Republic Services, Inc. (RSG) Q4 2011 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Fourth Quarter 2011 Call for Investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your host for today's call are Don Slager, President and CEO; Tod Holmes, 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' Fourth Quarter 2011 Conference Call. Don Slager, our CEO, and Tod Holmes, our CFO, are joining me as we discuss our fourth quarter and full year 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 may be materially different from actual results. Our SEC filings discuss factors that would cause actual results to differ materially from expectations. Additionally, 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 9, 2012. 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. I am pleased to report our fourth quarter and full year performance met and exceeded our guidance. Before discussing our fourth quarter achievements, I will review our financial performance. Revenue of $2 billion for the quarter and $8.2 billion for the full year. Total price growth in the quarter was 1.5%, with core price up 0.6%, including MSW landfill price of about 3%. Volumes increased by 0.2% excluding the impact of fewer workdays. Our fourth quarter adjusted earnings per share was $0.53. Full year adjusted earnings per share was $1.96. Our fourth quarter adjusted free cash flow was $208 million. Our full year adjusted free cash flow was $909 million, which exceeded our guidance. We repurchased 1 million shares in the fourth quarter for $29 million. During the past 12 months, we repurchased 15.7 million shares or 4% of our stock for $460 million. We have $650 million remaining under our authorization to return to our shareholders over the next 2 years. We remain committed to an efficient cash utilization strategy, which includes increasing cash returns to our shareholders through share repurchase and dividends. Total cash returned to the shareholders was approximately $770 million during 2011. Based on our current market capitalization, this represents a 7% cash yield. During the fourth quarter, we settled with the IRS on the legacy Allied exchange of partnership tax issue. This settlement allowed Republic to reduce tax reserves in the quarter. Our field organization continues to target profitable growth and effectively manage our cost structure. In the fourth quarter, we saw a 20 basis point sequential improvement in our total Collection volumes. Our industrial Collection volumes were positive on a year-over-year basis for the quarter and for the full year. Our cost of operations as a percentage of revenue was flat on a year-over-year basis after adjusting for the impact of higher fuel expense. SG&A expense was 10.6% in the quarter and 10.1% for the full year. Our safety performance continues to improve with a 4.5% favorable reduction in our frequency rate. Some of our operational achievements during 2011 include: we increased the automated portion of our residential fleet by 8%. 59% of our residential fleet is now automated, which exceeded our year-end goal. We continue to invest in our CNG fleet and natural gas infrastructure, with 6% of our fleet now operating on natural gas. In 2012, we expect about 65% of the trucks we purchase to be fueled by CNG. We increased recycling capacity by investing $46 million in developing and upgrading our recycling centers in 2011 and are planning on spending an additional $60 million in 2012. These investments will add approximately 12% of incremental recycling volume over the next 18 months. These are new tons to the company that were not previously delivered to a Republic recycling facility or disposal site. I would like to thank our field operations for their continued support in executing our strategy of achieving profitable growth and maintaining a safe working environment. Tod and Ed will now update our financial performance.

