Republic Services Inc (RSG) 2011 Q1 法說會逐字稿

Good afternoon and welcome to the first quarter conference call for investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your hosts for this afternoon's call are Don Slager, President and CEO; Tod Holmes, CFO; and Ed Lang, Republic Senior Vice President and Treasurer. Today's call is being recorded. All participants are in listen-only mode. There will be a question-and-answer session following the Republic summary of quarterly earnings.

(Operator Instructions).

At this time, it is my pleasure to the call over to Mr. Ed Lang. Good afternoon, Mr. Lang.

Good afternoon, thank you, Jacqueline. Welcome and good afternoon, and thank you for joining us. This is Ed Lang, and I would like to welcome everyone to Republic Services First Quarter 2011 Conference Call. Don Slager, our CEO, and Tod Holmes, our CFO, are joining me as we discuss our first-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 maybe materially different from actual results.

Our SEC filings discuss factors that can cause actual results to differ materially from expectations. Additionally, the material that we discussed 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 called which is April 28, 2011. 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.

Thanks, Ed. Based on our first-quarter performance, Republic Services is on track to achieve the financial guidance provided in February. Financial and operational highlights include revenue of approximately $2 billion for the quarter, total price growth in the quarter was 2.6% with core price of 1%. We secured core price increases across all lines of business, and continued our focus on retaining existing business that generates appropriate returns. Volumes declined .07%, which is a sequential improvement of 40 basis points including 110 basis point improvement in collection. This is the fourth straight quarter of sequential volume improvement in the collection business.

Our first-quarter adjusted EPS was $0.42. Our first-quarter adjusted free cash flow was $273 million. We re-purchased 5 million shares in the first-quarter for $148 million. We are on track to complete the existing authorization before the end of 2011. We returned $225 million to our shareholders during the quarter.

We remain committed to an efficient cash utilization strategy which includes increasing cash returns to our shareholders through share repurchase and dividends. We recently closed a new five-year $1.25 billion credit facility. Republic continues to expand debt maturities and lower interest costs. Moody's recently raised the outlook on our credit rating to positive. Republic is committed to a strategy of growing our business, improving return on capital, returning cash to shareholders, and a strong credit profile. We recently purchased two recycling facilities in the Midwest to enhance our recycling capabilities.

Our field organization continues to effectively manage our cost structure. All controllable cost will remain flat or decrease as percentage of revenue including labor and maintenance expenses. We achieved year to year labor productivity gains in all collection lines of business. We saw reduction in frequency of insurance claims. Our accident and injury frequency improved by approximately 50% as compared to 2010. I would like to thank our field operations for their commitment to a high level of performance in all aspects of our business. Tod and Ed will now update our financial performance.

Thanks, Don. First quarter [2000], in revenue, as Don indicated was approximately $2 billion. Change in revenue from the prior period includes the following -- first our core price growth of 1%. In total, the collection lines of business saw a core price increase of 1% with all lines of business reporting positive price increases in the first quarter. Our total disposal core price increased by 1.3% which includes landfill MSW of 2.1% which was partially offset by relatively lower-priced event C & D and event special waste driven work. This level of pricing is in line with our expectations for the quarter.

Since our price on indexed based contracts tends to lag, we are still impacted by lower CPI environment that occurred in 2009 and 2010. This is not yet anniversary. In 2011, we expect core price of approximately 1% in the first half of the year and in the range of 1.5% to 2% in the second half of the year. Second, our commodities revenue increase of 1%. Commodities prices increased by 19% to an average price of $149 per ton in the current quarter from $125 per ton in the prior year. Q1 recycling facility commodity volume of 478,000 tons was up approximately 13% from the prior year and up 8% on a same-store basis.

As Don mentioned, we recently purchased two recycling facilities. As a reminder, our 2011 guidance was based on December 2010 average commodity prices which, at that time, was about $143 a ton. If prices hold at the current April levels of about $152 a ton, our EPS would increase for the year by about $0.02. Now, for reference purposes, a $10 change pretend and commodity value equals about $0.02 of EPS. And, that is net of the impact of rebates.

