Republic Services Inc (RSG) 2013 Q4 法說會逐字稿

Good afternoon and welcome to the fourth quarter and full year 2013 call for investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Today's call is being recorded and all participants are in a listen-only mode.

There will be a question-and-answer session following Republic's summary of quarterly earnings. (Operator Instructions).

It is now my pleasure to turn the call over to Mr. Lang. Good afternoon, Mr. Lang.

Thanks, Angie. Welcome and thank you for joining us. This is Ed Lang and I would like to welcome everyone to Republic Services' fourth quarter and full year 2013 conference call. Don Slager, our CEO, Glenn Culpepper, our CFO, and Brian DelGhiaccio, Vice President of Investor Relations, are joining me as we discuss our 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 that 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 February 6, 2014.

Please note that this call is the property of Republic Services, Inc. Any redistribution, retransmission or rebroadcast of this call in any form without express 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 on 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 webcast of the event.

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

Thanks, Ed. Good afternoon, everyone, and thank you for joining us as we discuss Republic Services' 2013 performance and 2014 guidance.

I am pleased to report our fourth quarter and full year performance exceeded our financial guidance. The Republic team continued to execute on our long-term strategy and maintained our track record of generating strong free cash flow. We are managing the business for long-term success, including investments in growth, acquisitions, and productivity improvements after reinvesting in the business and consistent with our approach to cash utilization, we returned the majority of free cash flow to our stockholders.

I will now discuss some of our financial highlights.

Fourth quarter adjusted EPS was $0.53. These results include $0.03 of favorable development in insurance claims cost, and $0.03 of reduced environmental costs. Full year adjusted EPS was $1.97. We achieved the upper end of our guidance range even without the $0.06 of favorable items recorded in the fourth quarter. This level of performance was in line with our expectations and consistent with the guidance we provided on our third-quarter earnings call.

Full year 2013 adjusted free cash flow was $714 million, which exceeded our guidance of $675 million to $700 million. This level of performance continues to demonstrate the strong cash flow characteristics of our business.

Full year 2013 EBITDA margin was 29%. The improvement in our second half 2013 margin performance includes an increase in landfill special waste which was lagging during the first half of the year. Core price in the fourth quarter was 3.4% and our average yield was 1.3%. We continued to see better price contribution from the open market to offset lower CPI-based price resets.

Fourth quarter volume increased 2.5%. Volume growth continues to be concentrated to C&D rolloff, national accounts and landfill special waste.

Throughout the year we discussed our multiyear initiatives that enable us to execute our strategy. These initiatives are designed to profitably build a business, enhance the customer experience and improve productivity, and reduce costs.

I will now recap our progress made during 2013. The investment made in acquisitions was $82 million. We acquired approximately $60 million of revenue at post synergy EBITDA multiple of approximately 4.5 times. These transactions consist of tuck-in acquisitions that layer in well to markets we already serve. We completed several privatizations of municipal solid waste services during 2013 with additional total annual revenue of approximately $17 million. These are profitable growth opportunities for Republic while lowering costs and mitigating risks with municipalities.

we increased recycling capabilities by investing approximately $30 million in developing and upgrading our recycling centers during the year. 2013 recycling facility tons per day increased 8.5% over the prior year. Most of the increase relates to recycling facilities that have been added or upgraded over the last four quarters.

We continue to invest in our CNG fleet and natural gas infrastructure with 12% of our fleet now operating on natural gas. During 2013, about 50% of the trucks purchased were fueled by CNG. 66% of our residential fleet is now automated which was in line with our year end goal. Automation creates a safer work environment for our employees, improves driver productivity and reduces labor costs. Approximately 45% of our fleet has completed our One Fleet maintenance initiative. And our maintenance costs headwind continues to abate. We expect to have 50% of the fleet completed by mid-2014, at which point we will start realizing benefits.

Finally, our cash return to owners was approximately 4.7%. Dividend payments during the year were $349 million and we repurchased 6.5 million shares for $214 million.

I am proud of our achievements during 2013, which is reflected in our strong performance. I want to thank the entire Republic team for their hard work and execution. Glenn and Ed will now discuss our financial performance. Glenn?

Thanks, Don. Fourth quarter 2013 revenue was approximately $2.1 billion, an increase of $113 million from the prior year. This 5.6% increase in revenue includes acquisitions of 60 basis points and reflects the following (technical difficulty) components of internal growth. Pricing, volume, and recycled commodities.

