What Waste Management (WM) Said on Its Q3 Earnings Call

Waste Management NYSE: WM reported third-quarter results that management said kept the company on track to meet its 2026 outlook, with revenue and free cash flow expected to finish at the high end of their respective guidance ranges. The company also announced that Chief Executive Officer Jim Fish will retire in early January after 10 years in the role, with President John Morris set to succeed him.

Fish said third-quarter revenue increased 6.3%, operating EBITDA rose 5.8%, and free cash flow grew 20%. Operating EBITDA margin held at 31% despite what management described as significant fuel-cost pressure, while selling, general and administrative expense declined to 9.3% of revenue.

“We’re right on track to achieve our guidance for the full year,” Fish said, adding that the company expects revenue and free cash flow at the high end of its ranges. Fish said he will remain a long-term shareholder following his retirement and expressed confidence in Morris and the rest of the leadership team.

Pricing and technology support core solid-waste business

Morris said the company’s collection and disposal operations continued to benefit from pricing discipline and technology-enabled cost management. Core price increased 5.8% during the quarter, while higher fuel costs created a 70-basis-point headwind. Even so, total operating expenses remained below 60% of revenue, he said.

David Reed, executive vice president and chief financial officer, said favorable price-to-cost spread in collection and disposal contributed 40 basis points of underlying margin expansion. Healthcare Solutions added another 30 basis points from cost management and pricing, though those gains were offset by 40 basis points from fuel costs and 40 basis points from higher risk-management costs.

Risk-management costs increased about $63 million year over year in the quarter, Reed said. The increase reflected a negative actuarial adjustment, higher estimates tied to several large loss claims and a difficult comparison with an insurance recovery recorded a year earlier. Tara Hemmer, executive vice president and chief operating officer, said about $40 million of the increase was in the corporate and other segment, with $23 million affecting collection and disposal.

Management said the increase was not tied to worsening safety performance. Morris said the company has seen improvement in recordable injury and accident rates across both its core business and Healthcare Solutions.

Collection and disposal volume was modestly negative, driven principally by intentional residential customer losses and previously discussed national-account broker losses in commercial operations. WM expects full-year volume to decline about 1%, or approximately 50 basis points excluding prior-year wildfire cleanup volumes.

• Residential volume was down 3.5% year to date but improved to positive 2.6% in the third quarter, according to Morris.
• Commercial volume declined about 1.3%, reflecting national-account decisions and pressure on small and midsize business formation.
• Industrial roll-off volume was flat to slightly positive, while construction and demolition volumes were down about 4.5% year to date.

Morris said the company’s commercial churn improved 30 basis points year over year to 9.3%, and pricing has remained resilient. Management also cited a strong special-waste pipeline, though Hemmer said some projects have not yet started and may materialize later in the fourth quarter or early in 2027.

Healthcare integration progresses ahead of targets

WM’s Healthcare Solutions business posted 3.7% revenue growth and a 33% increase in operating EBITDA. Morris said the segment reached two year-end goals ahead of schedule: core price of 5.5% and SG&A expense between 15% and 16% of revenue. Third-quarter SG&A was 15.2% of Healthcare Solutions revenue, a 390-basis-point improvement from a year earlier.

Management attributed the improvement to pricing, integration synergies, streamlined support functions and a reduced reliance on manual processes. Morris said more accurate customer billing and greater automation have helped normalize payment patterns and lower administrative costs.

Healthcare volumes remain under pressure, but management said trends are improving in both medical waste and secure information destruction. Morris said the company was not prepared to forecast when volumes would turn positive, though he cited growth among hospital customers on a same-store basis and said the company expects sequential improvement.

WM expects to reach its previously discussed Healthcare Solutions synergy target around the middle of 2027. Morris said the company sees further opportunity to reduce the segment’s SG&A ratio below its current level, although he noted that healthcare services require more customer attention and regulatory support than portions of the core solid-waste business.

Sustainability investments add to earnings growth

WM’s recycling, processing and sales segment generated operating EBITDA of $91 million, up 40% from the prior year. The company said the increase reflected contributions from its automated recycling network and improved blended commodity prices.

In renewable natural gas, WM brought a new facility online in New York during the quarter, its 18th completed facility since 2022. Renewable energy segment operating EBITDA rose more than 35%, despite lower Renewable Identification Number pricing compared with the prior year.

Hemmer said another renewable natural gas facility is expected to begin operating in the fourth quarter, with the final planned facility scheduled for early 2027. More than 90% of expected 2026 renewable natural gas production and roughly 40% of expected 2027 production has been contracted, management said. WM continues to target a long-term renewable natural gas price of $26, and Hemmer said 2026 pricing is expected to be closer to $27.

Cash flow, capital returns and acquisition pipeline

Operating cash flow rose 12% during the first nine months of 2026, while capital spending fell more than 17% as vehicle investment normalized and the company neared completion of its sustainability investment program. Free cash flow exceeded $3 billion through the first nine months, up more than 42%, with 50% operating EBITDA conversion.

WM returned more than 90% of that free cash flow to shareholders, repurchasing $1.58 billion of stock and paying $1.14 billion in dividends. The company ended the quarter with leverage of 2.92 times, within its stated target range of 2.5 to 3 times.

The company completed $239 million of tuck-in acquisitions during the first nine months and expects to close another $140 million in the fourth quarter. It has also signed a $250 million transaction expected to close early in 2027. Morris said solid-waste tuck-in acquisitions remain a strategic priority, and management described its pipeline as robust.

For the fourth quarter, Reed said WM expects its strongest margin performance of the year sequentially, though year-over-year margin comparisons could be affected by fuel costs. The company assumed fourth-quarter diesel prices of more than $5.50 per gallon, or roughly 40% above the prior-year period, and said its fuel-surcharge programs are designed to recover both direct and indirect fuel costs over time.

About Waste Management (NYSE:WM)

Waste Management, Inc, doing business as WM NYSE: WM, is an environmental services company that provides waste collection, transportation, disposal, recycling and resource-recovery services. The company serves residential, commercial, industrial and municipal customers through a network of collection operations, transfer stations, landfills, recycling facilities and other environmental infrastructure.

WM's services include curbside and commercial waste collection, construction and demolition debris management, recycling, organics processing and landfill disposal.

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