Let me talk briefly about our field recovery fee which increased by 0.6%. The increase in fuel recovery fees relates to an increase in fuel costs obviously, the average price per gallon of diesel increased to $3.63 in the first quarter of '11 from $2.85 in the prior year, about a 27% increase. Our 2011 guidance was based on an average fuel price of $3.42 a gallon. If prices hold at the current April levels of $4.10 per gallon, our full year EPS would decrease by about $0.05. Again, for reference purposes, a $0.10 change in diesel fuel per gallon is slightly less than $0.01 of EPS, which includes the impact of the fuel recovery fees.

Now, let me turn to volumes. Volumes were down 0.7% year-over-year. As Don indicated, this is a sequential improvement from the fourth quarter 2010 of 40 basis points. We continue to see volume improvements in the collection business which is now down less than 1% over the prior year. Volumes improved in all collection lines sequentially including a 220 basis point increase in the industrial business, and also a 100 basis points sequential increase in the commercial business.

Our volumes improved, despite the severe weather early in the quarter. Our landfill and transfer station volumes had year-over-year growth of about 2%. This continues to reflect the positive contribution from both permanent and temporary special waste volumes. Our outlook for special waste activity remains strong, and we remain confident that we can replace or slightly exceed the volumes that we received in 2010.

Now, let me turn to our margins. First-quarter year-over-year margins. The first quarter 2010 adjusted EBITDA margin was 30.6%. Compared to 31.7% in the prior year. This decline in margin is primarily due to the 27% increase in the cost of diesel fuel. That's 120 basis points of negative margin impact.

The average price per gallon, again as I'd indicated, increased to $3.63 in the quarter from $2.85 in the prior year like quarter. And, again, with current prices at $4.10 a gallon. Partially offsetting the increase in fuel cost was an increase in related the fuel recovery fee revenue resulting in a net decrease in EBITDA margin of about 80 basis points. If prices remain at this level for fuel, we will have margin headwind for the balance of the year. Other significant changes to margin include transfer disposal costs.

We actually had a 30 basis point improvement here in which primarily relates to the margin benefit of incremental landfill volumes that carry little or no associated disposal cost. Next, transportation and subcontract expenses. We had an 80 basis point improvement in margin results from redirecting waste streams within our transfer disposal network. Also, the loss of the Toronto disposal contract which had a high-level of transportation cost and the divestiture of three New York City transfer stations in late 2010, helped our transportation subcontract expenses as a percentage of revenue.

Risk management. Here, it's a little lumpy. The 40 basis point increase in expense relates to the change of actuarial estimates. As we said before, we perform actuarial assessments of risk reserves each quarter which can create volatility. We could very easily smooth the numbers through the year but we believe this is the best practice. In 2010's first-quarter, we benefited from favorable adjustments to prior plan years. The favorable adjustment was repeated in the first quarter of 2011, but not at the same level. Our net benefit was probably in the range of $2 million to $3 million.

Next, recycling cost of goods sold. The unfavorable 50 basis point increase in expense relates to increases in rebates to customers for volumes delivered to our recycling facilities. Cost of goods sold at our recycling facilities increased to an average of $47 per ton from $38 in the prior year. Commodity revenue increases more than offset this increase in cost, resulting in increased spread of approximately $15 per ton. The net impact here was obviously favorable, 40 basis points in EBITDA margin.

And, finally, SG&A. SG&A expense excluding the cost to achieve synergies, was 10.4% of revenue compared to 10.2% in the prior year. The 20 basis point increase in expense relates primarily to investments in programs designed to lower cost, drive efficiency and increase productivity. We expect full year 2011 SG&A expenses to approximate 10% of revenue. Now, let me talk briefly about our DD&A. DD&A, as a percentage of revenue, was relatively comfortable at 11.5%, in the current year versus 11.4% in the prior year. And, of course, as we said before, our DD&A is higher than capital expenditures as a percentage of revenue, due to the amortization of intangibles resulting from the merger. Now, I'll turn the call over to Ed to discuss interest expense, free-cash flow and balance sheet.