First, pricing. We had an average yield growth of 1.3%. Fourth quarter average yield was consistent with our third quarter performance and in line with our expectations. Core price in the fourth quarter was 3.4%. As a reminder, core price is defined as price increases to customers and changes in fees, excluding fuel recovery net of price decreases.

Average yield in the collection business was 1.2% which includes 2.8% yield in the industrial business and 1.6% yield in the commercial business. Average yield in the post collection business was 1.9% led by landfill, which increased 2.1%. We continue to see better open market pricing to help offset lower CPI-based resets. As a reminder, 50% of our revenue has a contractually based pricing restriction and a majority reset in the second half of the year. Fuel recovery fees increased 0.2%. Most of this change relates to an increase in the rate charged to recover fuel costs.

Second, fourth quarter volumes increased 2.5% year over year. The collection business was positive 1.1%, primarily due to an increase in the industrial volume. Growth in the industrial line of business includes C&D and other temporary activity which was up 6.4% and the permanent business was up 3%. The post collection business, consisting of third-party landfills and transfer station volume, was positive 6.4% which includes an increase in landfill special waste of approximately 18%.

Special waste landfill volumes began to slow in the second half of 2012, which created an easier comparison. Our landfill MSW volumes were down 2%. Our defection rate, which represents the annualized rate of customer turnover, remained stable at approximately 7%.

Third, an increase in commodity sales resulted in a 1% increase in revenue. The increase in commodity sales reflects both higher prices for recycled commodities and an increase in tons sold. Commodity prices increased approximately 6% to an average of $116 per ton in the fourth quarter from $109 per ton in the prior year. This represents the average price for all commodity types across all regions.

Fourth quarter recycling facility, commodity volume of approximately 600,000 tons was up 13.6% from the prior year. Most of the increase relates to additional national accounts brokered volumes. We saw a 6% increase in tons sold at new or recently upgraded facilities, which was partially offset by a [MRF] we closed that was not earning an adequate return.

Current average commodity prices are approximately $110 per ton. For reference purposes. a $10 per ton change in commodity values equals approximately $0.03 of full year EPS which includes the impacts on our recycling facility and collection businesses.

Now I will discuss year-over-year margin. Fourth quarter 2013 adjusted EBITDA margin was 30.3%, compared to 28.2% in the prior year, an increase of 210 basis points. As Don mentioned, there were favorable environmental and risk insurance savings that added $0.06 of EPS and reduced cost by approximately 170 basis points compared to the prior year. Even without these items, total EBITDA dollars increased and margin expanded 40 basis points in the quarter.

Our full year adjusted EBITDA margin was 29%. The margin contribution from the reduced insurance and environmental cost on our full year performance was approximately 40 basis points. Our full year EBITDA margin performance was approximately 28.6% excluding, these items.

I will now discuss the change in specific cost categories for the fourth quarter of 2013 compared to the prior year. First, labor cost improved 30 basis points. This was primarily due to higher levels of special waste received in the quarter, which added very little incremental labor and expense.

Maintenance and repairs increased 30 basis points. The increase primarily relates to implementation costs associated with our One Fleet maintenance initiative, and a general increase in the cost of repairs due to increased truck complexity and enhanced emission controls.

As Don mentioned, we expect that 50% of the fleet will be -- will complete our standardized maintenance program by mid-2014. We are confident that we can cost-effectively extend the usable life of our fleet by approximately one year once the majority of vehicles have been certified. We estimate this will reduce future capital requirements by approximately $200 million spread over a four to five year period beginning in 2015.

Transportation and subcontract costs increased 50 basis points, which primarily relates to growth in the outsourced portion of our national accounts business and the incremental special waste volume. In the national accounts business, we employ subcontractors to perform a portion of the work. While incremental EBITDA margin on this work tends to be in the mid-single-digit range, this work generates additional free cash flow and has attractive returns since it has very limited capital requirements.

For special waste, there is often additional third-party transportation to deliver the volumes to our landfills.

Next, fuel. The 70 basis point improvement primarily relates to a higher percentage of natural gas trucks in our fleet. Currently about 12% of our fleet runs on natural gas. We will continue to replace diesel trucks with natural gas vehicles where appropriate and as part of our normal truck replacement cycle.

The average price per gallon of diesel decreased to $3.87 in the fourth quarter from $4.02 in the prior year, a decrease of approximately 4%. The current average diesel price is approximately $3.95 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 our fuel hedges.