Thanks, Don. Fourth quarter 2011 revenue, as Don said, was approximately $2 billion. This reflects the following components of internal growth: core price growth, up positive 0.6%; commercial and industrial price was on average up 1%, with residential remaining more competitive due to the municipal and franchise contract pricing environment and also the lagging impact of prior year's CPI. Since our price on index-based contracts tends to lag, we are impacted by the lower CPI environment of 2010, which has not fully anniversaried. Given the current CPI environment, we expect index-based pricing to modestly improve in the second half of 2012. Landfill price was up 2.5% -- 2.9%. This is consistent with the third quarter. Within that component of our business are also third-party open market landfill customers where we are increasing price in the range of 4% to 5%. Our fuel recovery fee increased 1%. The increase in fuel recovery fee relates to an increase in fuel costs. The average price per gallon of diesel increased to $3.87 in the fourth quarter of 2011 from $3.14 in the prior year. This is an increase of 23%. The current price of fuel is relatively constant with the fourth quarter at $3.86 per gallon. Our guidance assumes that fuel prices will remain at this level during 2012. Turning to commodity revenue. This decreased by 0.1%. Commodity prices actually decreased 9% to an average price of $125 per ton in the fourth quarter from $137 per ton in the prior year. Fourth quarter recycling facility commodity volume of 509,000 tons was up 13% from the prior year and up 6% on a same-store basis. Our current commodity prices are about $118 per ton, and our 2012 guidance assumes that commodity prices will remain at this level. Now recently, there has been volatility in the commodity markets. I'd like to take some time to discuss our recycling business in further detail and provide the impact of changing commodity prices on our business. We generate third-party revenue from the sale of about 4.1 million tons of recyclables per year from our material recycling facilities, or MRFs, and also from our collection companies that sell materials to third-party processors. Our MRFs process and sell approximately 2 million tons of recyclable materials per year. Of the materials we sell, approximately 70% are fiber-based, including cardboard, newsprint and mixed office paper; and 30% are other recyclables, including metals, plastics and organics. For reference purposes, at current volumes, a $10 per ton change in commodity prices at our MRFs translates into approximately $20 million of annual revenue and $0.02 of earnings per share. Now in addition to our MRFs, our Collection operations directly collect and deliver 2.1 million tons of recycling material to third-party processors each year. This includes recycling services for industrial, commercial and residential customers. For our materials delivered to third-party MRFs, we generally earn a rebate based upon a percentage of the ultimate commodity sale. For reference purposes, a $10 per ton change in commodity prices translates into approximately $7 million of annual revenue and $0.01 of earnings per share within our Collection line of business. So in total, including our MRF and our Collection operations, a $10 per ton change in commodity prices results in approximately a $27 million change in annual revenue and a $0.03 change in earnings per share. Let's turn to volume for a moment. Excluding the impact of fewer workdays in the fourth quarter, volumes increased by 20 basis points year-over-year. We continue to see volume improvements in the Collection line of business. Fourth quarter Collection volumes of negative 0.2% improved 20 basis points sequentially from the third quarter. Industrial volumes is positive year-over-year, and Commercial is only slightly negative. Our disposal volumes, consisting of landfill and transfer activity, were up 0.2% versus the prior year. As expected, special waste was negative in the quarter compared to the prior year due to the high levels of special waste volumes in the fourth quarter of 2010. In the fourth quarter of 2011, there was approximately one less work day, as I mentioned earlier, which resulted in a 40 basis point decline in revenue. Now let me talk to margins in the fourth quarter on a year-over-year basis. Fourth quarter 2011 adjusted EBITDA margin was 29.8% compared to 30.5% in the prior year, a 70 basis point decline mostly related to the impact of fuel and commodity. The components of the margin change are as follows: first, transfer and disposal costs. The 50 basis point improvement here relates to decreased disposal expense and is primarily due to the redirection of waste streams into lower-cost sites. Maintenance and repairs. We saw a 50 basis point increase in expense here, and this relates to an increase in the cost of tires across our supplier base and also refurbishing containers versus purchasing new containers. This resulted in a higher container expense -- repair expense at a lower cash cost. Fuel. The unfavorable fuel expense increase of 100 basis points was due to the 23% increase in the cost of diesel, which I discussed earlier. Partially offsetting the increase in fuel costs was an increase in related fuel recovery fee, and this resulted in a net decrease in EBITDA margin of about 30 basis points. Next, our landfill operating costs. The 40 basis point improvement in here relates to a reduction in remediation expenses. In the prior year fourth quarter, there were charges for environmental matters that did not repeat in the current year. Next is recycling cost of goods sold. The 20 basis point increase in expense here relates to increased rebates to customers for volumes delivered to our recycling facilities. Cost of goods sold increased to an average of $41 per ton from $40 per ton in the prior year. Additionally, commodity revenue decreased, which resulted in a decreased spread of approximately $13 per ton. Now cost of goods sold tends to lag the change in commodity revenue, which negatively impacts our spread when prices are falling. The net impact was a 10 basis point decline in EBITDA margin. And finally, our SG&A expense. SG&A expense was 10.6% of revenue, an improvement of 30 basis points from the prior year after excluding cost to achieve synergies. The reduction relates to expenses in the prior year for legal settlements. Full year 2011 SG&A as a percentage of revenue was 10.1%, and looking ahead to 2012, we would expect full year SG&A expense to be approximately 10%. Finally, DD&A as a percentage of revenue was 11.5% in the current year versus 11.1% in the prior year. The 40 basis point increase in expense relates to a favorable landfill liability adjustment that occurred in the prior year. DD&A continues to be higher than capital expenditures as a percentage of revenue due to the amortization of intangibles. Ed will now discuss interest expense, taxes and free cash flow.