Thanks, Tod. Q1 2011 interest expense was $116 million and that includes $22 million of non-cash amortization. As we continue to refinance our debt, the portion related to the Allied debt discount of $9 million will decline. On April 20, we closed a new five-year $1.25 billion credit facility. This new facility has a fully grown cost equal to the facility being replaced.

Republic has total bank market capacity of $2.5 billion that can be used for issuing letters of credit, short-term borrowing, and general corporate purposes. During Q2 of this year, we expect to refinance debt that matures throughout the year, as remember, we started having debt maturities last November, and that will continue through August. Notes due in May, 2016, were called on April 15, and the notes that we offered to tender, due in 2021 and 2035. Our EPS guidance provided in February included the favorable impact of re-financing this debt, but excluded any premiums paid, or debt discounts written off in connection with distinguishments.

I will now discuss free cash flow. Q1 adjusted free cash flow was $273 million. Which consisted of first cash provided by operating activities of $434 million, less property and equipment received, of $169 million. Plus proceeds from the sale of property of $7 million, plus merger-related expenditures net of tax of $1 million. And, therefore, adjusted free cash flow is $273 million.

At March 31, our accounts receivable balance was $840 million and our days at sales outstanding was 39 days. Or 24 days net of deferred revenue. Reported debt was approximately $6.8 billion at March 31, and excess credit availability under our bank facility was approximately $1.4 billion. I will now turn the call back to Don.

Thanks, Ed. Before we get to Q&A, I would like to make a few comments on our guidance, and cash utilization plans. We are reaffirming the financial guidance provided on our February call, including adjusted EPS of $1.86 to a $1.89. Adjusted free cash flow of $875 million to $900 million. Net capital spending of $735 million. At our next board meeting in July, we will review our dividend policy and expect to approve an increase of 5% to 10%. We have completed almost 50% of our current share repurchase authorization. Our Board will authorize a new program at the October meeting to carry through 2012. At this time, Operator, I would like to open the call for questions.

(Operator Instructions)

Our first question comes from Michael Hoffman, Wunderlich Securities.

Thank you free much and nice numbers folks. Look forward to seeing you guys there in Dallas. The dividend, you are running about a 40%-ish of your free cash today. Is there a feeling that you would want to drive that to a higher percentage to get to more 50/50? And if you were going to that direction that would sort of auger closer into the 10% or maybe slightly more growth in the dividend.

AS I said in my comments, Michael, we will be talking about cash utilization strategy with the board in July. As we always do every year. And we'll be looking at raising the dividend, as we normally do. And we will discuss all our cash utilization then, and then again talk about share repurchase in October.

Okay. Then on the volume side. The 0.7, given the weather issues, it would suggest you would've been at least flat, maybe even positive, so it bodes well for -- structurally, in the business, broadly across the country. But having said that, are there still pockets that we should be mindful of?

I think we are seeing pretty good volume and consistent with our plan across the nation. We still have probably more economic softness in the South and the West, as we said before. It is a big highlight for us, we've seen now four quarters of sequential volume improvement in the collection business. And while we did have a little weather, we chose not to really highlight it, we have weather all the time. Probably got a little more than we normally do, but we feel pretty good about where we're heading as far as our February guidance.

Thank you. Your next question comes from Scott Levine of JPMorgan.

Good afternoon guys. With regard to your pricing, if you could talk, it sounds like you're expecting a back ended year and that is largely driven by inflation index pricing. If you can comment on pricing trends in the competitive side of the business and maybe any regional color with regard to areas of strength or weakness there?

Why don't I let Ed talk about CPI that will cover a little bit of the color.

Scott, it is pretty consistent with what we said in February. Keep in mind, during the first half of this year we are still working through the lower CPI environment we saw in 2009, and into 2010. As we get to July 1 in the second half of the year we will anniversary out this lower CPI numbers, and then we will see CPI numbers that reflect more the full year average for 2010, which was about 1.6%. So we will see kind of a lower CPI in the first half of the year. A step up to that mid 1% in the second half of the year.

And then as we see CPI develop this year, and I know we've seen a few months here getting a little bit higher pushing above 2%, we really won't see that kind of blend into our numbers until the second half of '12. As we usually say, it takes about 12 or 18 months for that CPI trend to work its way into the average price. And as we discussed on the other called, Las Vegas is a very large market for us, it is probably one that has a longer leg than others, but because of its size it does impact the corporate average.