Landfill operating costs improved 80 basis points, related to the favorable reductions in environmental liabilities. We do not expect savings of this size in future periods. Risk management costs improved 80 basis points. Most of this change relates to a decrease in outstanding claim costs as determined by our actuaries.

We have focused on claims management to reduce the ultimate cost of our claims. The magnitude of this benefit should be viewed as a unique event although we continue to look at ways to further reduce costs through ongoing safety initiatives and an effective claims management process.

Cost of goods sold increased 70 basis points and increased to an average of $40 per ton from $28 per ton in the prior year. Most of the change relates to brokering recycle commodity volumes on behalf of our national accounts customers. The return on this business is attractive since there are limited capital requirements.

Finally, SG&A expense was 9.8% of revenue, an improvement of 40 basis points compared to the prior year. Total SG&A dollars were relatively flat with the prior year on revenue growth of over $100 million.

DD&A as a percentage of revenue was 11.5% in the fourth quarter versus 11.6% in the prior year. The 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. Fourth quarter 2013 interest expense was $90 million, which included $12 million of non-cash amortization. For our full year 2013, effective tax rate was 36.5% of adjusted earnings and was impacted by favorably closing out open tax years under audit and realizing additional federal and state credits on our 2012 tax returns.

In 2014, there were two tax-related changes resulting in a $0.13 EPS headwind. First in 2014, we expect to return to our normal statutory effective tax rate of approximately 39.5%. When compared to the 36.5% effective rate in 2013, this results in an EPS headwind of approximately $0.11.

Second, during 2013 we realized alternative fuel tax credits under a provision of the IRS tax code. Similar to bonus depreciation, Congress did not extend this provision beyond 2013. The expiration of the fuel tax credit results in a $0.02 EPS headwind.

Full year 2013 adjusted free cash flow was $714 million. Adjusted free cash flow included net capital expenditures of $856 million. With the expiration of bonus depreciation at the end of 2013, we expect cash taxes to increase approximately $60 million in 2014. Our 2014 adjusted free cash flow guidance range of $675 million to $725 million is relatively consistent with our 2013 performance. We expect to overcome the cash tax increase with growth from the business and reductions in capital spending.

Finally, I will discuss the balance sheet. At December 31, our accounts receivable balance was $891 million and our days sales outstanding was 38 days or 25 days, net of deferred revenue. Reported debt was approximately $7 billion at December 31. And excess availability under our bank facility was approximately $1.5 billion.

I will now turn the call back to Don.

Thanks, Ed. Before closing I will provide 2014 financial guidance. We expect 2014 adjusted earnings per share to be in a range of $1.93 to $1.98. Excluding the $0.13 of tax-related items this represents mid- to high-single-digit earnings growth.

Our guidance assumes that fuel and recycle commodity prices remain at current levels for the full year. We anticipate 2014 adjusted free cash flow in the range of $675 million to $725 million. This level of performance is relatively consistent with 2013 even though we have to overcome a $60 million increase in cash taxes.

We expect annual revenue growth of 3.5% to 4.5% which includes average yield of 1% to 1.5%, volume growth of 1.5% to 2% and contributions from acquisitions of approximately 1%. Our expected yield performance is relatively consistent with our 2013 performance. We expect a step down in CPI price resets offset by higher levels of price contribution from our open markets. Our expected volume performance anticipates construction and business activity will continue to improve, partially offset by a modest decline in our residential business. Pricing levels from municipal bids and residential subscription work continues to be challenging and we will only renew business if it meets our return criteria. We anticipate 2014 EBITDA margin of 28.5% to 29%.

As Glenn mentioned our full-year EBITDA margin in 2013 was 28.6%, excluding the favorable insurance and environmental items recorded in the fourth quarter. Our 2014 EBITDA margin guidance is consistent with or slightly up versus the normalized 2013 performance. 2014 net capital expenditures are expected to be approximately $820 million.

During 2014, we will continue to focus on managing the controllable aspects of our business by enhancing the quality of our revenue, investing in profitable growth opportunities and reducing cost. We will enhance the quality of revenue by identifying customer segments and targeting those willing to pay for our higher quality service offering, focusing on the customer experience to differentiate our service offering and build customer loyalty, improving pricing decisions made by our sales team at the point of sale using upgraded ROI-based pricing tools, enhancing controls for new business sales and service-level transactions, better aligning sales incentive programs, and increasing fee participation rates in our cost recovery programs.