Thanks, Tod. Q4 2011 interest expense was $105 million, which included $17 million of noncash amortization. In 2012, we expect to call the notes due in June 2017. Our EPS guidance includes the favorable impact of refinancing this debt, with total interest expense of approximately $395 million to $405 million. This includes noncash interest of about $60 million. Our guidance excludes any premiums paid or debt discounts written off in connection with early extinguishments. Our Q4 effective tax rate was favorably impacted by settling Allied's 2000 to 2003 tax years with the IRS. The settlement was finalized in December and included Allied's 2002 exchange of partnership interest matter. We expect a full year 2012 tax rate of approximately 39%, which will fluctuate by quarter. I will now discuss free cash flow. Full year 2011 adjusted free cash flow was $909 million, which consisted of cash provided by operating activities of $1,767,000,000, less property and equipment received of $886 million, plus proceeds from the sale of property of $35 million, plus merger-related expenditures net of tax of $9 million, plus divestiture-related tax payments of $17 million, less cash tax benefit from debt extinguishment of $33 million. Therefore, adjusted free cash flow equals $909 million. As noted in our 8-K, we expect 2012 adjusted free cash flow in the range of $775 million to $800 million. The decrease from 2011 is due to a $140 million increase in cash taxes mostly related to the impact of bonus depreciation. In 2012, bonus depreciation drops to 50% from 100% in 2011. Since bonus depreciation is an acceleration of a tax deduction, the cash tax benefit claimed in any given year reverses in future years. We expect cash taxes as a percentage of provision included in our adjusted free cash flow to be approximately 80% in 2012. After adjusting for the change in bonus depreciation and lower commodity prices, 2012 adjusted free cash flow is growing in the mid-single digit range when compared to 2011. Balance sheet. At December 31, our accounts receivable balance was $826 million, and our days sales outstanding was 37 days or 24 days net of deferred revenue. Reported debt was approximately $6.9 billion at December 31, and our excess credit available under our bank facility was approximately $1.5 billion. I will now turn the call back to Don.

Thanks, Ed. In 2012, we will remain focused on executing our strategy while improving return on capital through continued disciplined pricing that exceeds cost increases utilizing our ROI-based tools; growing the business through organic growth, acquisitions and investments in recycling and processing technology; managing our cost structure through programs designed to gain operational efficiencies, including fleet automation, CNG conversion and standardized maintenance practices; investing in our people through training and development and maintaining a safe and positive work environment, allowing us to continue to attract and retain top talent; enhancing our customer's experience with Republic by continuously improving service delivery and providing solutions to meet their changing demands and buying habits. Before we move into Q&A, I'll provide 2012 financial guidance. We expect 2012 adjusted earnings per share to be in a range of $1.98 to $2.02. Our guidance assumes that fuel and recycled commodity prices will remain at current levels for the full year. We anticipate 2012 free cash flow in the range of $775 million to $800 million. We expect annual revenue growth of 1.5% to 2%, with core price improving 1% to 1.5% and volume improving by approximately 0.5%. Our EBITDA margin guidance is 30.5%. 2012 capital is expected to be $860 million. At this time, operator, we'll open the call for questions.

[Operator Instructions] And the first question comes from Hamzah Mazari with Crédit Suisse.

The first question is on pricing, on your pricing guidance. Does the guidance of 1.5% bake in the fact that you're going to reprice the business that you guys did not price, if you will, last year? And maybe if you could also tell us what CPI adjustment pricing bakes in? And any pickup in C&D you guys are baking into that 1.5%, or are you baking that business to be flat?

