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Republic Services (NYSE:RSG)

Q2 2012 Earnings Call

July 26, 2012 5:00 pm ET

Executives

Edward A. Lang - Senior Vice President of Treasury and Risk Management

Donald W. Slager - Chief Executive Officer, President and Director

Tod C. Holmes - Chief Financial Officer and Executive Vice President

Analysts

Hamzah Mazari - Crédit Suisse AG, Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

Michael E. Hoffman - Wunderlich Securities Inc., Research Division

Scott J. Levine - JP Morgan Chase & Co, Research Division

William H. Fisher - Raymond James & Associates, Inc., Research Division

Vance H. Edelson - Morgan Stanley, Research Division

Adam R. Thalhimer - BB&T Capital Markets, Research Division

Operator

Good afternoon, and welcome to the second quarter 2012 call for investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your hosts for today's call are Don Slager, President and CEO, Tod Holmes, CFO; and Ed Lang, Republic's Senior Vice President and Treasurer. Today's call is being recorded. [Operator Instructions]

It is now my pleasure to turn the call over to Mr. Lang. Good afternoon, Mr. Lang.

Edward A. Lang

Thank you, Victor. Welcome, good afternoon, and thank you for joining us. This is Ed Lang, and I would like to welcome everyone to Republic Services' Second Quarter 2012 Conference Call. Don Slager, our CEO; and Tod Holmes, our CFO, are joining me as we discuss our second quarter performance.

Before we get started, I would like to take a moment to remind everyone that some of the information that we discuss on today's call contains forward-looking statements, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations.

Additionally, the material that we discuss today is time-sensitive. If in the future you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is July 26, 2012. Please note that this call is the property of Republic Services, Inc. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited.

With that, I would like to turn the call over to Don.

Donald W. Slager

Thanks, Ed. Good afternoon, everyone, and thank you for joining us as we discuss Republic Services' second quarter performance.

I will now review our second quarter financial performance before discussing our updated 2012 guidance.

Revenue, approximately $2.1 billion. Core price growth in the quarter was 0.6%, which was in line with our expectations. MSW landfill price was 2.4%. Volumes decreased by 1.3%, a majority of the volume decline can be attributed to a loss of Oakleaf and the large national account, both of which we discussed in April.

Our second quarter adjusted earnings per share was $0.59. Approximately $0.09 of our earnings resulted from a favorable tax rate. All material tax disputes have now been resolved. Our adjusted free cash flow was $156 million. Our adjusted EBITDA margin was 30.3%, and SG&A was 9.6%. We repurchased 5.3 million shares in the second quarter for $141 million. We have approximately $480 million remaining under our authorization through 2013.

We remain committed to an efficient cash utilization strategy, which includes increasing cash returns to our shareholders through share repurchase and dividends. Total cash returned to the shareholders was $223 million during the second quarter. Our Board of Directors has approved an increase in the quarterly dividend to $0.235 per share which is a 7% increase.

Some of our achievements during the second quarter include: Our safety performance continues to improve with a 3.5% favorable reduction in our frequency rate. We have closed on $73 million of acquisitions through June 30, that represents $47 million of annual run rate revenue. We remain on track to complete $100 million of acquisitions for the full year which was the high end of our guidance range. Our pipeline remains strong for future growth acquisition.

We continue to invest in fleet automation and converting the fleet to CNG. As of June 30, 61% of our residential routes are now automated, and we have placed 223 CNG vehicles into service. In April, we opened a single stream processing facility in Jacksonville, Florida, that increased our capacity in that market by 90,000 tons per year.

Our largest single stream recycling facility, which services the San Jose market, went into operation in July. This startup coincides with converting the city of San Jose commercial and industrial collection service offerings from open market to franchise. In May, we completed a debt refinancing and renewed our 5-year bank facility at lower rates, which, together reduce our annual interest expense by approximately $25 million. Republic does not have a material debt maturity until 2016.

Tod and Ed will now update our financial performance.

Tod C. Holmes

Thanks, Don. As Don indicated, second quarter revenue of approximately $2.1 billion reflects the following components of internal growth: First, core price growth of 0.6%. This level of core price was consistent with our Q1 performance and is also in line with our expectations. Core price is positive in both the collection and disposal businesses, [Audio Gap] higher prices in the disposal business due to landfill MSW price increases of 2.4%. We expect price levels to be comparable between the first and second quarters, which was the case, and we expect prices to modestly rise in the second half of the year as the impact from higher CPI-based pricing takes hold on our restricted customer base.

