Republic Services Inc (RSG) 2013 Q2 法說會逐字稿

Good afternoon and welcome to the second-quarter 2013 call for investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG.

Your hosts for today's call are Don Slager, President and CEO; Glenn Culpepper, CFO; and Ed Lang, Republic's Senior Vice President and Treasurer.

Today's call is being recorded. (Operator Instructions). It is now my pleasure to turn the call over to Mr. Lang. Good afternoon, Mr. Lang.

Thank you, Holly. Welcome, good afternoon, and thank you for joining us. This is Ed Lang, and I would like to welcome everyone to Republic Services' second-quarter 2013 conference call. Don Slager, our CEO; and Glenn Culpepper, our CFO, are joining me as we discuss our second-quarter 2013 performance.

Before we get started, I would like to take a moment to remind everyone that some of the information we discuss on today's call contains forward-looking statements which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations.

The material we discuss 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 call, which is July 25, 2013. 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.

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 a recording of this call, are all available at Republic's website at RepublicServices.com. And finally, I want to remind you that Republic's management team routinely participates in investor conferences. When presentations are scheduled, the dates and times are posted on our website along with instructions for listening to the live webcast of the event.

With that, I would like to turn the call over to Don.

Thanks, Ed. Good afternoon, everyone. Thank you for joining us as we discuss Republic Services' second-quarter 2013 results.

I am pleased with our performance, which continues to reflect an improvement in business conditions. Revenues increased 2.5% compared to the prior year, which includes volume growth of 0.9%. Both average yield and volume improved sequentially, and we remain well positioned to take advantage of an improving economy.

Second-quarter adjusted EPS was $0.43, which includes $0.03 of legal charges for various matters. Excluding legal charges, adjusted EPS would have been $0.46, which was in line with our expectations.

Year-to-date adjusted free cash flow was $312 million. We remain on track to achieve our full-year guidance. Q2 average yield was 1.3%. This represents the fourth straight quarter of improvement.

Core price, defined as price increases less rollbacks, was 3.1% in the second quarter. Q2 volumes were positive, 0.9%. This represents a sequential improvement of 140 basis points. We expect to continue to see positive volumes in the second half of 2013.

Construction activity continues to improve. Temporary roll-off hauls were up 4.7% over the prior year and increased in most of our markets. As many of you know, the roll-off business tends to have a lower incremental margin.

Operating density resides in the commercial and landfill lines of business due to the higher level of fixed costs, but volume in these lines of business tends to lag. We remain encouraged by recent activity in the roll-off business, since it has historically led to a broader volume growth.

Q2 recycling facility tons increased approximately 4% over the prior year. We completed an upgrade to a single-stream recycling facility in Ohio and completed a new single-stream facility in the Dallas/Fort Worth market. Combined, these new facilities will add approximately 95,000 annual tons.

The year-to-date investment in acquisitions was approximately $33 million. These transactions consist of tuck-in acquisitions in existing markets. We anticipate completing our goal of investing $100 million by the end of the year.

Year to date we returned approximately $305 million to our stockholders through share repurchase and dividends. We repurchased 4.1 million shares for $135 million and have $189 million remaining on our share repurchase authorization, which we expect to complete in 2013.

In summary, the base business performed well, and we have now turned the corner on volumes. Our second-quarter results put us right where we thought we would be, and we remain on track to achieve our full-year adjusted EPS and free cash flow guidance.

Glenn and Ed will now discuss our financial performance. Glenn?

Thanks, Don. Second-quarter adjusted EPS of $0.43 excludes an $0.18 environmental charge for increased costs to remediate our closed Bridgeton landfill in Missouri. The charge primarily relates to increased costs to pump and dispose of leachate, which will be spent over the next several years. We are on track to complete the remediation plan.

Adjusted EPS also excludes a $0.10 charge for negotiation and withdrawal costs related to the Central States Pension Fund that were completed during the second quarter.

Second-quarter 2013 revenue was approximately $2.1 billion, an increase of $51 million from the prior year. This 2.5% increase in revenue includes acquisitions of 0.4% and reflects the following three components of internal growth -- pricing, volume, and recycled commodities.