And Las Vegas they use a calendar year CPI, and you get that price increase the following July 1. So therefore, on July 1 of 2010 we actually had to rollback or pricing by 0.4% which was the '09 CPI number. Then what will happen this July 1, we will get a price increase of 1.6%, and that will be our price increase for that marketplace starting July 1 of '11 through June 30 of '12. And then potentially we'll see that higher CPI pricing come into our numbers beginning July 1 of '12. Don, you want to talk about open marketing?

Sure. Remember, the other part of the business is open market, and we have an internal process we call RPM, which is just basically taking those open market customers, and we spread them across 12 months. And we review and accordingly adjust those customer prices, at least annually. And so we had positive pricing across all kinds of business in the quarter. And pricing in that arena is going well for us.

There's always pockets of pushback, based on competitive behavior, may be locally or something along those lines. But no really change in what it's been. So we continue to review all of our pricing. Every customer gets reviewed annually. We continue to do that while we continue to defend our business and look for signs of life in the economy to grow our business. All in all, I think the 1% pricing in the quarter was a pretty good number for us.

Got it. And as my follow-up, maybe, you mentioned some efficiency spend in the SG&A number. If you could talk a little bit about some of the areas you see as offering, maybe a little bit more near term promise in terms of cost take out, productivity, efficiency, what have you.

We continue to gain productivity on the collection side of the business and in the labor and so forth with just improving routing, more automation. We have talked quite a bit about moving more for residential fleet to automated. That's worked well for us. And on the SG&A, we've got some additional resources deployed, working on some of these cost programs like we've talked about. Our maintenance program, our national account initiative, and some of those things.

Right now we are probably are, again as Tod said, having more cost than we are benefit. We will start to see some benefits in '12 and by the end of '13 we will see some real benefit from those programs. But we are going to carry a little SG&A between now and then.

Got it.

Our next question comes from Hamzah Mazari from Credit Suisse.

Thank you. First question is just on pricing. What are you pricing your landfills at right now? And how aggressive can you be if you do see strong seasonality at the end of May? And is there any low margin business still in your portfolio you need to get rid of, post merger, or that's done?

First, remember that on a landfill side, half of our landfill business, actually a little more than that, is indexed price. I'm thinking specifically by MSW, because that's what really matters, when you talk about overall pricing, so half the business is index priced. Those are tied contracts, they have term dates, and they follow that kind of CPI mentality, if you will, most of that just like Ed just described. So that's half.

The other half is open market. A little less than that. So we have those contracts come up periodically throughout the year and we will continue to price those. I think in MSW this year, or the quarter, we had a little better than 2% price on MSW, and we would certainly like to see that go a little higher. We had a little bit of volume defection in a couple of markets in landfill, where we moved price to competitive MSW hollers in the marketplace. And we are not willing to give price concessions, so we lost a little bit of volume there. We're going to continue to focus on the infrastructure and use the assets according to the marketplace.

And just to follow-up --

I'm sorry, Hamzah, you asked about low margin work. We are through that. That was sort of a battle cry, probably two or three years ago, maybe three or four years ago now, and I wouldn't sit here today and tell you we have much of that if any. We've got a very good job of pricing the business, of culling the business, and I think it shows up in our margins.

All right and just a quick follow-up on your acquisition pipeline, you mentioned recently, you want to make a bigger portion into recycling. Could you talk about what's in the pipeline there? And how big you plan to get within that segment?

What we've done -- and the acquisition pipeline was bigger than just recycling. We talked about recycling infrastructure, we talked about some hauling acquisitions, so we gave you that acquisition number and also said was probably primarily loaded toward the second half of the year before we started to see that. So we said we'd close, call it, $75 million of revenue this year. As relates to recycling, some of those projects are developmental projects, some would be acquisitions.