We will continue to profitably grow the business through acquisitions, municipal privatizations and building capabilities to capture growth and diversion.

We will continue to manage our cost structure by automating residential routes to reduce labor costs, improved driver productivity and create a safer work environment, lowering our cost of fuel and reducing initiatives through conversion to CNG vehicles, standardizing maintenance practices and processes to reduce costs, and leveraging SG&A expense. Collectively we anticipate these cost initiatives will lower our cost structure by 75 basis points to 100 basis points over the next three years.

The long-term business fundamentals and strength of our assets has not changed. We still believe that pricing levels exceed cost inflation under normal business conditions. We gain operating leverage and increased density with broad-based volume growth. We can differentiate our service offering through superior customer service, world-class safety and employee engagement.

We can maintain our pace of tuck-in acquisitions in existing markets. Margins can expand through cost efficiencies, productivity improvements and leveraging SG&A expense. And finally return on invested capital can steadily improve through earnings growth, capital spending controls, and investing wisely in the business.

Our team remains focused on executing our strategy to deliver consistent earnings and cash flow growth. We are committed to an efficient capital structure, maintaining our investment grade rating and increasing cash return to our shareholders.

At this time, operator, we will open the call for questions.

(Operator Instructions). Hamzah Mazari, Credit Suisse.

Good afternoon. The first question is on the gross margin. Could you give us a sense, Don and Glenn, what type of incremental margins are you seeing on the volume growth that you are getting? We had talked about a 40%, mid-40% incremental EBITDA margin a year ago, maybe more. And then within that gross margin that you guys reported, is that $0.06 favorable number that you quoted on insurance claims, $0.03 and $0.03 on environmental costs? Is that in the gross margin line as well?

I will take the second question first. The $0.06, yes, that is in the gross margin line. So our gross margin for the fourth quarter was 30.3%. If you take out those two items, our gross margin would have been about 28.6%.

Sure and I will take the first question. So, first, remember we have got some mix issues going on here, so some of the growth -- a lot of the growth is coming from national accounts which, as you know, a lot of that revenue is tied to subcontractor work and some of this brokered recycling tons. So that comes at a lower margin, but still a good return.

And then the other big part of growth is coming from construction, C&D [temp] hauling. So I will tell you that we still use our ROI-based pricing tools and all of the decisions that we make to grow the business. So whether it is a small commercial customer or unusable bid or large national account, in all the price sheets we use for our C&D hauling in our local markets was all based on improving ROI.

So we know that as we build the density of the business and continue to make good ROI-based decisions, we are growing the business profitably.

Great. And just a follow-up question, I will turn it over. You talked about open market pricing offsetting lower CPI. Any change you are seeing in terms of discipline or rationality amongst either the majors or privates this quarter, relative to last quarter or previously? Thank you.

Okay. I don't think there is much of a change to what we have seen previously. I think the larger companies tend to be from what we can see still more ROI-focused and tend to be more rational. Smaller players do tend to fly underneath the price umbrella that's provided by larger companies and those trends have continued and are not very surprising.

Great. Thanks a lot.

Corey Greendale, First Analysis.

Good afternoon. Don, question on the guidance with the EBITDA margin. At the low end you are suggesting it could be flat to down slightly. You have been very clear about tough to get a lot of margin expansion in the low CPI environment, but you also pointed out the benefit of density from growing volumes. So is the low end just conservatism or what could happen that would result in hitting the low end of the EBITDA margin guidance?

Well, our guidance is 28.5% to 29% EBITDA margin. And for both the fourth quarter and for the full year on a normalized basis, I think we said that it was 28.6%. So in fact, our guidance range is relatively even to up from 2013.

okay so it sounds like the low end is just being conservative if I am hearing you right. So --.

I would say it is a fair bridge from where we were in Q4. You know Q4 had a lot of special waste as we said, so that was one of the reasons Q4 performed as well as it did. So special waste is a little bit lumpy. That is not going to carry right into the first part of the year, and it is going to probably be more evenly spread out through 2014. At least, that is what we anticipate.

And it sounded like the residential line of business is somewhat of an outlier in terms of the pricing discipline. Can you talk about why you think that is different given volume trends overall and what you are seeing there?