Our fuel recovery fee decreased by 0.1%. The decrease in fuel recovery fees relates to a decrease in fuel cost. The average price per gallon of diesel declined to $3.95 in Q2 2012 from $4.01 in the prior year, a decrease of 1.5%. Commodity revenue decreased 1%. Commodity prices decreased by 16% to an average price of $122 a ton in Q2 from $146 per ton in the prior year, due to recycling facility commodity volume of 540,000 tons was up 2.1% from the prior year and up 1.8% on a same-store basis. Our current commodity prices are approximately $112 per ton, which is down from the guidance we provided in April of $129 per ton. For reference purposes, a $10 per ton change in commodity values equals approximately $0.03 of full year EPS, which includes the impact of our recycling facility and collection businesses.

Turning to volume. Q2 volumes decreased by 130 basis points year-over-year. Most of the decline relates to a few specific losses including the Oakleaf business and a large national account. Our collection business volumes were down 0.3%. Excluding the losses I just mentioned, our total collection volume was actually positive.

Disposal volumes were down 4.7% versus the prior year, which relates primarily to MSW tons at our transfer stations and landfills. Again, this relates primarily to a lost municipal contracts in prior quarters and also the competitive pressures in our L.A. market, which we discussed back in April.

In Q2, special waste volumes were essentially flat with the prior year, and we did not see the typical seasonal increase in landfill C&D volumes.

Now, I will discuss the second quarter year-over-year margin. Q2 2012 adjusted EBITDA margin was 30.3% compared to 31.1% in the prior year. This is an 80-basis point decrease. Some of the more significant changes in margins include: First, labor. A 60 basis point increase in expense is mostly due to normal increases in wages and health care cost, and also a change in our revenue mix. Disposal volumes, commodity revenues and subcontract revenues are down which have little or no variable labor cost. Additionally, there is an increase of about 10 basis points related to work stoppages that occurred during the first quarter. Improvements in collection labor productivity partially offset the increase in labor cost, primarily in the residential business, through automation. Second, disposal. The improvement of 30 basis points relates to decreased disposal expense primarily due to an increase in internalization. Third, our maintenance cost. The 70 basis point increase in maintenance expense relates to implementation costs associated with our One Fleet maintenance initiative, an increase in the cost of tires across our supplier base and also the refurbishing of containers versus purchasing new containers which, from a cash standpoint, is an efficient operating practice.

Next, fuel. The 20 basis point improvement is due to a 1.5% decrease in the cost of diesel. After considering the impact of related fuel recovery fees, the net margin improvement was 10 basis points. The current cost of diesel is approximately $3.78 per gallon, which is down from guidance we provided in April of $4.13 per gallon. For reference purposes, a $0.10 change in diesel fuel per gallon is about $0.01 of full year EPS, which includes the impact of fuel recovery fees.

Finally, cost of goods sold. The 30 basis point improvement relates to a reduction in rebates paid for volumes delivered to our recycling facilities. Cost of goods sold decreased to an average of $39 per ton from $48 per ton in the prior year. While the change in cost was favorable, when you consider the decrease in related commodity revenues, there was a 40 basis point decline in EBITDA margin.

Our second quarter 2002 SG&A of 9.6% was consistent with the prior year. We expect our full year SG&A expense to be consistent with our previous guidance at slightly above 10% of revenue. DD&A, as a percentage of revenue, was 11.4% in the current quarter -- current year versus 10.9% in the prior year. The 50 basis point increase in expense primarily relates to a landfill liability adjustments recorded in the current quarter for sites that have already closed. Additionally, the prior year included the favorable impact of expansions granted, which should not repeat in the current quarter. DD&A is higher than capital expenditures as a percentage of revenue due to the amortization of intangibles.

Ed will now discuss interest expense, taxes and our free cash flow.

Edward A. Lang

Thanks, Tod. Second quarter 2012 interest expense was $99 million, which included $15 million of noncash amortization. As Don mentioned, we called $750 million of senior notes due in 2017 and issued new debt for 10 years at a rate of 3.55%. This lower rate will reduce annual cash interest expense by approximately $23 million. We also renewed our 5-year bank facility at lower pricing that will generate over $2 million in annual savings.

