quarter. On the other hand, its revenue slightly missed, indicating it faced some pricing headwinds. Overall, this quarter had some key positives, but the company didn't share any forward-looking guidance. Shares traded down 1.8% to $236 immediately following the results.

Updated: July 9, 2025 at 11:15 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Republic Services, you should also grasp the company’s longer-term business quality and valuation.

In our opinion, Republic Services is a good company. First off, its revenue growth was solid over the last five years. And while its flat unit sales disappointed, its impressive operating margins show it has a highly efficient business model. On top of that, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Republic Services’s P/E ratio based on the next 12 months is 34.3x. This multiple tells us that a lot of good news is priced in. This is a good one to add to your watchlist - there are better opportunities elsewhere at the moment.

Wall Street analysts have a consensus one-year price target of $259.01 on the company (compared to the current share price of $240.50).