This is Bloomberg Business Week with Carol Messer and Tim Steneveek on Bloomberg Radio.
Really looking forward to our next guest. We've been doing some research and googling ahead and some of the stuff we came across, and just to give you an idea of the amount of trash we're all creating. Average American throws out some four and a half pounds of waste every day, which becomes two hundred and sixty eight million
tons of waste nationwide each year. Thirty million tons of this waste is food, twenty seven million tons plastic, eighteen million tons is paper and paperboard, not all of which gets recycled.
Him we're talking trash, garbage, waste, call it whatever you want. We produce a lot of it. It's got a massive environmental impact. It contributes to climate change. It also raises the question, Carol, what do we do with it? And how can we be better about it?
Which brings us to our next guest. He's here in our Bloomberg and Director Brokers studio. John vander Ark is President CEO of the forty six billion dollar market cap in publicly traded Republic Services based in Phoenix. Stock is up about fourteen percent so far this year. Cascade Investments an investment vehicle and holding company for Bill Gates, of course, the co founder of Microsoft, is the top shareholder in the company, with about thirty five percent of the outstanding stock.
Big lead up, John, Thank you so much for being here with us.
How are you good? Thanks for having me listen.
It's great to have you here and talk to us about the business, the bulk of which you know, contributes to what moves the balance sheet. Tell us give us some perspective.
Well, we're actually an interesting we're kind of a backdoor view of the economy because everybody has something they need to dispose of. So we serve small you know, households, we serve small business, we serve large business, we serve national players, governments, so we really get it. We have a very diversified book of business across our you know, almost fifteen billion dollars of revenue, and so that gives
us a really good view of the economy. And we're very you know, spread out, and we're resilient obviously, because even in a down economy, everyone is still going to have something they're going to dispose of.
So what's your view on the economy. Since you have such a good view and vantage.
Point, we're still cautiously optimistic, right the recession. We keep reading about it and here about it, and it's not really showing up at our p and L yet.
Now I would say that he doesn't, you say, because you're kind of resilient. But how do you pick?
Yeah, you'd see some decline, right, you think about maybe a three to five percent drop in demand, right if an economy is really going to pull back and be in recession. So construction, for examples, portion of our business less than ten percent, but that's down about three percent year over year. So we saw that commercial residential start slow certainly into last year, and we kind of have a six to nine month lag effect on that. So that's down a little bit. But you know, auto's down
a little bit in the first half. But then you know, the industrial side of the business is just booming.
When do you need to what do you need to see in order to go from cautiously optimistic to optimistic.
Well, listen, when I see housing starts, you know, kind of predicted to be up next year, I think that's you know, we'll probably slow a little bit on construction into the early part of the first half, but then we'll pick up in the second half. And listen, I don't think all of the indices are fully accounting for some of the government spending that's coming in on infrastructure spend,
and we're certainly a beneficiary of that. So we're seeing that, you know, hit our business and again very very strong.
So when you say the industrial side of your business is strong, give me a little bit more color on that.
Yeah, two sides of Think about a major petrochemical player, right, we have a lot of things they need to dispose of, certainly some recycling, but special waste, tazardous waste, a lot of environmental services in the middle of that that we take advantage of that. Or think about a brownfield remediation, you know, opportunity where you know, we're in the front of the line there, we're doing the dirt clean up there and we're taking all those materials and bringing those to the right spot.
Which is the bigger part of your business? Give us an idea. Is it that side or is it just the regular trash.
Yeah, it's a funny, funny business. It's about if you measure based on our customer account, which is fourteen million. Yeah, it's ninety plus percent B two C. So you think about the homeowner where we actually service. If you measure where dollars change hands, it's more than ninety percent B to B because in most cities, the municipality contracts with us, and we consider that a business transaction.
Talk to me about these contracts, the most competitors that you have in some market, it's what does the competitive landscape look like? Because you know, every market is completely different. I don't know if you've spent time in New York City, but the trash collection.
Here is peasy, never problem, never see it on the sidewalks, never.
See it's completely wild. But what is what is the typical.
Market for you? It's very a very local market, and so it's based on really where waste moves. Now it's starting to move further distances as landfills close, but in general, you think about a sixty nine mile radius. That's kind
of a what defines a local market? And in our markets, you know, we have thousand dots on the map in the US or of customers across forty nine states, we're number one or number two, and more than ninety two percent of our markets so we really think about getting concentration because it's a density game, right, you think about time and weight. That's what kind of drives our economics in terms of collecting something. And then we want a recycling center and a landfill in that market to have
vertical integration. And that's what really provides the mote.
How much of recycling is part of the business.
It's a growing part of the It's kind of fifteen percent and growing. Yeah, and again we see that as a big growth driver. That solid waste is actually shrinking on a per capita basis. Okay, so is that a good thing?
What does solid waste mean?
That's garbage's industry talk for garbage. So garbage is shrinking on a per capita basis and recycling is growing. And listen, that's our plan. We're trying to drive that diversion. And you know, when I started ten years ago, people used to say, well, we make all our money at landfills because that was our highest margin business. And I'm a customer person. I said, landfills don't pass the time customers pass, and so you need to charge and understand what the
product is worth. And that's what we've done. We've taken recycling pricing on the street to probably eighty percent of solid waste five years ago, it's now one hundred and twenty percent.