Our EPS guidance included the favorable impact of refinancing this debt, but excluded any premiums paid or debt discounts written off in connection with early extinguishments. Our annual run rate interest expense, after the refinancing, is approximately $385 million, of which $55 million is noncash. Our refinancing activity since December 2008, which have benefited from our investment grade status in low rate environment, have reduced annual interest expense by approximately $230 million. We have now completed all significant refinancing transactions.

I will now discuss taxes. Our second quarter 2012 effective tax rate was favorably impacted by finalizing Allied's 2002 exchange of partnership interest matter, and favorably resolving other tax matters including closing out open federal tax years through 2008. In April, we guided to a 37% full year 2012 effective tax rate. This included the benefit from finalizing the exchange of partnership interest matter since we were in the late stages of negotiations with the IRS. We did not include the other tax matters, which resulted in about $0.03 of additional EPS. We now expect a full year 2012 tax rate of approximately 36%. We expect the second half of 2012 effective tax rate to be approximately 40%.

To summarize the tax impact, we saw a $0.09 benefit in the second quarter relative to the 37% full year tax rate we provided in April. We expect $0.06 of this benefit to flip in the second half of the year since we are expecting a second half tax rate of approximately 40%. The net impact versus the April guidance is a positive $0.03, which is the amount by which we raise the top end of our EPS guidance range.

I will now discuss free cash flow. Year-to-date 2012 adjusted free cash flow was $331 million, which consisted of cash provided by operating activities of $695 million, less property and equipment received of $458 million, plus proceeds from the sale of property of $21 million, plus merger-related expenditures net of tax of $41 million, plus Allied cash tax settlements of $34 million, less cash tax benefit from debt extinguishment of $5 million, plus divestiture-related tax payments of $1 million, plus central states cost net of tax of $2 million. Therefore, adjusted free cash flow equals $331 million.

Free cash flow timing tends to vary by quarter, in particular, due to the capital expenditures and changes in working capital. We remain comfortable with our guidance of approximately $775 million of full year 2012 adjusted free cash flow.

Now I will discuss the balance sheet. At June 30, our accounts receivable balance was $845 million, and our days sales outstanding was 37 days or 23 days net of deferred revenue. Reported debt was approximately $7.1 billion at June 30, and excess credit available under our bank facility was approximately $1.3 billion.

I will now turn the call back to Don.

Donald W. Slager

Thanks, Ed. I would like to update our 2012 guidance. We are maintaining our free cash flow guidance of $775 million. This level of free cash flow is consistent with our original guidance and demonstrates a strong predictable cash flows generated by the business.

Due to the successful resolution of open tax years, we are raising our adjusted earnings per share guidance to a range of $1.91 to $1.93. We expect our full year tax rate to be approximately 36%.

To sum it all up, we are on track. I want to leave you with a couple of key points. In the beginning of the year, we anticipated a steadily improving economy as a backdrop for the price and volume growth. While the economy has not given us the support we expected, the industry remains rational and we have effectively managed cost to generate EBITDA margin in excess of 30%. Our free cash flow remains strong and predictable. We continue to invest in accretive tuck-in acquisitions and return substantial cash to our shareholders. Republic's business and financial strategies remain focused on return on capital and free cash flow improvement.

I would like to thank the Republic employees for their dedication to operational excellence they've shown throughout the year.

At this time, operator, we'll open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Hamzah Mazari from Credit Suisse.

Hamzah Mazari - Crédit Suisse AG, Research Division

The first question is just -- Don, on maintenance costs, you had a big uptick last quarter in maintenance spend. What are you doing on maintenance costs for the balance of the year? Are you guys spreading that out more or what's the update on that?

Donald W. Slager

Sure. So, we continued to roll out our maintenance initiative on track to the first half of the year. We'd already started some divisions that we couldn't pull back on. We've kind of moderated our approach through the remainder of the year. We're stretching, basically, the initiative out from a 3-year to a 4-year initiative. We're reducing the number of divisions that we're rolling out in the second half of the year. We were doing 12 a quarter, we'll be doing 8 a quarter in Q3. And I think maybe even 7 -- 6 or 7 in the last quarter of the year. So we're just taking a little slower approach to it, and we're absorbing the cost at a slower pace. We're still very committed to the initiative, it's the right thing to do for the fleet, for productivity, for safety and for customer experience, but we're just slowing down the absorption rate of the change, Hamzah.