First, pricing. We had an average yield growth of 1.3%, with positive yield in all lines of business. Average yield increased 10 basis points sequentially from 1.2% in the first quarter of 2013.

This level of pricing was in line with our expectations for the second quarter, and we remain comfortable with our full-year guidance of 1% to 1.5%.

We conform the terms used to describe pricing components to be consistent with other industry participants; what we previously called core price is now referred to as average yield. Average yield represents the year-over-year change in per unit prices expressed as a percentage. Our calculation methodology has not changed.

Additionally, we changed the term net price to customer to core price. Core price represents price increases to customers in fees, excluding fuel recovery, net of price decreases to retain customers. Again, our calculation methodology has not changed. Core price in the second quarter was 3.1%.

In addition, fuel recovery fees increased 0.2%. Most of the change relates to an increase in the rate charged to recover fuel costs, which went into effect in late Q4 2012.

Second, Q2 volumes increased 0.9% year over year. The collection business was positive 1%, primarily due to increases in industrial volumes. Growth in the industrial line of business was driven by temporary hauls, which were up 4.7% over the prior year.

Growth in collection volumes was partially offset by a decline in post-collection volumes of 0.6%. The decline is mostly due to lower levels of special waste at our landfills. Post-collection volume performance improved 420 basis points from Q1.

Third, a decrease in commodity sales resulted in a 0.3% decrease in revenue. Commodity prices decreased approximately 11% to an average of $110 per ton in the second quarter from $123 per ton in the prior quarter. This represents the average price for all commodity types for all regions.

Second-quarter recycling facility commodity volume of 554,000 tons was up 4% from the prior year. Current average commodity prices are approximately $109 per ton. For reference purposes, a $10 per ton change in commodity values equals approximately $0.03 of full-year EPS, which includes the impact on our recycling facility and collection businesses.

Now I will discuss year-over-year margin. Second-quarter 2013 adjusted EBITDA margin was 27.6% compared to 30.3% in the prior year, a decrease of 270 basis points. Most of the change relates to other SG&A expenses, which increased 140 basis points.

We recorded $17 million of legal charges for various matters in the second quarter versus a $12 million reduction in expense in the prior year. The year-over-year variance in expense was approximately $29 million.

The remaining change in margin relates to disposal, labor, and maintenance expenses, which increased 130 basis points combined. As Don mentioned, volume growth was concentrated in the roll-off line of business, which has the highest level of variable costs. These costs are impacted by changes in volume since they are direct means of providing service to the customer. Additionally, revenue mix impacted these costs as a percentage of revenue, since collection volumes increased, while post-collection volumes and commodity revenues both decreased.

The year-over-year impact of all other cost line items, which are listed in our 8-K filing, net to $0. I will comment on some of the line items, which include, first, fuel.

The 30 basis point improvement primarily relates to a higher percentage of natural gas trucks in our fleet. Currently about 10% of our fleet runs on natural gas. We will continue to replace diesel trucks with natural gas trucks where appropriate as part of our normal truck replacement cycle.

The average price per gallon of diesel decreased to $3.88 in the second quarter of 2013 from $3.95 in the prior year, a decrease of approximately 2%. The current average diesel price is approximately $3.90 per gallon. For reference purposes, a $0.20 change in diesel fuel per gallon is about $0.01 of full-year EPS, which includes the impact of our fuel recovery fees and fuel hedges.

Next, operating expenses. The 30 basis point increase in expense primarily relates to favorable items in the prior year. Other operating expense as a percentage of revenue was 3.5% in the second quarter and was consistent with our expectations.

Finally, SG&A expenses. SG&A was 10.8% of revenue, an increase of 120 basis points compared to the prior year. As I previously mentioned, this is due to a year-over-year change in the amount of legal expenses. Excluding incremental legal charges in the current quarter, SG&A expense was 10% of revenue, which was consistent with our expectations.

DD&A as a percentage of revenue was 11.2% in the second quarter of 2013 versus 11.4% in the prior year. DD&A is higher than capital expenditures as a percentage of revenue due to the amortization of intangibles.

Ed will now discuss interest expense, free cash flow, and selected balance sheet data.