Well, the same conditions exist in residential that have existed for the last couple of years. You know you have got municipalities that are not in, say, a very healthy state of general finance and so they are really pressuring haulers. You have seen -- we have seen a little bit of more of a challenging environment at least in some markets from pricing activity for new bids and extensions on business. So that has been challenging.

I just think we are at the bottom of that cycle and hopefully working our way out of it. We are going to work through the rest of this, let's say, repricing some of those residential contracts. And we look for CPI to improve over the long run. I don't think anybody believes that CPI is going to stay as low as it is forever.

So the 25-year average of CPI is 3% plus and I think as we go forward here another year or two, we should see start to get some relief on and get back to some normalized CPI environment. And that will help things out as well.

And I would say one more thing is, I think occasionally you see spikes in parts of your business. Right now, as I said maybe a little more competitive in some markets and, as I said in my comments, we just decided that we are just not going to price below a reasonable return on that business. And so at some point I think competitively things will have to change, because I don't think people can continue to do some of that business as cheaply as they are doing.

I don't think anyone would argue with the approach you are taking. Thank you.

Adam Thalhimer, BB&T Capital Markets.

Good afternoon, guys. Nice quarter.

Thank you.

Wanted to ask first about the C&D business. Are you seeing any margin improvement in that business?

Yes, absolutely. Our industrial line of business that we have seen, it is really a nice story. We have seen year-over-year growth in units, year-over-year growth in price per unit and as a result year-over-year improvement in margin. So just as it should occur. And we talked about this on our Q3 call as we saw that part of our business turn up and we expect that to continue through 2014.

Then I wanted to ask about the commercial business. I think you said that you see it as a slight positive in 2014. Can you expand on that? I think in recent quarters you talked about some green sheets in terms of commercial volumes. What are you seeing there?

Well, commercial volume is absolute units is up. Margins are pretty stable there. We continue to have pretty good pricing in the open market commercial, instead that offset some of the price headwinds in our CPI-based pricing book of business. What we haven't seen is a dramatic increase in service levels.

But I would say that if you draw -- if you did an eight quarter chart and drew a straight line through service increases and service decreases you would say that it is an improving environment across both of those metrics over an eight quarter period. So we would look for that to continue in 2014. At what rate we can't necessarily forecast, but we look for it to continue to improve.

Okay, thanks. Congratulations again.

Joe Box, KeyBanc Capital Markets.

Good evening. Can you put a little bit of color around the $35 million reduction in net CapEx? Just kind of curious that more asset disposal, maybe spending a little bit less on recycling, or just maybe an early benefit of One Fleet.

Yes, I would say it is a couple of things. You know, we pulled a little bit forward into 2013, lot of few trucks early and we are spending a little less on recycling buildouts in 2014 than in the last two years. Again, we are still reworking a number of facilities in 2014, but some of those projects just aren't as capital-intense as the ones we took on last year and the year before. So we are still moving our recycling platform forward. It is really those two things combined.

Okay, that's helpful. Then it has been about a quarter since [Plante] has closed. Can you maybe give us an update on the fundamentals in that market?

Yes, I would say it really hasn't helped us much. We probably have gotten a little bit of revenue out of it, but nothing to make a headline out of. We are -- we are the best situated landfill in that market and so we tend to be the highest priced because of the convenience factor. We are not predisposed to lower our rates to attract volume and I will tell you that most of the volume has found its way to Orange County to the county site.

Understood. All right, thanks.

Michael Hoffman, Wunderlich.

Nice job on the year end.

Thanks, Michael.

Can you talk about the --? What is it you measure to manage when you are talking about your standardized maintenance program and the things you will be looking for that deem it success? And you have lapped yourself on some of this already, so are those metrics in fact proving to be valid and therefore that's what gives you confidence about ongoing success?

Sure. Well, we measure a number of things both in maintenance and directly fleet metrics and non-fleet metrics. So we measure absolute cost per hour as a baseline. I would tell you that some of our divisions were spending money poorly and having high cost per maintenance that we can bring down. Some were spending money, not enough money, and having more breakdowns and major component failure and so their baseline cost per hour was maybe lower than is reasonable and those divisions are going to have a higher cost per hour, but have a better end result.

So we look at total maintenance spend per route and those kinds of things, but we also look at driver downtime. We look at how many hours per week trucks were sitting on the side of the road broke down because of component failure. We look in the pure metrics of running the shop, we look at what percentage of our repairs are scheduled versus non-schedule. A world-class fleet would operate as about 80% of the work scheduled so those repairs being not only preventative maintenance, but things that you are supposed to catch during preventative maintenance and during routine maintenance checks and during routine driver checks of their trucks.