We've identified what we think our 25 markets across our 240 marketplaces that we need to fill some gaps in recycling, where we don't have quite enough capability to meet the demand of our customers. So we will be looking to fill those gaps. Some of those could be with existing facilities that we have that we just need to retrofit and add capacity. Some could be developing a whole new footprint, or some could be an acquisition. That's baked into our numbers, it's baked into our cash flow, and I think we said we would spend $25 million or so this year on developing some of that recycling infrastructure.

Okay, great. Thank you. That's great, thanks a lot.

Our next question comes from John Ellis from Bank of America with Merrill Lynch.

Thank you. First question, I want to talk a little bit about your pricing for the year. I think you mentioned that in the first half you're expecting 1% core price, second half 1.5% to 2%. If my math is right about CPI, and the escalator adjustment, it would suggest that almost all the difference between first and second half of the year, in terms of guidance, is a function of basically resets on contracts tied to CPI.

Given that CPI is rising now and, Don as you mentioned, most of your open order contracts are resetting throughout the year, why wouldn't we expect to see better open market pricing over the course of the year as well?

Well you may. And again, one of the advantages, Jonathan is with the way we do pricing in those twelve buckets as I described. As conditions change in a marketplace, and as CPI ebbs and flows, it does give us flexibility across that part of our portfolio. So the second half of the year, where we are pricing those six buckets in those markets, we could be pricing a little stronger there depending on the market activity.

Remember, we've always said we are looking to get that spread over and above true inflation. And when our customers are seeing inflation in their business, when they are more comfortable with their business activity, they are a little less price sensitive. The market changes and it allows for more pricing strength. We will meter that accordingly, as the markets allow us to in the second half. And we will wait and see.

Okay. So is it more of a combi -- but it's fair to assume that your 1.5% to 2%, we could only read the high end of that range if CPI stays where it is right now?

Okay, second question, just on fuel. I'm trying to make sure I understand this. I'd always been under the impression that your surcharge program, although not covering 100% of our total fuel cost, was intended to cover 100% of incremental fuel costs. It appears that there some EPS drag, so can you talk a little bit about the surcharge program? And then also, there has been some discussion recently in the market about how some companies are offering out new business, without fuel surcharges, on those contracts. Can you talk about whether you are seeing that in the market? Thank you.

This is Tod. I will answer the first part, maybe Don into the market part. First of all, when you see fuel going up it tends to lag. Especially when you see a substantial ramp up in fuel. You've got a one-month lag in the surcharge. There's a little bit of an impact there that will stay with us for the full year. Unless it were to drop back down this year. So I guess we will wait-and-see on that. In terms of our fuel surcharge, we do not get all of it dollar for dollar. Obviously it's about two thirds that we get, and we have obviously some franchise customers that are on that CPI-based pricing, so the fuel surcharge isn't there. We are not able to get the full dollar for dollar recovery.

The second half of your question Johnathon. We've always had that situation in the marketplace, where a smaller hauler might take, what I call the Southwest Airlines approach of bag fly free. No fees. I think our customers are pretty smart folks but I think you look at total cost to serve, that's what we try to sell our customers as there is a total cost to service. We are not hiding behind our fees, we look at our fuel recovery fee as the fairest way to deal with our customer base. So that when fuel goes up, its big part of our cost, they share in a cost increase. When fuel goes down, they get the benefit.

And so, it's a difference sales approach than the guy who's selling no fees. The difference is, when fuel spikes, that operator has to run around and bring more fuel price increases to the customer. We are touching the customer once annually, we've got the index working for us on fuel. And we think is the fairest way to approach the customer.

Remember we've got 150 million gallons of fuel a year, and when fuel goes up $0.50 we cannot just run around with our hair on fire trying to find $75 million. It works well for us. It is a built-in hedge, if you will, and again I think we are always going to have somebody out there trying to market a different way. We don't see that from the bigger companies, we generally see from the smaller folks.

Great. Thanks.

Our next question comes from Al Kaschalk from Wedbush Securities.

Thank you. Don, could you help us bridge the volume results in the quarter with the full year? I believe you talked about flat, to up modestly for the full year. And then we have some headwind's I guess with special waste. So given what happened in the quarter, and we certainly appreciate you not trying to hide behind weather, like others have, but can you talk a little bit about what you foresee here on the volume side? Whether that's a better than initially planned on special waste, or just in the core business?