What does that mean?
And we've grown it faster?
What does that mean?
So, Matt, think about a small business and having two containers that the truck comes up and picks, you know, once a week or twice a week. Five years ago, the price of that recycling service was eighty percent of the price of the garbage service, and now we've flipped it, it's one hundred and twenty percent because we've priced recycling way faster and we've grown recycling faster.
Does it also mean people want to be recycling people?
We know, we do the customer insight where people are passionate about recycling. Yeah, and they want to know it goes to the right spot?
Does it though?
In our case, absolutely right. That's part of our environmental responsibility, which is one of our values. And I would say most of the time, yes, there are always corner cases where some smaller operators not doing the right thing on the back end, but most of the time you can have pretty good insurance that if you're putting it in the bin, it's going to get recycled.
The issue over the last few years has been there isn't really those countries left to buy our recycling like China used to do. China is not doing it at the same rate that they used to. So where do these where do these plastics go?
Yeah, when China kind of shut their doors, we went from about thirty five percent of our material going abroad to zero in about three months. And so what's happened is those value chains have really gotten repositioned. So there's a lot of domestic manufacturing that's come online, particularly for fiber and paper, So now our supply is almost entirely domestic. What about plastic plastics is interesting, So most plastics today,
rigid plastics get down cycled. So think of your water bottle, Think of your detergent bottle that goes into a pipe, park, bench, or carpet. Now that's good. It's not going to go in the landfill, so it's going to get a second life. But after that, that's going to go in the landfill.
So we're forward integrating into that. So to try to take that water bottle and get it back into food grade quality and so it can go right back into a water bottle, and then we think we can turn that at individual polymer six, seven or eight times before eventually it gets degradatory.
Is it expensive to do that?
Yeah, we're investing about three hundred million dollars to produce four of these centers across the US. The first one opens up in Vegas here in a few months, and we've contracted with Coca Cola, and listen, we could sell out of that center five times over. We had to limit people's buy on the back end because there's such a short supply for this recycled plastic.
So go back to what Tim said, does it really get recycled? Because we have all gotten really good at dividing up our garbage in multiple ways, and the question is does it all really get recycled? Does the paper get recycled, does the plastic get recycled? What guarantee do we all have that it's being done? How do we know?
Well, listen, not everything that you put in the recycling container is recyclable. Fair, right, So if you put the clamshell you might get at the grocery store that might be made with some recycled plastic, but it's not recyclable.
And so one of the things that we're pushing on is working now back upstream to say, how do we get more things in the original form of pet or HDPE that's the water bottle, yeah, and the detergent bottle and milk jug so that it can get a recycled it keep getting recycled.
I thought there was a little triangle on that.
Yeah, if it has the triangle.
Yeah, that's made with post consumer content. It doesn't mean that particular thing is recyclable. So there's a huge opportunity for education here because consumers care and they want to do the right thing.
I have to say, I stand over my recycle I'm like this, does this really get recycled? If I clean it, is it going to like go?
It's like you spend a lot of energy doing this.
I actually do. I do care, empty, clean, and dry. Those are the simple rules.
But not everything that has that thing is not. Can we work on that messaging?
Can?
I feel like I've been lied to for thirty years?
I want to get back to our guest, John vander Ark, President CEO of Republic Services. He is still here in our Bloomberg Interactive Broker studio. You know, John, one thing I wanted to ask you is when we were talking about it off air, your company and waste management, top players in this industry, both with ties to Wayne Haisanga. How do you think about and you've been at your company for a decade or so, how do you think about the evolution of kind of how we collect trash?
Where it was, where it's going the evolution.
Sure, yeah, I can just tell it from my tenure we started. You know, when I started, we talked about ourselves as a garbage company, and then it was a waste company, and then a waste and recycling company, and then a recycling waste company, and now I environmental services and a sustainability company. And that's not just market that's just not marketing speak. That's actually where we were investing
in the business. And again I'm trying to challenge every ton that goes into a landfill, because hey, when I put in a landfill's a cost to me. But if I can recycle it and reuse it and repurpose it, then I get a second benefit, a second stream from that. And so and by the way, landfills aren't being cited right that that they're closing up, and so if I can extend the life of my landfill and I can get a second sale of that material in addition to collecting it. That's a win win.
Does this does the free market solve this completely? Or does it need government intervention to entice businesses entice people to dispose of their waste?
Differently, Yeah, I think listen, regulatory standards help. And we're forward integrating into plastics. We talked a little bit about that before, and we're doing that because we look at what Europe's doing, and Europe has figured out a way to take that water bottle and rather than having it down cycled into a pipe or a park bench or carpet, right, they've used it and they did it because the government put in regulatory standards that new water bottles needed a
certain level of post consumer content. And now you see that in California, you see that Washington, you see that New Jersey, and that will hit other states and that's getting the CpG players. So now say, hey, we have to have sustainable packaging, and that's driving us to make investments. Right, we're investing three hundred million dollars in these centers and we're doing it with a good return.