Okay. Hamzah, we'll try to break this out for you. Well first, you mentioned in your question pricing the customers that we did not price last year, and for practical purposes, we are reviewing every customer in our book of business at least once annually. Those customers are either coming up through a contract situation that has an escalator clause on an annual basis, or they're part of our RPM process where we're reviewing roughly 1/12 of our customer base in the open market every month. So we're reviewing and potentially adjusting every customer throughout the year. Having said that, as you know, we've had some price compression in the area of municipal contracts. We've been rolling back a little bit of price to keep some of that business in various markets. Now going forward, we're going to continue that practice. So in 2012, we're going to maintain that focus on RPM and that monthly cadence that we talk about. Of course, we're going to have those contracts coming due throughout the year just as they do every year, and we'll have the benefit of CPI starting to roll through those contracts based on the higher CPI prices. You know it takes 12 or 18 months for that to occur. Having said all that, if we get a little bit of a better economy, that certainly helps the pricing atmosphere and customer sensitivity as well. So what we've got here is this pricing range that kind of predicts that the first half of the year is going to be somewhat below -- somewhere below 1%, and the second half of the year is going to be somewhere below 2% but approaching and we're going to be ramping up throughout the year based on how these contracts roll through. So that's the pricing outlook for '12.

All right. That's very helpful. And just a follow-up question, maybe for Ed, is just on the tax benefit with the Allied settlement. What's the EPS impact or benefit for the tax during the quarter?

For the tax impact in the fourth quarter, the impact was about $0.10 of EPS. So we're -- the adjusted EPS was $0.53. It would have been $0.43 without the tax benefit related to the audit settlements.

I'd also mention commodities.

And then if you look at it, obviously with the -- between the time we got on the call in October and year end, we probably saw about a $0.02 headwind from commodities because we didn't see the price decline in the domestic markets for fiber until November, which was after the time we were on the earnings call in October. So you look at what the price decline was in the quarter after the call, it was about a $0.02 headwind. So if you wanted to adjust it for that, we would've done about $0.45.

Next question comes from Corey Greendale with First Analyst (sic) [Analysis].

Question about the general pricing environment. I realize that the business doesn't turn on a dime. And I know -- I hear your comments about the municipal pricing environment. But could you just speak kind of directionally, are you seeing that getting tougher, better or sideways?

Yes, your first comment was right on. The business doesn't change very quickly. We would characterize it as being very similar to last year. We certainly don't see any change in behavior of the larger companies. The publicly traded companies tend to have a pretty keen focus on this from our perspective. And otherwise, their pricing environments had sort of changed market to market. But generally speaking, we're still seeing a little pressure in the resi business regarding large contract renewals, and we're still out in the marketplace, as I said, answering Hamzah's question, keeping the same cadence and focus that we did in '11 and we're in the market every month.

Okay. And my second question's actually on acquisitions. I saw in the guidance, you're guiding to about 50 basis points in acquisitions, which is a little more than you've been doing. Is that -- is there's something you've done recently that's contributing there? Or are you assuming future acquisitions? And can you just speak generally to your outlook on and expectations for acquisitions in 2012?

You're right, Corey. It's a little more, but it's kind of marginal. We're saying that for '12, we're going to spend between $50 million and $100 million and that's in our cash flow projection. So that will come in sporadically throughout the year, but we've got a pretty good pipeline. The strategy hasn't changed. We're still looking at tuck-ins. So existing markets, we're not looking to expand outside of our market footprint. We're just looking to build the 240 markets that we have stronger, and that's where we'll live in 2012.

The next question comes from Scott Levine with JPMC.

The question, I think you said that you expect the CPI-linked pricing to improve modestly in the back half of the year. Just trying to get a better sense of what modestly means and whether we really should think of pricing kind of being flat. I know you guided in quarters, but stable at these levels, stabilizing the first half and then ramping in the back half. Or do you expect it to kind of go up from here? Just trying to maybe separate the impact of CPI length from what you guys would guide to for a purely competitive price.

Well, I mean how the CPI works for the first 6 months of 2012, you're really still living on the CPI that was printed in calendar '10, so that was about 1.5%. So in many of the restricted price contracts that we have, that's kind of the core price. Now every contract is unique and it could be modestly different from that level. But essentially, we're still living on the 2010 very low CPI for the first half of this year. Then starting in the second half, some of the contracts where we set in July and others where we set in October, we'll start to see the higher CPI that was from calendar '11, which is in the 3% neighborhood. So that's why, as Don mentioned, what we'll see as far as the progression of pricing during the course of the year, that pricing will probably be a little bit lower than 1% during the first half of the year, quite similar to what we saw in the second half of '11. And then beginning in the third quarter, as we start to see the higher calendar '11 CPI reflected in the resets, that's why we'll be above 1%, and then as we go through the second half of the year, be exiting the year in the 2% neighborhood.

