RSG
#Fourth quarter 2016 revenue was approximately $2.4 billion, an increase of $89 million or 3.9% over the prior year
This 3.9% increase in revenue includes internal growth of 3.6% and acquisitions of 30 basis points
The components of internal growth are as follows
First, total average yield grew 2.2% over the prior year
Average yield in the collection business was 2.7%, which includes 3.8% yield in the small container business, 2.4% yield in the large container business, and 1.6% yield in the residential business
Average yield in the post-collection business was 1%, which includes landfill MSW of 1.7%
It should be noted that a majority of our third-party landfill MSW business is with municipal customers that have contracts containing price restrictions
Total core price, which measures price increases less rollbacks, was 3.5%
Core price consisted of 4.7% in the open market and 1.5% in the restricted portion of our business
Second, our total volumes increased 50 basis points over the prior year, or 90 basis points excluding the impact from approximately one less workday
The following discussion of volume excludes the workday impact
Volumes increased 2.2% in the large container business
Volumes decreased 40 basis points in the small container business and 70 basis points in the residential business
Small container volumes include a 110 basis point impact from intentionally shedding certain work performed on behalf of brokers, which we view as non-regrettable
Excluding these losses, small container volumes would have increased 70 basis points
The decline in residential volumes was expected and resulted from not renewing certain contracts that fell below our return criteria
Residential volume performance increased 40 basis points sequentially, as some of the losses from early in the year are beginning to anniversary
The post-collection business, made up of third-party landfill and transfer station volumes, increased 2.7%
Landfill volumes included growth in C&D of 14% and special waste of 1%
MSW volumes were consistent with the prior year
Third, fuel recovery fees decreased 10 basis points
The decrease resulted from lower fuel prices at the beginning of the quarter and the lag in our fuel recovery fee
In the fourth quarter, the average price per gallon of diesel increased 2% to $2.47 from $2.43 in the prior year
The current average diesel price is $2.57 per gallon
And, finally, commodity revenue increased 1%
The increase in commodity revenue includes higher processing fees charged to third-parties and an increase in recycled commodity prices
Excluding glass and organics, average commodity prices increased 24% to $134 per ton in the fourth quarter from $108 per ton in the prior year
Fourth quarter total recycling volume of 626,000 tons was down 2.5% versus the prior year
Cost of goods sold was up 20% from an increase in rebates paid for recycled commodities
Now I'll discuss changes in margin
Fourth quarter adjusted EBITDA margin expanded 70 basis points to 27.9%
The improvement included a 90 basis point decrease in SG&A cost, partially offset by a 20 basis point increase in cost of operations
The 90 basis point decrease in SG&A was primarily due to higher levels of incentive compensation and legal costs in the prior year
Fourth quarter 2016 SG&A expense was in line with our expectations at 10.5% of revenue
The 20 basis point increase in cost of operations is due to an increase in fuel expense primarily due to a larger CNG fuel credit recorded in the prior year
In 2015, the full year CNG fuel credit was recorded in the fourth quarter, whereas in 2016 the credit was recorded ratably
This timing difference increased fourth quarter 2016 fuel cost by 40 basis points
Excluding CNG credits, fourth quarter 2016 gross margin expanded 20 basis points
It should be noted that CNG credits expired at the end of 2016. On a full year basis EBITDA margin expanded 20 basis points to 28.3%
SG&A cost decreased 50 basis points to 10.3% from 10.8% in the prior year
We believe SG&A cost will continue to decline to 10% of revenue within the next couple of years
I want to remind you that we provide a detailed schedule of cost of operations and SG&A expenses in our 8-K filing
Fourth quarter 2016 interest expense was $90 million, which included $12 million of non-cash amortization
Our adjusted effective tax rate for the fourth quarter was 35.8%, which was favorably impacted by tax planning opportunities
The net impact of these tax items increased EPS by approximately $0.02 during the quarter
Full year adjusted free cash flow was $885 million
Cash flow exceeded the high end of our guidance range, due to lower than anticipated cash taxes of approximately $30 million
Excluding the benefit from cash taxes, adjusted free cash flow would have been $855 million
Now I'll turn the call back to the <UNK>
And just to put some more color around that, as <UNK> mentioned, as we have disclosed in the past a $10 change in the average commodity price is worth about $0.03 in annual EPS
Now it's important to keep in mind that, that's based upon our average mix of materials and OCC makes up the most of our mix, but it's only 45% of the mix overall
So, a couple things to keep in mind, <UNK>, is that, first of all, the CPI lags
So whatever we print then in 2017, we won't see the benefit of that until the second half of 2018. So that's the first item
The second item is that you talked about the roll-off of the fuel hedges
What we need to keep in mind also is that the CNG credit goes away
So that's something that was available to us in 2016, but that doesn't repeat
And, also, right now, we're looking at overall higher fuel prices
So, thinking about the margin then, so we're talking about 20 basis points to 40 basis points of margin expansion
Think about 10 basis points of that coming from commodities, the rest coming from the core business, 30 basis points or so
So we see that as pretty strong and sustainable growth
Thanks, <UNK>
And you're right to point out
Things look better in that direction
They have historically
So again, as I just said to <UNK>, there is more wind pushing us than in our face this year
So it's a good way to start the year out
Well, I'll ask your one – I'll answer one question directly
We've had a lot of conversation about it, because as you know we are a statutory payer, right
And so, if and when there is some type of tax reform, we likely stand to be a beneficiary of that
So don't know when that will occur or how will occur, and as you know there are probably a number of levers that get pulled
So, we're not counting any of that just yet, but we certainly are thinking about how it might impact us
And so we're also taking the wait and see approach that you all do, but if there is some movement there, it's good for us
By the time the second half of the year comes around that's true
But you got to remember that we still have the first half of the year where we're dealing with the CPI of 0.1% so that's a significant headwind for us
Hi, <UNK>
So, I will say it another way
That's the strongest as far as from a guidance perspective, the strongest guidance we've given in, I don't know, how many years
Both EPS or free cash growing at high-single digits to low double-digits
So the business is moving ahead
We're getting the operating leverage and it is showing up in the cash
That's your point
Yeah
We believe that we're going to continue to see margin expansion over the course of the next several years, because of all of the factors, <UNK>, that we talked about including the increase in the volumes that we're seeing in small container business
And not to mention, what's happened in the – with CPI and how we're going to get a bump-up in our pricing second half of this year and then what we might be able to print here in terms of CPI in 2017 and how that will impact the second half of 2018.
That's correct
Yeah
Hi, <UNK>
Thanks, <UNK>
Hi, <UNK>
And this is not another platform acquisition out there, <UNK>, that's available to us and not only that we'd be interested in that, what we're looking to do really is to tuck-in other assets around our existing infrastructure
No, again, let me just say this, the main point, I think that should be important to people is when this opportunity developed, we certainly put a lot of time and effort, we had a great team on the ground, we got great relationships there in LA, we ended up protecting and actually expanding our previous market share there
As you know we've got great assets in the market, we're the only company that has a landfill in the County of LA, and so we want to make sure we continue to find a way to utilize our vertical integration opportunity and advantage there, which we've done
We are happy with the zones we have, and again we actually did a little better than the market share we had and it's going to be accretive to the business
So we are excited to get started with the city there, and I think it's going to be a great outcome overall
It is included, but you can imagine, right, the things starts kind of halfway through the year, it's a lot of startup costs
So it's not going to do much for us in 2017 by the time we get it all sorted out and stood up, we'll see some more benefit from it in 2018.
<UNK>l right, man