Thanks, Glenn. Second-quarter 2013 interest expense was $90 million, which included $12 million of noncash amortization. Year-to-date adjusted free cash flow was $312 million, in line with our expectations. Adjusted free cash flow included net capital expenditures of $469 million or 56% of our projected full-year spend.

Cash flow can vary quarter to quarter based on the timing of capital expenditures and working capital. As Don mentioned, we remain comfortable with our original full-year adjusted free cash flow guidance of $675 million to $700 million, even with higher-than-anticipated environmental expenditures.

We now expect to receive cash tax refunds from prior years, which essentially offsets the higher spending for environmental remediation. We still expect to spend approximately $835 million for net capital expenditures in 2013.

Now I will discuss the balance sheet. At June 30, our accounts receivable balance was $877 million, and our days outstanding was 38 days, or 25 days net of deferred revenue. Reported debt was approximately $7 billion at June 30, and excess availability under our bank facility was approximately $1.5 billion.

I will now turn the call back to Don.

Thanks, Ed. I'm proud of the Republic team and how we are executing our strategy. We are making smart investments and accretive acquisitions. We are appropriately developing our recycling infrastructure. We are systematically converting to automated and natural gas-fueled vehicles.

We are maintaining our focus on multi-year initiatives designed to reduce costs and improve productivity. And we are growing units of service and reporting positive volume growth.

Our base business performance, highlighted by improving yield and volume growth, gives us confidence in our ability to generate strong free cash flow. This enabled us to increase our dividend approximately 11% and continues our track record of efficiently and predictably returning cash to stockholders.

We are focused on continually improving our business to generate consistent earnings and cash flow growth. And finally, we remain committed to an efficient capital structure, maintaining our investment-grade rating, and increasing cash returns to our stockholders.

At this time, Operator, I would like to open the call for questions.

(Operator Instructions). Hamzah Mazari, Credit Suisse.

The first question is just on guidance. Historically, you guys have raised guidance in July. It seems like the fundamentals are turning and getting better versus when you originally guided. Is it fair to say that you guys are keeping guidance the same because of the higher litigation costs in SG&A that you guys are going to flag as nonrecurring?

This is Don. I would say historically we've updated guidance at this point in the year. And we are seeing some good signs in the business. We talked about the positive trends in volume and the sequential improvement in pricing.

We also have -- the parts of the business that we are seeing growth in are in areas of construction. We're not necessarily seeing the kind of growth yet in service increases or growth in our commercial lines of business that give us more margin expansion. So at this time we think our guidance is right on. And we will take it through the year, and we will talk more about what we see after Q3.

That is fair enough. And just a follow-up on volume. Could you maybe talk about seasonality and whether you saw above-normal seasonality? I realize there may be some noise because of the weather, but maybe if you could address underlying seasonality that you're seeing in your business. Thank you.

We saw what we would call normal seasonality this year. The only things that were -- we did see a little wet weather, which led to some disposal weights being a little bit higher. And of course, we had a little bit of cleanup volume coming through from the tornado cleanup in Oklahoma City. But other than that, we would tell you that seasonality was normal for us this year.

Okay, great. Thanks a lot.

Al Kaschalk, Wedbush Securities.

I still don't understand; maybe you can walk us through it or parcel it out -- how EBITDA margin can be down 270 basis points year over year. I see some of the cost of operation items that look little -- pardon the expression -- a little inflated on a comp basis when you look at it year over year, meaning percentage of revenue, specifically like maintenance and labor and related benefits, but --.

Yes, so let me give you our view of it.

Can you just parcel it out?

You heard Glenn describe the legal charge. Right? That was the biggest single piece of that change. And that is -- let's call that a nonrecurring item.

We've had a little more labor and maintenance than maybe we would have expected, and the big maintenance initiative is actually working very well. It has taken us a little bit longer to move through the system and get the traction we're hoping for, but we're still very positive on that. So it's something that we think we will overcome, certainly in the next year.

Part of the margin frankly, still, the fact that we're still not -- while price is sequentially improving, we're still not getting price in exceedance of normal inflation. So we like the fact that price is on the move upward, but we're going to have to do a little more pricing. We're going to have to get a little more help from the economy to get that going in the right direction.

But we're on the right track. And again, directionally, we are pretty pleased with it.

Okay. So if I may try, the 270 -- I can probably attribute 140 of that to the legal charge; that is just $30 million for revenue.