Yes. Remember, Scott, that's why we're always saying 12- to 18-month lag. Some of these contracts reset trailing 12 months. Some of them reset point in time, year-over-year, and we've even got a couple that reset on last year calendar basis. And so it's that 12- to 18-month lag that works -- working our way through, so we're going to steadily kind of climbing out of that trough.

And could you comment -- it would be a similar proportionate increase there Q2 to Q3 and then Q3 to Q4 where more of the contracts reset midyear and you have more of a step up then.

It's kind of spread throughout the second half of the year. So I would say yes, you'd probably -- it's kind of a 2-step process as we actually work our way through the year. It doesn't all step up July.

Yes, but just back to the comment I made earlier. Think about the range being 1% to 1.5%, that's sort of averaging up. So something less than 1% in the first half, something less than 2% or approaching 2% in the second half, and that's kind of the way we're looking at how this ramps up.

Got it. And a follow-up on volume environment. I know you highlighted a couple contracts that you won last quarter in California and Florida. Are those meaningful in terms of basis point contribution of volumes? And/or what are you seeing in terms of general volume environment with folks getting a little bit more upbeat in the economy these days?

I would say the largest contract that we called out on the last call was San Jose, and that starts up in July. So that doesn't start up until midyear. Some of the other contracts are gearing up here in the early part of the year. So we'll start to see some of the volume impact, but again, it's a little bit more noticeable come July 1 because of all the contracts, San Jose is the largest.

Collectively, could that get to 50? I mean, is it 50 basis points, 100 basis points? Or is that too large in terms of the impact?

For all the contracts you're talking about?

Yes.

Yes, I would say it's probably about 40 basis points.

And I'll keep this in mind too. I'm sure someone will ask this question anyways. We've got this roll off of the Oakleaf-Waste Management business, right. So with that acquisition that occurred late last year, we're kind of steadily weaning ourself off of that volume, and that's a fairly good-sized piece of about $30 million worth of revenue that's going to roll off. And so netting out, right, we're still volume positive here even though that -- even though of that acquisition between Waste and Oakleaf.

Vance Edelson with Morgan Stanley, your line is open.

The 0.5% increase in volumes that's contemplated for 2012 seems potentially modest given all the talk out there of the proverbial green shoots on the construction side, which is really something new when you think about how weak things have been the past several years. So on the front lines, are you seeing any noticeable impact from commercial construction, multifamily housing or anything along those lines? Do you get the feel that maybe this time, the improvement is for real and it could help your volumes this year?

We're watching all the same things you are, and there's a lot of little feel-good stories being printed up. But as you know, we're very late cycle. We're late cycle generally, but we're very late cycle as it relates to this construction. So we don't tend to haul a lot of volume until well after these projects are out of the ground and when they're in sort of the final finishing stages of completion. So we'll start to count those loads when we start to see them, and we'll be glad to tell you about them when we're getting them.

Great. Okay. Fair enough. And then on the cost side, given the affected diesel prices have had over the years and the importance to the bottom line, combine that with your plan to make, if I heard correctly, 65% of the truck purchases CNG this year. Could you expand a little on how the growing presence of those CNG trucks is going to change the equation in terms of costs?

Well, right now, it's marginal because as we mentioned, only 6% of the fleet is CNG today or natural gas. So it will be, I would say, a growing story over the next several years. But here in the early part of the process, it doesn't have a measurable impact on the fuel expense. So -- but what we'll be doing, we start with 6% a year; we replace about 10% of the fleet every year. So as you could see, we'll be gradually building so that within, say, a 5-year period, about 1/3 of our fleet will be CNG or natural gas, and then I think it becomes more visible to you looking at fuel expenses as a percentage of revenue. So I don't think you'll see it too much in the early stages here, but it is definitely a good cost reduction opportunity for us as we move forward.