So talk to us a little bit about you guys have some clean energy projects, right, You've done stuff with BP landfill biogas to renewable natural guests. Talk to us a little bit about that.
Yeah, we have sixty seven projects historically. So when garbage decomposed, it produces two things leech eight, which is like a gray water, which we capture obviously those line fills landfills are lined, and then it produces methane, and methane is very destructive through the environment, obviously, so we've always flared off that methane to convert it to CO two, which is about seventeen times less harmful than the methane we've still burning, but still burning, right, and still a waste.
It's still energy going up in the air that it could be converted. So two interred active landfills. We have sixty seven projects today where we take that methane and we push it through either a generator to produce electricity or we clean it up and produce renewable natural gas. And we have now another sixty plus projects in the pipeline to continue to do that. And again that's good for the environment. In some cases, we're powering the neighborhoods, right, around our facilities.
How much can you scale that up?
Well, you have to get down to a certain size of landfill the capex, so the capital investment doesn't justify today. Now that changes over time, that'll innovate, but we're going to get to seventy five eighty percent of the gas flow across our landfills here over the next five years.
Let's talk mna us ecology brought exposure to hazardous waste. How are you thinking about deals moving forward?
Yeah, we've alway word with Greg great Grandchell of one thousand acquisitions, so we do about ten to thirty deals a year. This is a highly acquisitive space and our competitors are also roll ups over time. You know, we think our pipeline is strong, and it's certainly strong and
recycling solid waste. We spent about nine hundred and twenty seven million in the first half on those deals, and then this environmental solutions business right US Psychology was kind of the platform acquisition in that space that provides an anchor for follow on acquisitions, and our pipeline is pretty full on that side of the business as well.
What's the biggest problem you think what you have right now with dealing with trash. We talk a lot about food waste and the impact it has certainly on the climate, But what do you think it is the biggest problem right now? Is it just the quantity?
Yeah? I think I think we need more innovation on the value chains to take things out of the landfill and make sure it's truly recyclable. And I think we need to get away from the headlines of what could be done and all the technologies. Again, a lot of the plastics recycling is a good example. There's mechanical recycling, and there's chemical recycling.
Are you worried about EV's and batteries and all that good stuff?
Listen, we're bullish on EV. We're forward in or we're going to along on EV with our fleet. About fifty percent of our buy within five years will be electric vehicles.
Where do you get those who makes electric garbage truck?
Well, we've got Pea Rian is it, Tesla No Pete and mac Today and other players all have converted trucks. So it's a conventional diesel truck that they're piloting, which again have limited application. The true game changer is mcneilis
who's the planner space they're owned by Oshkosh. They're building the first ever purpose built studs up refuse vehicle, and it's a huge deal because you can then take the weight out of the vehicle, which gives you enough battery that you can run a full day without taking away payload. So if we have to take a you know, an extra trip to the landfill, that's an hour of unproductive time for us. We can't afford to do that. So these vehicles will have the same kind of fit and
fitness as the diesel vehicle, but they'll be quieter. The cab space is forty five percent bigger for our drivers because you're taking the engine out of the front and it's battery in the bottom, quieter, Lots of technology benefits, So we're excited about it.
No, But when I talked about batteries, like I do wonder about used batteries, old batteries, waste, Like, is that something that you think about.
Yeah, we have partners with that. Electronics recycling is another way computy. Yeah, Listen, it doesn't all happen perfectly, especially in other parts of the world. That happens very imperfectly. Here that market is fairly well supplied on that front, and we have partners and we certainly collect that and then we work with partners to process.
What don't we know?
Oh go ahead, Tim, I was gonna ask, we're automation. We don't have much time left. We got to get you back. Where where's automation happening in your value chain right now?
Is it?
Is it beyond the idea of just taking the trucks and those trucks automatically pick up the detraction and recycling? Is it, you know, further down in the value chain.
Yeah, it's every stage. So on collection, for example, one of the ways we clean up the stream is we now have cameras, so when we tip your garbage container, we have a stream that can see and we can see how much contamination is then recycling and so if you have a contaminated stream, we're going to send you a note and say, hey, you're streams a little dirty, clean it up. If you do a second time, then
we're going to charge you. And we understand how to change consumer behavior because if you get charged.
This is why I stand over my garbage and I look at it.
And even a recycling center itself.
What happens in New Jersey when you make a mistake in the trash can.
I don't want to know, sleeping with the fish. Is there an AI component twenty seconds?
Uh yeah, I mean in our recycling center, sure, no, And our recycling centers for sure. That used to be people picking stuff and now that's optical scanners and all kinds of things. Again helps us produce a better product. What we could talk about trash for so long?
I listen. I think it's interesting. There's a lot going on.
Come back soon we will.
We enjoyed this. John vander Ark, president and CEO of Republic Services, as we said, based in service, based in Phoenix. He stacks up about fourteen percent year to date. We didn't get to talk about Bill Gates that we will do next time. This is Boomberg