Boom in recycling prices is helping this Arizona company
The cost of almost everything seems on the rise these days. Why not trash prices, too?
While there still isn’t much demand for banana peels, used cat litter, chicken bones and such, recyclable waste has started to gain in value. Prices for cardboard, plastics, aluminum, glass and many other items finished 2021 almost double where they were a year earlier, and one of Arizona’s largest corporations is benefitting from this trend.
Trash hauler Republic Services, which has the second-highest stockmarket value of any Arizona-based corporation, has profited from a miniboom in recycled material, helping to offset higher fuel and other costs as the company hopes to transition to an allelectric fleet of garbage trucks.
The company received $218 a ton for recycled commodity prices in the fourth quarter, up from $110 a ton one year earlier, and recycling revenue jumped nearly 42% in the quarter, compared to an 11% revenue rise overall. The Phoenix corporation also is building a new recycling facility near Las Vegas that will focus entirely on plastics.
Republic still generates the vast majority of its revenue from traditional garbage collection, and that trend has grown more lucrative too, as residential, commercial and industrial customers pay more to have trash hauled away.
“This is a very stable business,” said Brian Bernard, a Morningstar analyst who follow Republic Services. “In good times and bad, people are throwing stuff away, and these guys have to be there.”
But the recycling resurgence might surprise a lot of people, especially consumers who have wondered how much their efforts make a difference. The recycling market temporarily crashed five years ago when China stopped accepting some imported recycled materials. But other countries and buyers have stepped into the void and recycling has found its footing again, helped by enhanced sustainability pledges by manufacturers and many others.
“We know customers want to do it and are willing to pay for it,” said Jon Vander Ark, who took over as Republic Service’s president and CEO last year.
Republic on March 1 announced that it will construct the nation’s first integrated recycling facility to satisfy demand from manufacturers for reliable, high-quality recycled plastic.
“The demand for reused products there.”
Recycling back in vogue
As a case in point, Republic on March 1 announced that it will construct the nation’s first integrated recycling facility to satisfy demand from manufacturers for reliable, high-quality recycled plastic. The Las Vegas facility is expected to deliver more than 100 million pounds of recycled plastic annually after it opens in 2023.
Currently, only about one-third of single-use plastic bottles and jugs are recycled, and only about one-third of municipal solid waste nationally is recycled. The other two-thirds of the garbage collected by Republic and its various competitors are disposed of in landfills, of which Republic operates 198 active facilities around the nation.
Vander Ark said recycled plastic, which years ago sold for about 40 cents on the dollar compared to virgin plastic, now sells at a premium. Part of this reflects goals set by many food packagers and other companies to focus more on sustainability.
“Manufacturers so badly need that material,” he said.
Prices for used cardboard, plastics, metals and the like have rebounded over the past couple of years, with nations like India buying more of this material and more U.S. companies able to process it, said Anne Germain, chief operating officer at the National Waste & Recycling Association.
But she warned that prices tend to be volatile, with the recent uptrend following a deep slump.
Her trade group would like to see governments enact minimum recycledcontent mandates in various products. That would help to ensure a permanent market for many of these materials and reduce much of the price fluctuations, she said.
More recycling potential for consumers
Consumers still aren’t doing all they can to recycle, which is why Vander Ark spent part of a recent interview underscoring how to do it right. Recycled materials, he said, must be empty, clean and dry. Otherwise, this waste will end up in a landfill.
“A greasy pizza box — that’s contaminated material,” Vander Ark said. “It can’t be recycled.”
On average, Americans generate more than 4 pounds of daily waste that ends up in landfills, so a lot more still can be done.
Germain cited two other ongoing recycling problems. One involves lithium batteries, which can easily start fires and are a type of waste that people shouldn’t discard in general recycling bins, she said. Then there are plastic grocery bags, which can get tangled in equipment, bringing a recycling operation to a halt.
That’s in addition to the usual inappropriate trash that sometimes get included.
“We want to encourage recycling, but can you please stop putting in your dirty diapers?” she said.
Expanding into hazardous waste
Republic not only is the second-most valuable Arizona-based corporation (behind copper mining giant FreeportMcMoran), but it’s also the No. 2 player in the $91 billion garbage industry behind Waste Management, sponsor of the Phoenix Open golf tournament.