Hamzah Mazari - Crédit Suisse AG, Research Division

Okay, got you. And then just a follow-up, on the volume side, any change in the volume environment? Are you seeing it get more competitive? Maybe you can talk about the commercial business service increases versus decreases. And on the special waste side, is that pipeline still pretty firm?

Edward A. Lang

I think, Hamzah, in terms of service changes, it's been pretty consistent with previous quarters, meaning, flat on a net basis. So we're not seeing anything as far as net step-up in volume related to service changes. Well, as far as our volume expectations for the full year, we expect it to be flat to maybe slightly negative. One of the things I think we saw and we always talk about is -- in the first quarter, where we saw some C&D activity a little bit early, you couldn't really tell, if that was the economy or the weather, and really, I think, now that after we look at the Q2 volume performance, what you could say is that there's a little bit of a pull forward in Q1 on C&D activity because there really was not a seasonal step up above the Q1 levels in Q2. What we really did, we just pulled forward some of that activity. So...

Donald W. Slager

And Hamzah, as far as special waste goes, with the pipelines in pretty good shape, I mean, we think we're seeing the same kind of activity in special waste for the remainder of the year.

Edward A. Lang

And -- go ahead, what's your question?

Hamzah Mazari - Crédit Suisse AG, Research Division

I was saying, on special waste, do you guys have any government business that's getting deferred or not really?

Edward A. Lang

We do have some government business. And so we're probably will be some deferrals of some special waste work, and that probably is -- it is discretionary spend, so as we saw a couple of years ago, we have seen some deferrals of special waste projects. So the work is still there. It's just being slowed down a bit as folks kind of hold on to the dollars. I think also one thing I'd like to just also make clear as we look in the second half of the year that the Q3 volume performance will be negatively impacted due to 1 less work day. However, we make that up in the fourth quarter, because Q4, as an additional work day. So on a net basis, it evens out, but it will impact the reported volume performance in the second half of the year.

Operator

Our next question comes from Corey Greendale of First Analysis.

Corey Greendale - First Analysis Securities Corporation, Research Division

Question on the guidance. So, I think I'm getting the moving pieces with the taxes, but if you would listen to what you said about the impact of commodity prices in fuel, it seems like you'd have a net drag from lower commodity prices, yet you didn't change the guidance other than the tax impact. So what is enabling you to offset the impact of lower commodity prices than you factored in before?

Tod C. Holmes

Corey, this is Tod. I think we're a little tighter the cost, obviously. When we saw those higher maintenance costs coming in the first quarter, well it took us a quarter to adjust. The organization is very committed to the maintenance initiative, but also we're adjusting the pace and looking closely at those costs, as well as other cost in the business.

Donald W. Slager

And fuel commodity is kind of offset in the second...

Tod C. Holmes

Yes, that's right. There's a net of fuel in commodity. So, there's not too much of an impact there. So we are very focused on the core business and, obviously, running the business efficiently.

Corey Greendale - First Analysis Securities Corporation, Research Division

Okay. And then on the price, Don, you used the word rational, but I was hoping you could collaborate on what you're seeing kind of incrementally moving through the year as far as the competitive pricing environment, particularly interested in national accounts and the municipals -- the municipal sides?

Donald W. Slager

I would tell you it's very much the same we've been seeing. The one national account loss we highlighted last quarter was, as we told you, somewhat of an anomaly was our largest national account. Our next large national account is less than half the size of that, right? So I think it's about 1/4 the size of it. We're not seeing any increased activity there. The municipal sector is very similar, right? The way it's been. The attitude of municipal buyers isn't going to change, their state of finance isn't really going to change until they get some help from the economy. And so when their tax base improves, they'll be less sensitive to pricing and we'll have to live with that for a while. But we're not seeing anything being materially better. We're certainly not seeing anything materially worse. The only benefit, of course, that's obvious is the benefit of CPI increasing in the second half of the year. So generally, competitively, things are pretty stable. And we're doing our part to keep our volume up and protect our business and cash flow and try to grow where we can.

Edward A. Lang

And, Corey, just as to how the resets in the restricted markets will impact reported price, we're expecting, obviously, first half of the year, pricing was 0.6%, and we expect pricing in the second half of the year to be in the neighborhood of about 1%, and that step-up is really being driven by the CPI resets in the restricted markets we have.

