Republic Services, Inc. (RSG) Earnings

Management highlights

- Core Financial & Customer Performance * Delivered 4.6% total revenue growth, 4.5% adjusted EBITDA growth, and maintained adjusted EBITDA margin at 32.1% for Q2 2026. * Customer retention remains strong at over 94%, with favorable net promoter scores, driven by consistent service quality. * Organic growth was led by strong pricing: average yield reached 3.4% on total revenue and 4% on related revenue, exceeding cost inflation to drive underlying margin expansion. * Excluding the 2025 event-driven landfill volume comp, volume performance improved 50 basis points from Q1 2026, with sequential improvement quarter-over-quarter. * Year-to-date 2026 adjusted free cash flow was $1.58 billion; total leverage ratio stands at 2.6x, with $2.8 billion in total liquidity. - Technology & AI Investments * Actively deploying AI-based predictive pricing tools that incorporate dozens of customer and market variables to set optimized, long-term value-maximizing prices, improve price retention and reduce customer attrition. * Upgrading the RISE digital platform with AI and advanced routing algorithms to improve safety, service quality and route efficiency; early pilots confirm expected value. * Digital call center tools are optimizing 11 million annual inbound calls to improve customer experience and unlock operational value. * Management expects AI benefits will favor large-scale players like Republic, as it requires significant upfront fixed investment; long-term total benefit is still projected at $100 million, with full rollout occurring gradually. - Sustainability Growth Initiatives * Released the 2026 sustainability report, with continued progress toward 2030 ESG goals. * Polymer (plastic circularity) center network production volumes are increasing; construction of the third polymer center in Allentown, PA is progressing, with commissioning planned for early 2027. Management now expects to reach targeted total capacity with 3 centers (up from an original target of 4) due to higher than expected output at existing facilities, and demand for output exceeds current supply well above initial projections. * Commenced operations at 2 new renewable natural gas (RNG) projects in Q2, with 2 more expected to launch by the end of 2026. * Had over 250 electric collection vehicles in operation at the end of Q2, on track to exceed 300 EVs by year-end 2026; EV performance has exceeded expectations, particularly for purpose-built models that avoid payload capacity tradeoffs of retrofitted diesel trucks. - Capital Allocation * Invested $860 million in strategic acquisitions in the first half of 2026, and expects to exceed $1.2 billion in total 2026 acquisition investment, with a strong pipeline across recycling, waste and environmental solutions. * Returned over $1 billion to shareholders in the first half of 2026 via dividends and share repurchases, and announced a dividend increase for the 23rd consecutive year. - Environmental Solutions Update * The PFAS remediation and disposal business grew to over $100 million in revenue in 2025, and is on pace to exceed that in 2026, with a robust, broad-based pipeline; Republic's integrated set of disposal and treatment assets gives it a competitive advantage for complex PFAS projects. * Sequential monthly improvement in revenue and margins through Q2 2026, with management expecting year-over-year revenue growth and margin expansion in the second half of 2026.

Guidance

- Republic Services raised its full-year 2026 guidance across all metrics, driven by higher than expected fuel recovery fee revenue through July 2026, higher current recycling commodity prices, and the contribution of completed acquisitions to date. - Updated 2026 full-year guidance ranges are: revenue of $17.2 billion to $17.3 billion, adjusted EBITDA of $5.525 billion to $5.55 billion, adjusted EPS of $7.23 to $7.28, and adjusted free cash flow of $2.54 billion to $2.575 billion. - Average full-year 2026 recycling commodity prices are now projected at $135 per ton, up from the prior projection of $115 per ton. - Management expects Q3 2026 adjusted EBITDA margins to be relatively flat year-over-year, with full year margin expansion driven by expansion in Q4 2026; full-year underlying business margin expansion is projected at 60-70 basis points. - Core price is expected to remain in the 6.2-6.4% range, consistent with Q2 2026 levels. - Capital expenditure as a percentage of revenue is expected to remain relatively consistent with 2026 levels in 2027. - The 2026 equivalent full-year tax rate is projected at approximately 24.5%.