Yes, so keep in mind, right, we've got 15,000 trucks. So we'll buy 500 or so CNG trucks this year and maybe next year, and we'll look at it beyond that. But as we're looking through our fleet strategy here, we're looking at the larger fleets where this makes more sense. We're certainly looking at areas where our customers have an interest in CNG and where it enhances our product profile with our customers. So it's just a steady move forward, and again, we're living within our normal capital spend, if you will, very traditional with kind of our Republic philosophy here. And we're going to keep that cash flow predictable and just live within our means, and we'll just allocate that CapEx around maybe more efficiently as we go forward.

Sure, that's a good plan. And when you do make the conversion to CNG, if I remember correctly, the savings on that, a daily or per mile basis is somewhere in the ballpark of 30%.

That's roughly correct, yes.

But there's higher upfront.

There are some upfront fees. But yes, as we've discussed, even on a fully loaded basis with the infrastructure cost, the payback period on the CNG investment is about 4.5 years and has a return on invested capital in the high teens.

The next question comes from Michael Hoffman with Wunderlich.

On the cash flow side, there's 2 pieces of this I'm trying to get my hands around. You paid out roughly a little over $300 million in dividends, do a little over $900 million in free cash flow. That's about 34%. How should we think about that mix if you look out over time 2, 3 years? How should we think about what the dividends should represent as a percentage of the free cash?

Well, it's going to be a function of what opportunities we have available, but I would think the dividend would be probably somewhere in the 45% range, say between 40% and 50%. And the dividend, we would expect to grow as the cash flows and the business builds. So that's foundational to the company. And then we have the share repurchase, which I think you've seen the activity and our ability over the years to buy back the shares efficiently to create long-term lasting value. And there's a little bit of flexibility there. The acquisition, or not the acquisition, but the merger is 3 years behind us, and so we're really about enhancing the strong platform that we have. And as opportunities come up, we're building the pipeline and we're out there doing a little bit more on acquisitions where it makes sense. So there's a little bit of a flux between, say, over a 3- to 5-year basis between share repurchase and acquisitions depending on which creates more value. We're committed to all 3.

Sure, and as we've always said, Michael, we think this business can steadily and consistently grow free cash kind of mid to upper single digits, right. And that's what we think we're doing here in '12 and then we'll just, as Tod said, we'll kind of keep that balance intact. We've got a strong balance sheet, and we're committed to return cash to shareholders efficiently and we've got the flexibility to be opportunistic where we can be. So I think it's a good approach.

Okay. And then the other part of the free cash question, if bonus depreciation gets revisited and pushed back to 100%, how do we -- how does that reflect in the -- what's the incremental change to the $775 million, $800 million? And then the other side of that is how should we think about the cycle of bonus depreciation if at '13, '14 if I'm trailing off, I don't get a revision?

Yes, I think we'll cross the "what if Congress does something" when we get there. I think we can talk to the impact. I think Ed has indicated from '11 to '12, the total impact was a swing of $140 million. And so if you look at the '12 component alone, that's actually a negative $40 million. And then as you look out into '13, given what we've got in terms of the past legislation or the current legislation, that $40 million probably goes to about $80 million or $90 million. And then it starts to tail off in terms of the headwind as those 2008 and 2009 100% bonus depreciation years anniversary up. Now again, as we've said, capital is important to us. We're going to manage the taxes, so we'll see what happens as we approach the end of the year. And if Congress actually acts, we may adjust our capital spend accordingly. One thing I want to emphasize is our free cash flow -- or excuse me, our cash taxes is pretty strong. It's -- cash taxes are about 80% of book taxes for '12. So we feel like even though we've got a little bit of a headwind this year, we're still in a good position from a cash tax standpoint, we continue to actively manage that.

Right. And from an activity-based perspective, if you look at the last couple of years as bonus depreciation has sort of been in or out, we've been able to adjust our spend and our buy to take advantage of it. So we've got some flexibility to do that, as Tod said.

Bill Fisher with Raymond James, your line is open.

Just on the -- you got it to roughly consistent EBITDA margins like 30.5% and hopefully, the pricing, I guess, would take up most of the cost inflation, wage and benefits. And you got a hit on recycling commodity prices. Just on the math, is it the offset's going to be the productivity gains you talked about? Or can you just talk about some of those pieces?