Operator

Our next question comes from Al Kaschalk with Wedbush Securities.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

Just a follow up or maybe an incremental on the previous question. Don, in terms of the customer base, are you hearing anything incrementally more rationally positive? Or is it as expected, and therefore sort of a flattish tone on the volume comment?

Donald W. Slager

Yes, I would say flattish. As far as volume goes, we just don't see the economic lift that we had hoped when we first built our business plan. As far as pricing, there's still some sensitivity as I said because the economy is not improving. We continue to maintain our cadence of price increases out across the marketplace. So we're staying really true to our strategy and our business plan and we haven't seen anything change for the better or worse, really.

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

If you had to pick a more positive or constructive tone geographically, on one that was less constructive on a tone geographically, where would those regions be in your markets?

Donald W. Slager

Well, I think pricing is pretty consistent across the board. I think the volume tends to be in and around where the energy business is raging, right?

Edward A. Lang

Exactly, as Don mentioned. Those geographies tied to energy are heavy manufacturing. I think we've seen the best volume performance in some of the locations in the Southwest and in our Midwest locations are probably faring better than the West and some places in the East Coast, particularly the Southeast. Those markets that were more tied to the kind of what's called the overheated real estate markets are still lagging due to the excess capacity or inventory in those particular markets.

Corey Greendale - First Analysis Securities Corporation, Research Division

If I may, let me slide one more in, just on the municipality in particular, with the number of bankruptcies in the lovely state of California and other places, are there any opportunities or opportunities for the sector or for you, specifically, as a result of that? Or is it just sort of business as usual?

Donald W. Slager

No, I think, we've talked about privatization in the past and we've successfully privatized a city in the Midwest last year. We have a small pipeline of opportunities here that were working. But if you could appreciate that the sale cycle on those is quite a bit longer than a typical sale of a rebid or an extension of an existing municipal account. So we'll continue to work on that, though it's not really our headline but we think there could be some opportunity there for us eventually.

Operator

Our next question comes from Michael Hoffman with Wunderlich Securities.

Michael E. Hoffman - Wunderlich Securities Inc., Research Division

If we could come back to the free cash flow outlook, my take away is your reaffirming that guidance. I'd like to understand what do we need to do? Where does that incremental $440 million roughly come from as you think about the makeup in the second half? What drives that, how much is working capital versus...

Tod C. Holmes

Michael, what you have typically is our capital spend in the first half of the year was higher than our annual target of about $830 million. You also get the first quarter which is seasonally weak with a little bit of a negative working capital in that first quarter, and then taxes also tend to be volatile quarter by quarter.

Edward A. Lang

And then Q3 is usually our strongest quarter as far as volumes through the year. And then just simply from the timing of some incentive comp payment that were made early in the year along with some other matters that kind of cleared the books. So, I don't think there's anything structural about the business that's different, it was just that some timing issues of certain cash flows in the first half of the year.

Donald W. Slager

First quarter is always a weak working capital quarter because of what I've mentioned there. The other thing that I would say is, as we had said in April, we were reaffirming that $775 million, a little bit better outcome than we thought on taxes. So we're very, very confident with that free cash flow.

Michael E. Hoffman - Wunderlich Securities Inc., Research Division

Okay, that's terrific. And then, Don, and all of you, if the business environment you live with right now, it's in July, where the paper is, your pricing outlook, volumes, what is your perspective on what 2013 looks like?

Donald W. Slager

We're not giving 2013 guidance, but we've got a lot of good things going on with the business that will certainly anniversary rollover into 2013. Again, I can't predict fuel and commodity prices. What I can say is, we're getting 0.6% price in the quarter, first half of the year, moving upward in the second half. We're holding our own on volume, we've got good productivity initiatives in place, we'll continue to invest in. We've got the acquisition machine kind of up and running now, we'll have the benefit of those things rolling through. So I'm pretty positive that we're doing all the right things. We'd like to have some help from the economy and, again, we're not economists. So when the economy improves, the pricing dynamic in the market will get better, customer sentiment will get better, commodities will get better. Those kinds of things will give us some tailwind. But in the meantime, we're doing the right thing, so I think it shows up in our margin. And ultimately it always shows up in our cash flow.

Operator

Our next question comes from Scott Levine with JPMC.

