This Trash Hauler’s Key Takeaways From Q4: Republic Services, Inc. (RSG)

Overall results were hit by a decline in landfill and transfer station volumes, the company said, along with municipal contract losses and ongoing competitive pressures in several key regions including the huge Los Angeles market. “We are seeing some lower pricing levels, on average, on those contract renewals,” Republic executives noted. This is expected to continue, they added, as municipalities face growing pressures in coming years and continue demanding better deals through price reductions by threatening to switch providers.

Republic also said recycling commodities fell 0.8% in Q4 and 1.2% for the year, 2012 revenue was down more than 9% from 2011, and 4Q12 margins dropped 340 basis points from the prior year as a result of fuel and commodity pressures along with labor costs.

Additionally, it noted that while housing construction and business improvement did offer promise, benefits from either were not imminent. Housing construction doesn’t lead to increased waste disposal for as long as 12 months, for example. “We’ve got to see these housing starts turn into finished houses,” officials explained. “That’s where the waste is generated.”

The bottom line

The decline in Republic’s volumes for the quarter and the full year, and its projections for flat volumes in 2013, do not bode well for competitors WM and Waste Connections. The lower volumes seem to indicate that there is not yet a reversal in the downturn that has plagued waste companies for the past four years. And even the fledgling uptick in housing construction and business development in recent months may not provide a boost for several quarters at the minimum. The continuing drop in recycling commodity pricing is also troubling, as all providers derive profits from it. When volumes aren’t rising, this has proven significant.

Republic’s weak pricing shows that competition remains hot, and the pressure for better deals by municipal customers obviously continues to impact margins as well as volumes. WM and Waste Connections are not likely to escape this, either.

All of the best news seems still months away for all of these firms. Hurricane Sandy renovation may yet prove a boon to WM and Waste Connection, but that’s also not likely to be seen until the first quarter of 2013 and beyond.

For now, investors looking for short-term winners may still find their best options elsewhere.

The article This Trash Hauler’s Key Takeaways From Q4 originally appeared on Fool.com and is written by Howard Rothman.

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