Yes, it's, again, we just gave you guys guidance like nine weeks ago, so we are on plan. We are reaffirming the guidance, including the volume guidance. We may be a little bit further behind than we thought we would be at this point. As I said, there may be a little weather in there, although we are not going to call it out. We wait every year for this time of year, we are coming into May and looking for that seasonality jump.

It is not May yet, but, as we do every year, we look for that seasonality trends to work for us. And kind of bridge us into the summer months. And then carry us through into the late fall. And we don't see anything today that's going to change that. And we believe we will come in on guidance as we said. We will give you an update in more detail on the second quarter call.

Okay, thank you. That's all I have.

Our next question is from Vance Edelson from Morgan Stanley.

Hello, thanks for taking the question. I guess first, just a clarification, do the recycling acquisitions fall under the $75 million that's been earmarked for bolt-ons, or is that a separate $25 million?

No. That would fall into acquisitions, we book those as acquisitions. Yes.

Okay. So the $75 million that's for bolt on acquisitions, anything you do on the recycling front is not under the umbrella of the $75 million that's been earmarked, it's separate?

I think what we talked about on the earnings call, in our capital expenditures for this year we are about $20 million or $25 million for internal growth projects, related to recycling, meaning building out, or improving our existing infrastructure. And then we said there would be $75 million to $100 million spent this year for just a broad category of acquisitions, which would include picking up some third-party assets, as well as hauling assets or disposal, transfer station assets. So the $75 million to $100 million to be spent on acquisitions, was really any type of revenue.

Anything we would book as an acquisition would come out of that bucket. We talked about those 25 markets, if we can buy something that's in the market that fits our need, to fill that gap, we can buy it for the right price, we would buy versus build. Just because of speed to market, and so forth. If we are building and developing it ourselves it is coming out of the $25 million of CapEx.

Okay, thanks for the clarification. And more on the near term on the SG&A front, between now and the end of the year it sounds like recently SG&A was up on the investments in the programs guidance for the full year has been down to 10% of sales, so we will need to see some sub 10% reading soon. Does this imply at all that the programs you've been spending on are about to be completed? Or is it more just that the benefits start to out way the cost?

I think it is -- if you look at the revenue trends through the year, the second quarter and then the third quarter are the strongest quarters, so just the math on, as a percentage of revenue, it should come down. Dollars may not come down appreciably, although I would say we were working heavily on these projects late last year and the first part of this year. But that's not the key driver of that metric. It is probably more the revenue that's the key driver.

That's right.

Okay. One follow-up question on the cost side. Can you update us on the CNG initiatives, how many trucks this year and next? And is this right now helping you to offset the higher fuel costs out there?

I think last year we spent about 20% or was it 25% or so of our fleet buy was C&G, about the same, a little bit less this year. It could change a little bit as we go through the year. Depending on certain contracts. But we are not making a huge move here. We've done frankly is, we made investments in some of our larger fleets in the appropriate markets, on the fueling station and on introducing C&G vehicles. And we are going to this year basically fill out the routes in those facilities.

For example, if I had 100 truck facility, last year or replaced 40 of the trucks, the C&G and the other 60 are still diesel, I built the C&G station. This year we may go back again and basically replace those other 60 vehicles with C&G so we are getting the full benefit then of that investment of the C&G stations. Does that make sense?

It does.

That's what we are doing. We have looked at -- we are not right now creating our, putting the finishing touches on our five year fleet plan that will really build out the next phases of automation and C&G investments. And we will talk about that sometime later in the year, early next year.

Keep up the good work, thanks.

Our next question comes from Corey Greendale from First Analysis.

Hello, good afternoon. Don, I was hoping I could ask you kind of a 30,000 foot view question, just looking back--

I'm afraid of heights, Corey.

Alright then, we'll go with 5000 feet. Whatever it takes. Looking back on the integration, and I know you have achieved and surpassed the synergy targets, but could you talk about in terms of culture and in terms of best practices, to what extent would you say it is truly a homogenous company at this point? There is no legacy allied in Republic any more, how much would you say there are still opportunities to stream line the culture and share best practices among the various operations?