That's right. So what you have left, split that between labor and maintenance. And then one other thing is disposal.

So one of the things that is happening is that we're seeing an increase in our container weights, but we haven't seen that increase in container weights convert yet to service increases. So we have probably described this to you before, but in our commercial small container business, as flat-rate customers begin to throw out more trash, they began to fill the container up more. And we end up hauling that extra trash for the same fixed revenue per month, and we don't get to charge for that until we get that extra service increase out of it. So our service increases right now are pretty flat.

So one of the steps we would hope to see in this improving economy is just that. We would like to see some service increases.

The other thing is, the growth that we're getting in the business is not coming in the parts of our business that have the benefit from density or the high fixed costs. As I said in my comments, it's coming in the area of the roll-off business, which has a high variable cost; and it's coming in some new contracts, some new residential contracts, but not contracts that lay over the top of our existing business. So as we see growth in our footprint where we build more density, then we will see that margin improvement from that, as well.

Just to follow up on -- I appreciate that color. That was helpful, Don. On the pricing side, absent the index-based business, can you shed some insight on market intelligence on pricing within competitive markets?

Well, let me just say this. We still think that the market is a rational market. We're out there every month with our price initiative in and around what we used to call rpm, that ratable process we use -- the 12 equal buckets, as we have described before. Our pricing efforts continue.

As far as things like customer defection or churn rates, things that we measure, those are very consistent with past periods. So we're not seeing any negative change there. But we're not maybe seeing enough positive change to reflect in even higher prices.

But as I've told you all along, our belief is that as the economy improves, as volumes improve, that pricing environment is going to improve right along with it.

Thank you, Don.

Adam Thalheimer, BB&T Capital Markets.

Could you expand a little bit on the trends you're seeing at the landfill?

Trends with volume?

With regard to volumes, yes.

Well, first, we have had the first quarter of positive MSW volume growth at our landfills since, I think, 2008, okay? So that's a pretty big deal. It's the first quarter. It's been an improving trend over the last 3 quarters, but the first quarter we've gone positive.

So C&D was a good month for us. A portion of that C&D volume came from, as I said, the Oklahoma tornado cleanups. But even that, we've seen a sequential improvement every quarter for the past 3 quarters in our C&D volumes. And we're seeing that in our roll-off business as well.

Pricing is reasonable at the landfill. We have not seen any real movement in landfill prices yet. We're hopeful that as volumes continue to increase, there's a little more opportunity to drive price through the disposal assets.

One of the things that I'm sure you know, over these last several years we've been very diligent with pricing correctly for these landfills. We have, over that timeframe, frankly, lost a lot of MSW volume, what we call open-market volume, to competitive landfills.

But our hope would be that -- so we have very little of that business left today in the open-market side of MSW in the landfill business. But we would hope that as, again, volumes return and improve that there could be some pricing upside there for us in the latter half of this year and maybe certainly by next year.

Okay, great. And then a bigger picture here, longer-term, where do you think -- you said you have now kind of turned the corner on volumes. Where do you think EBITDA margins can go as the volume cycle plays out?

All right, so it is really kind of the same old story. Think about our business inflation or cost inflation being somewhere -- call it 2% to 2.5%. We may get 50 basis points a year out of productivity initiatives around efficiency. And then we're left with 2% net inflation. We've got to get pricing exceeding inflation on a regular basis.

We are going to need some help from CPI. We need to see CPI regulate in some sort of normal fashion, and then that open-market pricing will follow. And in a normal environment, when we see household formation occurring, business formation occurring on top of that, building more units into our density, we think we will get back over 30%.

But it's going to require that pricing is exceeding inflation to do that. And it's going to require an improving economy to help us give a push. So we're doing everything we can to appropriately price our business and grow the business intelligently, but we are going to need a little more help from the economy to get back there.

Okay. Thanks, Don.

Joe Box, KeyBanc.

Don, I appreciate the comments earlier on price not outpacing inflation, and some of the comments on fixed-revenue customers. But it seems like things haven't really changed that much sequentially to where you'd actually see that much cost flow through operations.