So we are catching things before they break. Things are being scheduled appropriately. Our technician time -- you know we moved to a format of standard repair times across our fleet. So our technicians know exactly how much time we expect those repairs to take and we better manage our workforce on the floor of the shop.

We measure inventory levels so every one of our maintenance, our One Fleet rollout has resulted in a substantial drop in our parts inventory that we use at every facility. Spare truck ratio at some point, I mean we are starting to see the earliest fleets that have gone through this lower their spare truck ratio. Once they have confidence that their uptime is going to improve fleet availability improves then we have sort of the ability to let go of some of those spares and reduce costs that way.

On the non-fleet side, we have got driver productivity. We have better customer service metrics. We rolled out customer service metrics across the entire Company last year in every division, measuring their missed pickups and also their performance against the commitments they made to customers. And those metrics improve when the fleet improves. So we think that, at some point, translates into better quality revenue and customers willing to pay a little bit more because our service level has increased.

After all that is said and done, you are going to get into improvement in driver morale and employee turnover which we haven't really measured much. That is kind of the softer side and then, ultimately, we have talked about this $200 million of CapEx reduction. So starting in 2015 we are going to age the fleet by one year over a four- to five-year period and that is going to save us $200 million.

So we are going to get all that paid back by the investment we have made in just the CapEx change alone. On top of that, we are going to be a higher performing company at every division with better employee engagement, better customer satisfaction scores across the board. How's that?

That's great. Thanks.

Then second one, Glenn or Ed, cash flow from operations, you are about -- 1.58 -- $1.55 billion this year. It looks like that number will be down if I just do the simple capital spending plus the midpoint of the free cash flow. So is -- what is -- is that you're having some negative working capital swing here? What is happening there and why would we see an incremental negative working capital spend particularly in light of everything Don just talked about? I would think it would go the other way.

It's really just cash taxes, Michael. It will be up significantly next year due to the expiration of bonus depreciation. That is a $60 million headwind.

Okay. Then one housekeeping item. What is the share count you are you using when you gave your guidance?

Around 660 million shares, the exit point, Michael.

I'm sorry, you broke up, Brian.

It is about 360 million shares was about our year end share count.

Okay, great. Thanks.

Alex Ovshey, Goldman Sachs.

Don, I will ask you about pricing (inaudible)? Can you talk about how you see pricing on the collection side average yield as you guys term it, the trend relative to the landfill side?

To the landfill side?

Yes, could you talk about how you see pricing on landfill relative to the collection side in 2014?

Yes, I would say landfill specifically MSW landfill trends, you know, have been down, have been sort of flat for us. I think special waste has trended up and C&D at the landfill has trended up. MSW has been a little bit pressured. We have consistently been raising prices at landfills. Lost some MSW volume along the way as we've talked about that trend continuing in Q4.

But total landfill in Q4 yield was 2% down a little bit from Q3. I would say flattish throughout the rest of the year. So --.

Yes, got it. Thanks for that. Then on the industrial side, can you talk about what is driving the improvement in to volume? Do you have a sense if it's the new residential construction [market repair] remodel, the nonresidential construction market? Do you have a sense of sort of how the end markets are performing certain of given what you are seeing in the industrial business?

Well, first, I would tell you that both permanent, our permanent rolloff and our temporary rolloff, are both up in Q4. We don't really make a distinction between residential construction and commercial construction because it really doesn't mean anything to us and how we run our business. So we don't have metrics to share with you there.

As I shared before, I mean it was up pretty dramatically in Q3 and performed well in Q4. We expect it to maintain that kind of trend in -- or through 2014. So it is a bright spot for us and what we have all been waiting for and we all have said for many years, the business, the business sort of builds around household formation. So as we see more new home construction and then we see more business development around that new home construction business formation come in, then that is going to fuel the commercial business as well.

So it is happening the way we thought it would happen. Maybe took a little longer to get started, but we are looking forward to a pretty good trend in 2014.

Thank you.

[Derek Spragna], Macquarie.

Wanted to dig in a little bit here. Over the last couple of quarters you have seen volume growth 2.5, 2.7% and then the overall guidance for 2014 in the 1.5% to 2% range. Is that really just a function of what we have seen over the last couple of quarters with the specialty waste and the C&D coming on?