Republic operates in 41 states including Arizona. It makes 5 million daily trash pickups, has 14 million residential, commercial and industrial customers and counts 35,000 employees nationally including about 2,100 in Arizona.
The company will increase its ability to process hazardous waste following its planned acquisition of U.S. Ecology. The pending purchase, forecast to close around midyear, is expected to result in more revenue opportunities and cost savings. “Customers were asking us to do more,” Vander Ark said of the proposed U.S. Ecology purchase.
U.S. Ecology’s expertise includes disposing of hazardous and radioactive refuse. “We can now handle the full basket, all ranges of manufacturing (waste),” he said, adding that customers “are looking for a one-stop shop.”
New direction for company
Bernard, Morningstar’s director of industrial-stock research, cautions that the U.S. Ecology deal presents some risk for Republic since it marks a new direction for the company, though he also feels Republic is paying a reasonable price for the acquisition.
In the meantime, traditional trash hauling is faring well, with Republic generally able to pass along fuel or other cost increases to customers in an increasingly inflationary environment.
“For commercial customers, waste collection is such a small part of their overall costs,” he said.
Bernard said he expects to see strong pricing trends and profit-margin improvement for Republic this year, based on higher trash-collection volumes, a more profitable recycling business, recent acquisitions and other factors.
And while the industry is steady, Republic and its competitors fare better when the economy is expanding, with more household formations, business activity and overall growth. In fact, the company claims its garbage-collection volume correlates closely with housing starts.
Trucks going electric — eventually
As for its own sustainability, Republic is working to decrease emissions from its fleet of 16,400 trucks. About one-fifth of those vehicles currently run on compressed natural gas, and electric vehicles will eventually replace most of the rest. However, Republic replaces only 6% to 7% of its trucks each year, so the transition will take 10 to 15 years.
“Our industry is a great application for that technology,” Vander Ark said, referring to electric vehicles. “Our trucks come back into the yards every night,” which makes for consistent, scheduled recharging.
Yet the transition to electric trucks won’t provide much help navigating through the recent rise in oil prices. Republic’s fuel expenses surged 41% last year and 65% in the fourth quarter — and that was before the most recent price jump tied to the Russian invasion of Ukraine and uncertainty over global oil supplies.
The company didn’t have any fuelprice hedges in place as of the end of 2021.
Crucial role of drivers
While Republic’s fleet is going electric, the company isn’t likely to adopt autonomous vehicles. Republic’s drivers still must get out of their cabs, pick up or move trash containers, open and close gates, pull off and replace trashcan lids and more.
“We don’t see driverless garbage trucks anytime soon,” Vander Ark said.
Yet the trash business is going more high-tech in other ways, and Republic’s drivers are part of that. For example, the company has equipped its drivers with tablets that, among other things, help them to communicate more quickly with dispatchers and even customers while on routes, making for more efficient pickups and problem resolution.
Along with higher fuel prices, labor costs are a factor that could put pressure on the company’s profit margins. Like many other companies that rely on drivers, Republic continues to face a shortage here, though Vander Ark indicated he isn’t too concerned.
“There has been a driver shortage for 30 years and probably will be 30 years from now,” he said. “But we have an advantage (over longer-haul transportation companies) in that our drivers get to come home and sleep in their homes every night.”
Transitions for trash business
Finding enough drivers is an ongoing challenge for the company. Other real or potential obstacles include rising fuel costs, price fluctuations for recycled materials, regulations governing landfills, competition and labor relations, with 24% of the company’s workforce covered by union contracts.
Republic also must carefully manage its mountain of debt, at over $10 billion. However, about 90% of that carries fixed as opposed to variable interest rates. Steady revenue and cash flow in a generally stable business make it easier to meet those payments, even if interest rates rise.
Besides, said Bernard, this is a cashintensive industry so debt is to be expected. One of Republic’s strengths, he added, is having a network of active landfills, which just can’t be established anywhere. That presents a competitive advantage for entities like Republic that already have them.
Bottom line, Republic is coming off what Vander Ark called its “best year of financial performance” ever in 2021, characterized by double-digit growth in revenues, earnings and cash flow.
“We have ambitious plans for 2022,” he said. “This is a profitable business with an exciting future.”