I'm just curious -- can you give us a little bit more color on some of the bigger cost of operations buckets? Like labor and maintenance? Do you see them getting better leverage in the back half, or is it possible that they continue to grow at a pace that exceeds sales growth?

No, I don't think that. Again, as I said, also one of the comments I made is where we're getting some volume growth, it's not really happening. Again, when I talk about on top of our density, we're not seeing the growth in our commercial small container business within our route structure.

We saw some of the growth come in through some large commercial contracts, basically franchise contracts that required new trucks and new routes, not new customers on top of our current route base. So that's going to come at a normal margin, not at an expanded margin, because of the density.

Roll-off growth is really where we are seeing the bulk of our revenue or volume growth. And again, that's a lower-margin business. So we've got to see that growth happen in a more broad-based way across all lines of business. And then we will get that margin going back in the right direction.

Maintenance has been a little bit of a headwind for us all year. Part of that is due to our one-fleet initiative. We will anniversary that sometime next year, and that will start to go positive for us.

We've got a few little odds and ends kind of sneak up on us in cost, things like the costs related to the Green Fence initiative. So we are going to spend a couple of million dollars a year more in costs -- or a couple million dollars this quarter in costs to deal with that. So we're going to find a way to pass that back along in some kind of a price initiative with our customers, our recycling customers.

So we're dealing with those things. I think, again, the base businesses strong, evidenced by the fact that we raised our dividend. We've got a lot of confidence in the cash flow.

And as we get the economy working back for us, even a little stronger that it has, we will get the margin back to 30%. And if you net some of this stuff out, this kind of one-timer stuff, we are still 29% EBITDA margin, we think, by the end of the year.

Thanks for that, Don. That is it for me.

Corey Greendale, First Analysis.

I think, not to beat the dead horse, but I think it's still breathing a little bit. But I understand all the comments about the mix affecting the margin.

EBITDA dollars, though, are down year over year after adjusting for the legal charge. So I'm trying to figure out, since it sounds like MSW is growing; C&D at the landfill is growing; and yet -- I'm trying to figure out what is actually down. Is it special waste? Was there some relatively high-margin special waste last year that isn't there this year, and that is what is driving EBITDA dollars down?

Yes. Special waste is still not really a bright spot for us. We're down year over year in special waste volume; while we are up in C&D and MSW at the landfill, special waste is down. So yes, a lot of this, Corey, is just mix.

And I know that's an easy word to use to describe it, but there are a lot of small moving pieces in a big business, and a lot of it just is mix. And EBITDA dollars are down only slightly.

So I'm just telling you, we have confidence in the guidance; we have confidence in the 29% adjusted EBITDA margin that we talked about and getting some of these one-timers behind us.

I generally don't like asking one company about another, but since they started this pronounced difference, on one of your competitor's calls earlier this week, there was a lot of talk about strength at the landfill, and about how there is a lag between strength at the landfill and when they start to see that at the collection side.

It sounds like it's going in reverse for you. Can you talk about conceptually, just given past cycles, what you expect? Which of those two lags the other?

I can't really comment on what's going on in the other company's business. I would tell you a couple of things. Their business mix, their geography is different than ours. Their percentage of third-party volume versus internal volume is going to be different than ours. I really don't know enough about their business to comment.

Our business doesn't move very quickly. It moves fairly slowly. So we wouldn't expect to see very large increases in volumes or prices over one quarter or year-over-year basis.

So for us, we still believe that, again, the business overall grows with household formation that turns into business formation. We think it starts in construction volumes coming back. We think it then becomes an issue with business formation and new units of service being added by new small businesses coming into our route base and adding that small container business.

We think as consumer spending increases and more trash is created in our small container business, we will see service increases. And all of that happening within our dense footprint, which gives us some margin leverage. Again, then we think as volume returns, pricing gets a little bit easier from there.

So that is how we think the progression occurs. That is, frankly, how it has occurred for us historically. If their business model is that much different, then it may be different for them. But I really can't comment on that.

And then, of course, as I said in my earlier comments, we have been very persistent with landfill pricing in the open market over the last several years. We have, because of that, lost a fair amount of open-market volume at our landfills.

Those are -- when I say open market, call it competitive volume from other waste haulers who have chosen to take their waste to another landfill. We have a very small portion of that now -- business made up of our landfill volume in total.