Segment performance

Republic Services reports two core business segments: Core Waste & Recycling, and Environmental Solutions. For Q2 2026: 1. Core Waste & Recycling: Revenue grew 4.6% year-over-year, with core price of 5.3% on total revenue and 6.4% on related revenue. Fuel recovery fees added 1.8% to total revenue, offsetting higher fuel costs. Total revenue declined 1.6% and related revenue declined 1.9% due to tough year-over-year comparisons from 2025 event-driven wildfire landfill volumes; excluding this comp, special waste volumes grew 10.7%. Average recycling commodity prices were $136 per ton, down from $149 per ton in Q2 2025, but higher volumes at the company's polymer centers offset the price decline, leading to an $8 million increase in recycling processing and commodity sales for the quarter. The segment contributed ~87% of total company revenue based on disclosed Environmental Solutions sequential growth. 2. Environmental Solutions: Q2 2026 revenue increased $53 million sequentially quarter-over-quarter, driven by higher seasonal and emergency response event volumes. Adjusted EBITDA margin for the segment was 20.2%, representing a 100 basis point sequential improvement. The segment is currently slightly down year-over-year on a top-line basis, in line with management expectations, and contributes ~13% of total company revenue.

Risks & headwinds

- Ongoing softness in construction-related activity has pressured large container volume, and residential construction remains challenged, creating headwinds to volume growth. - Fuel prices are volatile, and there is a short-term lag in fuel cost recovery that can create temporary margin headwinds when prices rise rapidly. - Integration of acquisitions can incur unexpected short-term costs that pressure near-term margins; the full integration of U.S. Ecology is still ongoing, with some legacy integration challenges encountered to date. - Proposed new PFAS regulation at the state and federal level could require operational changes, though management believes any impacts will be manageable and the company is well-positioned to adapt. - New low-cost competitors enter local markets periodically with undercosted pricing to gain share, which creates short-term competitive pressure, though these players typically fail to generate sustained profits. - Geopolitical uncertainty and volatile energy prices create macroeconomic caution that could impact broader industrial and construction activity levels.

Analyst Q&A

• Q: The midpoint of 2026 adjusted EBITDA guidance was raised by ~$40 million; how is this split between core business and M&A, and is Q3 2026 margin still expected to be flat year-over-year? /

  A: The majority of the EBITDA increase ($25 million) comes from higher recycling commodity prices, with the remainder from incremental completed acquisitions. Higher fuel recovery revenue is almost fully offset by higher fuel costs and related surcharges. Management confirms Q3 margins are expected to be relatively flattish year-over-year, with full year margin expansion coming in Q4. (237 characters)

• Q: How do you see residential volume trends evolving after the currently expected large contract losses lap in early 2027? Is low single-digit decline the new normal or can volumes stabilize? /

  A: Overall end market activity is sequentially improving after almost four years of negative growth, now roughly flat with encouraging monthly momentum. Republic is prioritizing price over low-margin volume, so it has intentionally accepted modest residential share decline while gaining share in higher-margin industrial and small container segments. The rate of residential decline is expected to narrow as we enter 2027 as the large contract losses lap. (358 characters)

• Q: What is the current outlook for multi-year margin expansion in Environmental Solutions, and is the prior target of high 20%s still feasible? /

  A: The long-term aspiration of reaching high 20%s EBITDA margin for Environmental Solutions has not changed. Management expects the segment will expand margins faster than the core enterprise (which targets 30-50 basis points of expansion per year). The pace of expansion will depend on demand growth and competitive conditions; stronger industrial activity would accelerate margin gains. (295 characters)

• Q: How is reshoring of U.S. manufacturing impacting your business, and what is the expected timeline for this opportunity? /

  A: Reshoring has moved from policy and planning to tangible construction activity, creating near-term volume lift for Republic. This is expected to be a multi-year tailwind, benefiting both the environmental solutions segment (for site remediation) and core waste segments (for ongoing service of new manufacturing facilities), lasting for five or more years. (241 characters)

• Q: What is your outlook for polymer center investments and future sustainability growth opportunities? /

  A: Polymer center demand is extremely strong, with output sold out 3-4x over and pricing exceeding initial projections. Management now expects to reach total targeted capacity with 3 centers (vs. the original 4 planned) due to higher than expected output at existing facilities. Future opportunities will focus on diverting more waste from landfills to extend the life of scarce urban landfill capacity, including organic material and flexible packaging, with any new investment required to meet both environmental and return hurdles. (364 characters)