Yes, remember the headwinds, we've got the commodity headwind, we've got fuel on a year-over-year basis. And then we think -- again, there's still going to be a little bit of price compression in the residential side, which we've got baked into our pricing guidance. And then yes, we're just controlling costs. We've got productivity measures. We talked about the automation, the CNG, the maintenance initiatives, all those things working together to build better productivity in the business. So we've got good traction on all those programs, and net-of-net, lead us to this guidance. So we're pretty positive about the year.

Okay. And then just, Tod, I think you gave the $118 is where the commodity price was. Do you have what was the full year for '11, the commodity price?

Yes, we do. It's $145.

$135?

$145.

Next question comes from Al Kaschalk with Red (sic) [Wedbush] Securities.

It's Al with Wedbush Securities. I want to follow up on this margin question because I'm having a hard time getting it. As you know -- I think you said $118 per ton, is what Bill had just mentioned, and you're using Chicago-based pricing. Is that fine? Is that right?

No, that's our actual blended rate for all commodities.

Okay. So...

And most of it actually is probably West Coast.

In terms of the [indiscernible].

About 1/3 third of our volume is West Coast. So actually, we're probably a little bit biased, but it's actually our internal national average.

Okay. But I'm probably splitting hairs trying to get the exact location, but what percentage of your recycling is fiber-related sales? I thought it was up about 55%, 60%.

2/3. About 70% is fiber.

Okay. So if you're assuming current price of $118 as the -- is that what you're assuming is the average for '12 in the budget?

Right.

Why -- that's a 20% headwind, right, from the prior year, and yet you've got pretty good margin profile from what you just posted, a 60 or 70 basis point decline. So it seems like the EBITDA margin guidance is a bit aggressive given some of these headwinds, and I'm just wondering what tailwinds you have to push you to that.

Well let's take commodities side for a minute. We do have price of between 1% and 1.5%, right. So we're going to see that, as we talked about previously on one of the questions, CPI is starting to roll in, getting a little traction there and that's going to make a difference for us. And then we are looking at positive volume. So those things together, again with the offsets of the productivity programs, we think will make that difference.

And on the volume side, not to press you a little bit, but volume, is that back half positive, therefore full year is positive? Or you get right out of the gate positive?

Let's talk about full year, and remember we've talked all through '11 about the pretty positive picture in and around industrial volumes. And Collection volumes increased sequentially now I don't how many quarters in a row, but Industrial's been kind of a bright spot for us. Residential is improving, so all those things continue to improve. There's no one region or no one story that's making that happen, but the trends just continually are improving and we see those improving through the year.

I think when you look at the full year, we see modest positive volume, now quarter-to-quarter it may fluctuate a little bit depending on special waste because that activity can be somewhat event-driven. But it's not quite the situation maybe that price is. Well, it may be built a little bit in the second half of the year. But it's not quite as powerful as that CPI impact that Ed explained earlier. So positive throughout the year with a modest build.

The next question comes from Barbara Noverini with Morningstar.

Can you provide a bit of an update on your national accounts business? I realize that's still small, but how has it been growing? And have you seen increased appetite from corporations who are interested in landfill diversion? Beyond just optimistic PR on the subject.

Yes, I would say we believe in our national accounts program, we've got a decent sized book of business there, just shy of about $500 million annual book and it's growing -- it's sort of a single-digit percentage, maybe 5%, 6% a year. We have a number of very large national account clients who are very concerned and very consistently working with us on landfill diversion and other ways to manage their waste. I think if you look back into the early 2000s where large companies were coming out in favor of sustainability programs, I think many of them kind of lost their appetite in the recession that we saw earlier in the decade. But this time around, even though the recession's been a little deeper and longer, we've seen those national account partners of ours really be consistent with their interest in waste diversion and coming up with new ideas. And so we're working very closely with those large clients in recycling, waste diversion, minimization and so forth. And again, it's that kind of partnership that we're trying to build with those people that allows us to build that business.

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

Thank you very much. In closing, I would like to thank the entire Republic team for our performance in the fourth quarter. We had another successful full year in 2011, and we remain focused on the business fundamentals required to improve or return -- our return on invested capital and further position our company to grow across all lines of business. As a reminder, a recording of this call is available through February 16, 2012, by calling (203) 369-3256. 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 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 live webcast of the event. Thank you for spending time with us today, and have a good evening.

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