So we're not going to get the benefit of any volume growth that might come through competitive volume that way. And maybe another competitor might.

So somebody has got that volume. It is no longer in our landfill. So all those mixes are different, Corey. So we don't spend a lot of time worrying about how they are going to grow their business as much as we worry about how we are going to grow ours.

No, I was looking for a perspective on yours. That's helpful. Thank you.

Michael Hoffman, Wunderlich Securities.

Nice job on the dividend, thanks. So just so I get it, all right, so I understand it -- the mix changed, and it's higher variable cost. And that drives up labor, disposal in your subcontractor.

Help me understand what you're doing to get your hands around that 10% increase in maintenance, though. I'm still struggling with that a little bit. I get the one maintenance program, the One Fleet program, but 10% seems a lot.

Well, there's a number of things there. One, the fleet is changing. The fleet is changing through automation. The fleet is changing with CNG. Even clean diesel engines compared to the old trucks before that -- the clean diesel engines came on. All those trucks are really, frankly, a lot more costly to maintain.

So we are seeing some maintenance increases, even where One Fleet initiative is not underway. The One Fleet initiative is driving up costs in the business, but we think it is going to anniversary and start to come down as we get through -- start to get into the second half of the fleet next year.

So we are seeing benefits from One Fleet. The divisions that have gone through One Fleet have experienced a 19% reduction in downtime -- the ones that have gone through it at the beginning waves. The local fleets that have gone through it recently haven't started to see any benefit yet. They're still spending money.

The fleets that have gone through it in the intermediate, the second or third wave -- they are starting to see some benefit today. So this is just a matter of working through the fleet in its entirety -- getting that culture built into our business; getting the durability in the fleet processes; and then getting that benefit in reduction of downtime, reduction in unscheduled maintenance, better service standards, fewer missed pickups, better driver morale, blah blah blah. And hopefully, even more opportunity to please the customer and have the customer be willing to pay us a little bit more for the service over time.

So that's our hope. And that, frankly, our strong belief. And even though this thing has cost us a little bit more, we're more determined and more convinced it's the right thing to do than ever before.

So we are going to see the benefits accrue in One Fleet and in maintenance starting next year. And we're determined to make the fleet at Republic Services a world-class fleet in the process.

Okay. And then you made a comment about container weights, which I think is important, that on the commercial business you're clearly seeing an uptick. Can you characterize that as well as that positive MSW?

What was the nature of the percent change? And in light of that, what is your feeling about the service interval upgrades, either the extra day or the bigger container? Where are -- how far out is that? A quarter or two?

Yes, well, maybe it is a quarter or two. 2% is the increase in container weights. So we are very watchful now for that increase in service frequency, and we're talking to our drivers and front-line people to be on the lookout for that.

We know which customers at some point in the recent history went from 4 days a week to 3 days a week. And we're hopeful that at some point we will get them back to 4 days a week. That's when we can charge for the additional service.

In the meantime we charge for garbage on the ground or garbage over the top, and those kind of things. And so a 2% container weight increase is a good thing. It's the first time we've actually seen this kind of a move in a long time.

Up until now, every quarter we get a question something like this, and we keep saying, well, it is flat; it is bumping across the bottom; no change, no change. Well, we've got a change here that we're watching pretty closely now. We're excited about that turning into service increases and ultimately then, again, more revenue within our density. And that's where, again, we get the benefit.

In the meantime, it costs you money, because you're not able to charge any more for those additional pounds in the container, again, until you get to the added service day. So it's something that we will talk with you more about next quarter as it develops. And hopefully it's something that we see developing quarter by quarter after this as this economy slowly crawls back.

Thank you.

Alex Ovshey, Goldman Sachs.

On the volume side, pretty good performance, almost up a percent. Even though I believe you had a couple of difficult comparisons with just some lost business that you still haven't lapped.

I think we have lapped it all, just about.

The large national contract we lost anniversaried on May 1. And then the last of the disposal contracts anniversaried on June 30.

All right. So I stand corrected.

Okay, yes. I was just wondering, if you were to adjust for that, what is sort of the true underlying run rate for volume? Because clearly it should be a little bit higher than 0.9%?