That is the biggest factor there, Derek. If you look at our 2.5% in the fourth quarter special waste, landfill volumes drove about 90 basis points of that and our collection business, which is 75% of our revenue, was 1.1% growth in volume. So we would see ourselves as continuing to grow all of those things, but the special waste had an easier comparison in the fourth quarter this year compared to last year and that is what really drove the 2.5%.

Okay and just one more. Last quarter you guys bumped up the repurchase authorization and then were pretty quiet in Q4. Was that really just a function of the -- pulling forward the CapEx into Q4 and, specifically, if you could talk a little bit more about appetite for buybacks in 2014? Thanks.

I would just tell you that we are committed to the buybacks and that has been pretty consistent in our history and we are committed to buy back in 2014. We think we have had probably the steadiest trend in the industry on cash yield. You are going to see us continue to spend on the buyback in 2014. It could be probably around $400 million or so.

Great. Thanks very much.

Al Kaschalk, Wedbush Securities.

Don, Glenn, I just wanted to clarify. Did you say total price in 2014 was being guided 1% to 1.5%? Or was that core price?

That was yield.

Yield. Okay. So, help me appreciate -- I fully get the CPI mix headwind. I heard your comments about competitive markets may be easing and your churn being relatively consistent to flat. Why -- it still doesn't sound though that we have got healthy or improving competitive markets. Because I would think that would list that pricing guidance that you provided.

So, are you not able to get to the market with a better price given defending volume or what is happening there? Or is it mix?

Well, let's start with the big headline (technical difficulty) is actually going, is going to impact us negatively in 2014. So that is kind of, what, a 60 basis points move CPI. So that tends to be a little bit of the tail that wags the dog for us we talk about, so we expect that we will be as active in the open market in 2014 as we were in 2013 and we think the open market will allow us to get a little bit more price in 2014 than 2013 to offset the CPI headwind and the resets that we will face. So that is really it in a nutshell.

So we do have some dynamics improving. Again pricing and C&D rolloff's gone up. Pricing in special waste has held up and actually gone up nicely. The -- we have got to be consistent with our pricing cadence through 2014 in the open market. We have got to hold our line on landfill pricing like we have historically and hit our marks. So we believe that, as I said, CPI at some point will start to give us a positive balance, but we don't control that. So we have just got to operate around it for now.

Okay, so a 68 basis headwind is what you had calculated for (multiple speakers) --

On CPI, right.

Okay. And then just a second part and the margin story, and when you X the items out obviously up a little bit for 2014 was the guide, but with that pricing backdrop and then some of the mix, special waste and I guess the closure of one recycling facility, I would think margins would have a little better room going directionally higher than, say, 28.5%, 29%. So first I guess the part of the question would be are you planning, are there -- should we be on the lookout for further closures on recycling facilities because of economics? And then two, generically I think we have always thought special waste has been a tougher margin business than the collection business.

No, I -- well, the last question first. Special waste has not necessarily been a -- special waste has been a great business for us and a good margin business for us. You know, the larger the special waste job the tighter the margin becomes. But special waste performed very nicely for us in Q4, not only in volume but in margin.

So we hope to see that continue. And the best you can do when you are building a business plan is look at the current trends and look at the actions you are taking and build them together. So, we think the 28.5% to 29% margin performance for 2014 is a strong performance. We don't have a lot of business closures or work closures that we concern ourselves with. It really comes down to the headwind from -- the headwind from the CPI environment and we don't start to see benefits from the One Fleet initiative until the second half of the year and all of the other cost [initially] we talked about continues. So we think it's a pretty good story and as CPI starts to give us some relief in the out years, then we just grow from there and we still believe that in the long run we can see margins over 30% again. But it is going to take some better [seep] environment for us to experience that.

Just curious, was the MRF closure in a top 25 market or was it outside of it?

No, it was a smaller one.

Thanks, Don.

Barbara Noverini, Morningstar.

Good afternoon, everyone. Can you give us a little extra color on the recycling component of your municipal privatizations? For example, in your recent deals do these cities already have recycling programs in place? Have you found that these deals are predicated on adding to or upgrading struggling recycling programs as well?

I don't think recycling is a decision point for privatization or of a municipal collection operation. Generally, they are relatively small contracts and simply the city looking at the capital-spending requirement for fleets or containers and would prefer to step away from the business not wanting to make those types of long-term capital commitments.

Got it. Thanks.

I am showing no other questions at this time.

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

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