Scott J. Levine - JP Morgan Chase & Co, Research Division

Quick question, just a clarification. Did you say that the Oakleaf and the contract losses, without the impact of those, that you guys would have been roughly flat on volumes or, said another way, what is the volume impact associated with those contracts, and should we expect that to anniversary by the first quarter of 2013?

Edward A. Lang

You're talking about a couple of different items and they have different timing. So I think it'll start to anniversary in early '13, some of these other items won't be until mid-'13 and obviously when we give guidance next year, we'll talk specifically as to how those particular items will impact our guidance.

Donald W. Slager

So that large national account, took place in May. So, we'll anniversary that sometime in May, right. The Oakleaf loss started in the fourth quarter last year, it can continue to trickle in the first quarter. I think we're pretty much done with it by the end of the first quarter, most of that business that the Oakleaf internalized.

Tod C. Holmes

We have a disposable piece that anniversaries out by June, mid-year. The other thing from a volume standpoint is, again, I think what Ed and Don said earlier on the seasonal lift, that we saw, definitely, some pull forward there in the C&D activity in the first quarter. Second quarter lift, the seasonal lift this year was more muted than last year's seasonal lift. So certainly, we're seeing a little bit of drag from C&D and then while we have a robust pipeline, there seems to be a little bit of deferral wait-and-see on the special waste.

Scott J. Levine - JP Morgan Chase & Co, Research Division

Got it. And as my follow-up on pricing, just to clarify, are you guys seeing that you expect pricing of 1-ish percent in the back half or 1% for the full year? And then as a tack-on, would the effect of CPI-linked pricing going up, should that accelerate or gain momentum into 2013 implying upward momentum in prices you enter that year or...

Edward A. Lang

Again, we're not going to give guidance on '13. So, as I say, we will see, in the second half of the year, about a 40 basis point average step-up, first half to second half. But we're not going to give guidance on '13. I think what happens is if you kind of put the whole year together, pricing for the full year is about 1% for the full year, maybe a few basis points under, but it's about 1% with that split in the first half and second half, driven by increases in the restricted markets.

Operator

Our next question comes from Bill Fisher with Raymond James.

William H. Fisher - Raymond James & Associates, Inc., Research Division

Don, just on some of the acquisition you've done, are they mostly just tuck-in hauling operations or you're buying some recycling facilities or what types of things you're looking at?

Donald W. Slager

Yes, they're primarily tuck-in hauling. But we did have 1 recycler that we brought here in recent history. But again, primarily, tuck-in hauling in markets we're already in. They tend to have the best returns post-synergy, lowest risk, et cetera, and we're buying them at good multiples. So that's probably the biggest part of the pipeline, Bill.

William H. Fisher - Raymond James & Associates, Inc., Research Division

Just on a follow-up. On that, the 60 basis points of price, was the industrial and disposal side better than the average and commercial, residential below or just try to give some color on that.

Edward A. Lang

As far as the...

William H. Fisher - Raymond James & Associates, Inc., Research Division

On the components of, like, the segments, were industrial and disposal a little better than the average?

Donald W. Slager

Disposal has really been a bright spot for us, specifically MSW, right? So when you think about our pricing strategy, one of the things we've continued to do is price our infrastructure correctly, our MSW price was 2.5% -- 2.4% as Tod said. That really is a strong point. Collection was pretty consistent with the way it's been, probably industrial being the brightest spot there for us on the collection side.

Operator

Your next question comes from Vance Edelson from Morgan Stanley.

Vance H. Edelson - Morgan Stanley, Research Division

Just a couple follow-ups really. I wasn't sure I caught the exact answer on something asked earlier with Oakleaf and the one national account causing the volume decline. Did I hear the volumes have otherwise has been positive or flat or is any chance you could give us the exact normalized figures? Can that be calculated?

Edward A. Lang

I would say a majority of the volume decline was related to Oakleaf and the national account. There were, keep in mind, we did not see the seasonal uptick in C&D, and Tod also spoke to some of the deferral of the special waste volumes. There was a component of the volume decline that was related to other lines of business beyond those lost businesses we talked about in the April call.

Vance H. Edelson - Morgan Stanley, Research Division

Okay, got it. With the latest dividend raise, which is now the norm, which is nice to see, how does it look for a higher buyback authorization the next time the Board meets? And I guess as part of the same question, given the pipeline is still strong for future M&A, do you see the amount allocated to M&A possibly going up next year as well?