Alex, it probably would have been 1% plus this quarter's volumes. Maybe somewhere between 1% and 1.2%.

Okay, thanks, Ed, for that. And then the second question, do you guys think the weather impacted volumes at all for you? In certain parts of the country, we certainly had some wet/unseasonably colder weather for the Spring. You think that had any impact on the business?

Yes, we haven't talked about weather, other then we obviously had some rain that led to some increased disposal costs; also, some disposal revenue at the same time. Maybe a little bit, but probably not enough to talk about on the call.

I got you. So it seems like a wash.

And then just last question, any thoughts on how OCC prices trend for the balance of the year?

If we look at OCC pricing right now, it's about -- well, total commodities in all regions are $109 a ton. Seasonally we're probably just past or we're in the process of passing peak OCC pricing. This is when packaging or box manufacturers need to get product for the year-end holiday season.

So what we do is as far as planning for commodities, we assume it is going to be flat for the full year. When we gave our guidance back in February, we assumed commodities would be $112 a ton -- all commodities, all regions. And we bumped around that number for most of the year. So I guess our expectations built into the guidance are assuming flat commodities for the rest of the year.

Great. Thank you.

Bill Fisher, Raymond James.

Just quickly on the environmental accruals you have had, I guess, last 3 quarters on the landfill side, Ed, I think you mentioned you are spending some this year on it. Is a lot of that spending this year or next year? How would you think about that?

A good piece of it, Bill, is this year and next year as we put in a water treatment plant on-site. But overall, these are costs that will be incurred over the next 35 years.

Okay. So a lot of it is spread out.

And then, Don, you mentioned special waste has been soft. Do you see any better bidding activity in the second half, or how would you characterize that?

Well, we're only slightly into the second half, so we are always hopeful. But it's been fairly competitive out there for special waste.

So we would like to think that as, again, as the economy improves, behavior improves with it, customer sentiment improves along with that, and people start to get maybe a little more confidence in the economy, and pricing power will persist.

So we will keep doing what we do. And we will watch closely to see what our competitors do in local markets. And we'll see the second half unfold.

Okay, great. Thank you.

Jeff Osborne, Stifel Nicolaus.

I just wanted to understand in further detail the roll-off side, and if you can take a guesstimate on what the impact was to the EBITDA margins with the mix shift. I understand all the rationale, but am I thinking about it correctly, that that is a low 20s EBITDA business? And as that flowed through, that was the impact there relative to some of the other weaknesses on the higher profitability pieces?

Yes, this is Don. You are probably right. Sort of the low 20 margin on the C&D business. Remember, again, this is point-to-point service. We don't get that benefit of productivity gains and density gains in that business.

And then the rest of it is just a lot of mix. So, again, we're very happy to have that volume. And we're hoping that volume turns into, again, a broader recovery in the other lines of business that will give us that net margin expansion. As new business comes in on top of our normal business, call it the small container part of our world, that's going to come in at a higher margin, and we start to see more landfill volume, we could see a blended 40% margin on that blended business coming back.

I understand. And just last point on the roll-offs, any comments on geographically where you are seeing the strength, or what the cadence was through the quarter, factoring out the Oklahoma City issue?

Yes, we really saw it everywhere. We saw C&D temp hauls pick up across all 3 of our regions pretty consistently. So, again, we would view that as good news, as being a broader-based recovery in the quarter.

Great to hear. Thanks for the details.

Barbara Noverini, Morningstar.

So Q2 recycling volumes are up 4%. Thanks for reporting those numbers, by the way.

How much of this growth would you say is organic -- so customers recycling more per stop than last year, that kind of thing, versus the product of capacity you might have added in the quarter, and maybe even volumes you acquired in the quarter?

Yes, most of that is driven from new recycling facilities we brought online.

Okay. What --.

So I would say -- and then we've seen this consistently. As we put in new facilities, we've driven more volume to recycling as a result of that.

Okay, great. Thanks very much for that detail.

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

Thank you, Holly. I would like to thank all Republic employees for their hard work, commitment, and dedication to operational excellence and creating the Republic way. Thank you for spending time with us today, everyone, and have a good evening.

Ladies and gentlemen, this concludes the Republic Services conference call for today. Thank you for your participation. You may now disconnect.