I would say, as far as from a social perspective, I would tell you that we are operating as one company today. We've got a great deal of rapport and respect for each other, and flying the same flag. One of the reasons this acquisition works so well, is that we were very serious from the very beginning, Jim and I and Tod and the rest the team, about putting together one team, building the best culture, and we did that.

We spent a fair amount of time on the social issues and culture through the process, so that we did become one company very quickly. I'd be kidding myself if I said 30,000 employees and that somebody's out there who would maybe rather fly a different flag today, but I would say those are the exceptions, and the very, very minor exceptions. We have had regular meetings with our people.

We've had our second annual general management conference here in February, where we brought in all of our general managers and area teams and region teams from across the country. We had our key decision makers from the corporate office there, and we had close to five hundred people in one room talking about the road map going forward. What we've achieved in the plans. I will tell you, it was pretty good vibe in the room, you could cut the excitement with a knife.

From the culture perspective I would say we've been a great job bringing it together, and I think everyone's pretty pumped up about where we go from here. From a synergy perspective, or best practice perspective, we were just talking about the parking lot, as we put the synergy goals together we found some things would like to do. We just said the company can only change so much at once. So we've put them out in the parking lot, we've been dusting some of those things off. And looking at those things today, and how we can continue to improve the business.

None of them, in and of themself, are major needle movers. But there are things that are worth a million dollars, things that are worth half a million dollars, and we are going to continue to shave those pennies off of our costs and improve the way we go to market. We're going to continue to build our customer service experience and those kinds of things. So from here on out, it is just improving on what we've built. But I would tell you that the Company flies one flag, and it is pretty excited about the future today.

Thanks for the detail. I just had one housekeeping question, which it looks like the tax rating came in a little lower than the 41.5% that you talked about, what do you expect for the rest of the year?

We had some state tax benefits I think in the first quarter. That caused that to come in probably just over 39%. I think if you look at the full year tax rate, the full year tax rate would be about 41%. And subsequent quarters would be probably in the 41.5% range still. Maybe slightly less than that.

Great, thank you.

And our last question comes from Richard Skidmore of Goldman Sachs.

Good afternoon. Just a couple of quick questions. First, can you just clarify your volume guidance? Does include the impact of San Mateo and Toronto? In terms of your --I think you've got it to flattish volume for 2011?

Right. In our opening call where we gave guidance, we indicated that it excluded those two components. So excluding those two components, it's about zero to half a percent positive.

Okay. Then can you and what you are seeing in the roll off business, both you're own roll off business, and then third-party in terms of volume trends? Because I'm trying to understand better when you might start to see operating leverage come through at the landfill.

We've seen sequential improvement in volume across all lines of business. So every quarter our roll-off volume has improved over the past four quarters. And probably five quarters or six quarters. So we've seen some positive activity in the industrial part of that roll-off business. And of course have seen no activity in the C&D part of that business. So from a third-party perspective I think it is probably very similar. We obviously, you're right, the volume comes back to the landfill, it comes in at a very high-margin, we get great operating leverage there, and it is one of the great things about this business.

If anything one of the great things about this story, is we have done such a great job managing cost out of the business as the volume declined, and learned a lot about ourselves and our business. And now we're going to use all that same hard work to manage our business on the way up, and we will expect to see operating leverages longer term, but we don't control that. So we're just happy to see when it occurs. And we are getting our fair share. That's it in a nutshell.

Thank you.

Thank you. That is all the time we have for questions today. I will now turn the call over to Mr. Don Slager for his closing remarks.

Thank you, Jacqueline. In closing I'd like to thank the entire Republic team for solid first-quarter performance. Our business remains strong. Our market fundamentals are solid. And trends our improving. As reminder, a recording of this call is a available through May 5, 2011, by calling (203) 369-3404.

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 recording of this call, are all available on Republic's website at RepublicServices.com. Finally, I want to remind you that Republics management team routinely participates in investor conferences. Presentations are scheduled, the dates and times are posted on our website, along with instructions for listen to the live webcast of the event. Thank you for spending time with us today. Have a good evening.

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