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Trash-taker and best idea, Republic Services (NYSE:RSG) posted decent second-quarter results Friday that showed modest top-line and operating-income expansion. However, results on the bottom-line were bolstered by a reduction in interest expense, and after adjusting for one-time losses, adjusted earnings per share leapt 14% from the same period a year ago.
The firm’s core pricing advanced 1% in the period, while fuel surcharges and commodities pricing added another 1.1% and 1.3%, respectively, to top-line growth. However, core volume did fall by 1% in the period, and the expiration of a few large contracts provided a 1.4% headwind. Still, we were pleased that total pricing expansion exceeded the waste-volume loss in the quarter, and management indicated on its conference call that it expects core pricing to remain between 1% - 1.5% in the second half of the year. This bodes well for the trash taker toward the back half of the year, particularly as cyclical industrial hauls/roll-offs appear to be improving as well.

The garbage hauler reaffirmed its 2011 financial guidance for adjusted diluted earnings per share, unlike peer Waste Management (NYSE:WM) – which cut its outlook on expected volume weakness. Importantly, the rubbish handler reaffirmed its full-year adjusted free cash flow outlook at $900 million at the high end, a forecast we believe is readily achievable. We maintain that Republic Services is a core position in our Best Ideas Portfolio on the basis of our DCF valuation model--which we offer to interested readers--and think its recently increased dividend--it upped its dividend 10% Friday--has further room to expand thanks to the firm’s strong and predictable cash flow stream and comparatively low payout ratio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Republic Services is included in our Best Ideas portfolio.

Source: Republic Services Posts Decent 2Q Results, Ups Its Dividend