Waste Management Q2 Earnings Call Highlights

Key Points

• Q2 profitability and cash flow improved: Operating EBITDA rose 5.5% year over year, or 9.1% excluding prior-year wildfire activity, while free cash flow increased 35%. Margin expansion was driven by pricing, cost controls, productivity initiatives and technology investments.
• Revenue outlook was trimmed, but earnings guidance strengthened: WM narrowed its full-year revenue forecast to $26.275 billion–$26.475 billion due to softer collection volumes, lower recycling activity and delayed renewable natural gas connections. It maintained operating EBITDA and free-cash-flow guidance while raising its margin outlook to 31%–31.2%.
• Volumes remain soft, with growth in select businesses: Collection and Disposal volumes declined 0.4% excluding wildfire effects, though special waste, industrial services, recycling and Healthcare Solutions delivered gains. The company also reported strong cash generation, returned $1 billion through share repurchases and $764 million in dividends, and expects leverage to decline in the second half.

Waste Management NYSE: WM reported second-quarter operating EBITDA growth of 5.5%, or 9.1% excluding contributions from wildfire cleanup activity in the prior-year period, as pricing discipline, cost controls and technology investments supported profitability despite softer volume trends.

Chief Executive Officer Jim Fish said operating EBITDA margin expanded 40 basis points during the quarter, overcoming a 60-basis-point headwind from prior-year wildfire volumes and a 40-basis-point headwind tied to higher energy surcharges. Free cash flow increased 35% in the quarter, supported by earnings growth, lower capital expenditures and working-capital benefits.

The company narrowed its full-year revenue outlook to between $26.275 billion and $26.475 billion, a reduction of about 1.5%, reflecting softer-than-expected Collection and Disposal volumes, lower recycling brokerage activity and delays connecting certain renewable natural gas plants to pipelines. Management maintained its full-year operating EBITDA and free-cash-flow guidance and raised its margin outlook by 20 basis points.

Margins Expand as Collection Costs Remain Contained

President John Morris said operating expenses remained below 60% of revenue for the sixth consecutive quarter, despite the combined effects of prior-year wildfires and increased fuel prices. Labor costs rose approximately 4%, but collection operating costs increased less than 1.7% from the second quarter of 2025, according to Morris.

Management attributed the cost performance to productivity initiatives, pricing actions, automation, process discipline and technology investments. Fish said WM’s Smart Truck platform, which uses technology including artificial intelligence, is generating more than $300 million in annual run-rate operating EBITDA through service upgrades, route optimization and lower operating costs.

Chief Financial Officer David Reed said Collection and Disposal improvements contributed 140 basis points of margin growth, while recycling, renewable energy and Healthcare Solutions together added 40 basis points. Those gains were partly offset by roughly 40 basis points from higher technology investments and the timing of risk-management costs in the company’s corporate and other segment.

SG&A expense improved by 60 basis points to 9.9% of revenue, returning below 10% for the first time since the company acquired its Healthcare Solutions business in 2024. Reed said WM expects full-year SG&A to be around 10% of revenue.

Volumes Softer, but Management Cites Industrial and Special-Waste Strength

Collection and Disposal volumes declined 0.4% in the second quarter excluding the impact of prior-year wildfire activity. The company now expects volumes to be relatively flat in the second half and to decline by nearly 1% for the full year, or about 50 basis points excluding the 2025 wildfire-cleanup impact.

Morris said residential volume declines improved by 200 basis points sequentially to negative 2.9%, and the company expects those losses to continue moderating in coming quarters. Special-waste volumes rose 4.5% excluding wildfire activity, while industrial collection volumes showed modest growth.

Fish said the company did not see signs that broader economic weakness was driving the volume shortfall. He pointed to special-waste growth and industrial roll-off volumes that were slightly positive over the preceding four weeks. Instead, he said commercial volumes were affected primarily by lost national accounts, which management characterized as a more limited issue rather than evidence of broader competitive deterioration.

Higher energy surcharges are expected to generate about $175 million of additional 2026 revenue, Reed said, partially offsetting an estimated $250 million revenue reduction from lower Collection and Disposal volumes. The company also expects approximately $75 million less revenue from sustainability operations due to lower recycling brokerage volume and delayed RNG pipeline interconnections.

Recycling, Renewable Energy and Healthcare Solutions Contribute

WM processed 12% more recyclables year over year during the quarter. Fish said recycling automation projects have delivered a sustained 30% improvement in labor cost per ton compared with legacy facilities. Chief Operating Officer Tara Hemmer said the company has completed 38 of the 39 recycling-facility projects included in its capital plan, with the final project expected to come online in 2027.

Hemmer said commodity prices were down year over year, though the company has seen improving prices for old corrugated containers and some positive movement in plastics. WM began the year using a full-year commodity-price outlook of $70 per ton; Hemmer said the full-year outlook may be somewhat higher, though that benefit could be offset by operational effects related to a fire at an Arizona facility.

The company produced an additional 1.6 million MMBtu of renewable natural gas during the quarter. However, two completed plants have not yet begun delivering gas into pipelines because of third-party interconnection work. Management said it expects the plants to be connected by year-end. Hemmer said WM has locked up 90% of its 2026 renewable identification number volume and has pre-sold roughly one-third of its expected 2027 RINs.

Healthcare Solutions expanded operating EBITDA margin by 200 basis points to 19%. Morris said SG&A expense in the segment declined 15% and improved 290 basis points as a percentage of revenue. Fish said the business is now integrated following the Stericycle acquisition, with days sales outstanding improving and customer credits declining after peaking in the fourth quarter.

Cross-selling initiatives have generated $32 million of annual operating EBITDA to date, and WM remains on track to deliver more than $300 million in total synergies by the end of 2027. Management expects core pricing in Healthcare Solutions to exit 2026 above 5.5%.

Cash Flow, Capital Allocation and Outlook

For the first six months of 2026, operating cash flow rose more than 17% to $3.23 billion, while capital spending declined more than 18%. Free cash flow increased more than 56% to $2.02 billion, representing operating EBITDA conversion approaching 52%.

WM used $1 billion for share repurchases and paid $764 million in dividends during the first half. The company ended the quarter with leverage of 2.96 times, within its targeted range of 2.5 times to 3 times, and expects leverage to decline in the second half.

Fish said WM closed $235 million of solid-waste tuck-in acquisitions during the quarter and expects to increase core acquisition activity after returning leverage to its targeted range following the Stericycle purchase. The company also raised its 2026 operating EBITDA margin expectation to between 31% and 31.2%.

About Waste Management (NYSE:WM)

Waste Management, Inc NYSE: WM is a leading provider of integrated waste management and environmental services in North America. The company offers end-to-end solutions that span collection, transfer, disposal and recycling, along with landfill operations and related infrastructure. Headquartered in Houston, Texas, Waste Management serves a broad customer base that includes residential, commercial, industrial and municipal clients.

Core services include curbside and commercial waste collection, roll-off and temporary container services, materials recovery and recycling, and engineered landfill disposal.

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