Donald W. Slager

Well, first on the buyback, right? This authorization we're living under gets us through 2013. So we got plenty of capacity there. As far as the acquisitions go, 2 years ago, we did 0 in acquisitions, last year about $50 million and this year, $100 million. So that's kind of what we're looking at for this year and as we look at the pipeline and look at our business plan for next year, we'll come back to you. Again, we're not going to give '13 guidance. But our goal really is to focus on our core business. The markets we're in, we don't want to be distracted in other areas. And that $100 million or so is a nice -- we think a kind of a steady diet of acquisition pace for us today. And that's the way we see it as we sit here today.

Tod C. Holmes

We entered this year with $650 million share repurchase authorization. So if you were to split that evenly between '12 and '13, we got 3.25 for the share repurchase and then the dividend is probably somewhere between 3.25 and 3.40. So we're returning $650 million, $660 million, which is 6.5%, 7% cash yield to the owners. And then the balance is the acquisitions, $100 million, $100 million-plus of spend that Don mentioned. So the math is pretty simple in terms of our 775-plus of free cash flow.

Donald W. Slager

Yes. Our formula for success really hasn't changed over the long-term. And we talk about being ROI focused. We talk about maintaining a strong credit profile, having a balanced approach to our return cash to shareholders. We've continued to demonstrate that with the stock repurchase, with the dividend raise. And on the acquisition front, we've always said that we've got flexibility financially. If something comes along that's a little bit bigger, that really fits our marketplace and we can do it at the right price. Then we have a flexibility to do that, and we've got the Board's support to do that. So having said that, steady as she goes here and that's really the message of the call.

Vance H. Edelson - Morgan Stanley, Research Division

And just one other quick follow-up. Without asking for 2013 guidance, just given what you know about the contract structure and what's already happened with the CPI. Without even getting to 2013, is the CPI impact going to be increasing through the second half of the year, kind of accelerating, given what you know historically about the CPI?

Edward A. Lang

I think, as you know, Vance, what's happening in the CPI today takes about 12 or 18 months to move into our restricted pricing. So we really have a pretty good handle as to what the resets will be for the second half of 2012, and that's been reflected already in the comments we've made. But just like if anybody's out there looking over multi-year period, always keep in mind that whatever happening in CPI in calendar '12 doesn't really start to impact our pricing until the second half of '13.

Operator

Our next question comes from Adam Thalhimer from BB&T Capital Markets.

Adam R. Thalhimer - BB&T Capital Markets, Research Division

I just want to make sure I understand, the $0.59 adjusted, why wouldn't you back out the tax gain from that?

Edward A. Lang

Well, we did. I mean, that's why we called it out saying $0.09 was the impact. So if you want to look at the EPS from ongoing operations, it was $0.50.

Tod C. Holmes

Our effective tax rate in the second quarter was probably somewhere in the 24%, 25% range. And again, that's a function of us closing out some open tax years from 2004 to 2008. So it's obviously not an ongoing tax rate. Hence, as Ed had said, we've got a $0.09 benefit in the quarter, the tax rate goes back up to about 40% in the second half of the year, so 6 of that cents come back in the second half, and the net benefit to the company the full year is $0.03.

Edward A. Lang

Correct. We have just given previous guidance to investors, stating that the average tax rate this year would be 37. With the resolution of the items we mentioned, the full year effective tax rate is going to be 36, which is an additional $0.03 of EPS. So we're just making those adjustments to update the guidance that was previously given.

Operator

This time I'm showing no further questions.

Donald W. Slager

Okay. Thank you, operator. In closing, I would like to thank the entire Republic team for our performance in the second quarter. If you're listening, keep up the good work. We remain focused on the business fundamentals required to improve our returns on invested capital and further position Republic Services to grow across all lines of business.

As a reminder, a recording of this call will be available through August 3, 2012, by calling (203) 369-1011 and using the passcode 4589. Additionally, I want to point out that our SEC filings, our earnings press release which includes GAAP reconciliation tables and a discussion of business activities, along with a recording of this call, are all available on Republic's website at www.republicservices.com.

And finally, I want to remind you that Republic's management team routinely participates in investors conferences. When presentations are scheduled, the dates and times are posted on our website, along with instructions for listening to the live webcast of the event.

Thank you for spending time with us today, and have a great evening.

Operator

Ladies and gentlemen, this concludes the Republic Services' conference call for today. Thank you for participating. You may now disconnect.

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