Republic Services (RSG): The Guidance Raise That Decodes To 1.2% Growth

Republic Services (RSG) Q2 2026 — Q2 2026 (quarter ended June 30, 2026): revenue $4.430B vs $4.235B, +4.6%, against a ~$4.41B Street bar. GAAP EPS $1.84 vs $1.75; adjusted EPS $1.85 vs $1.77, against a $1.81-$1.83 bar. Adjusted EBITDA $1.423B, margin 32.1%, flat YoY. Operating income $901M, +4.6%. But income before income taxes was $699M vs $720M, DOWN 2.9%, with the effective tax rate falling 23.6% to 19.0%. Diluted shares 307.6M vs 313.4M. H1 adjusted FCF $1.583B vs $1.420B; H1 cash taxes paid $79M vs $150M. FY2026 guidance: revenue $17.200-$17.300B, adjusted EBITDA $5.525-$5.550B, adjusted EPS $7.23-$7.28, adjusted FCF $2.540-$2.575B. Dividend raised ~7% to $0.670/qtr. The 8-K was accepted 4:08 p.m. ET Thursday Aug 6 (after the close); the stock closed Friday Aug 7 at $214.56 vs $209.59, up 2.37%. Republic Services beat by two to four cents - $1.85 adjusted against a $1.81-$1.83 bar - grew revenue 4.6% to $4.430B, raised full-year guidance, and the stock added 2.37%. The business is genuinely excellent and we say so. Our objection is what the raise decodes to. Republic raised revenue guidance 0.9%, adjusted EBITDA 0.7% and free cash flow 0.7% - and adjusted EPS by 0.2%, with the TOP of the range ($7.28) not moving at all since February. Three lines of the release say 'Increased original guidance'; the EPS line says 'Updated'. Subtract the $3.55 already banked in H1 and the new $7.23-$7.28 implies a second half of $3.68-$3.73 against $3.66 last year - growth of 0.5% to 1.9%, midpoint 1.2%, against +5.7% delivered in H1 and +7.6% in Q1. Separately, pre-tax income FELL 2.9%. We tested the obvious 'tax-rate rescue' explanation and it is FALSE: the Section 48 tax credits are offset by matching equity-method JV losses, a net $12M drag. But cash taxes paid fell from $150M to $79M, and that $71M is 44% of the entire $163M increase in adjusted free cash flow. THE CALL: HOLD (3/5, AN EXCELLENT BUSINESS, A SMALL BEAT, A GUIDANCE RAISE THAT DECODES TO 1.2% SECOND-HALF GROWTH, AND A PRICE OFFERING 7.2% A YEAR) — base-case value ~$184.0 vs ~$214.56 today. KEY METRICS: - CALL: HOLD 3/5, fair value $184 vs the $214.56 Aug 7 close (-14%). Bull $226, base $181, bear $155. Street: Buy, 35 analysts, avg target $237. - Revenue $4.430B, +4.6%. Adjusted EPS $1.85 vs a $1.81-$1.83 bar. Adj EBITDA $1.423B at a flat 32.1% margin. But pre-tax income FELL 2.9% to $699M. - EPS guidance midpoint rose 0.2% and implies +1.2% H2 growth. H1 cash taxes $79M vs $150M = 44% of the FCF increase. 29.6x EPS, 25.8x FCF. What to watch: UP: core price on related business re-accelerating back above 7% (it decelerated 7.0% to 6.4%); volume turning positive from -1.9%; Environmental Solutions recovering the 420bp of margin it lost (24.4% to 20.2%); a price in the $160s. DOWN: Q3 in late October failing the implied 1.2% H2 growth; cash taxes converging on the book rate as the renewable credit pipeline matures; recycled commodity prices below $136/ton; core price under 6%. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.