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F500 2021-202-Waste Management Inc.

Waste Management offers environmental services to nearly 21 million residential, industrial, municipal, and commercial customers in the U.S., Canada, and Puerto Rico. The company experienced a modest downturn in 2020 as sales fell 1.5% and profits dropped by 10.4% compared to the year before, but Waste Management still rose five spots in the Fortune 500 rankings to No. 202 on relative strength.

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F500-2020-207-Waste-Management

Creeping six spots up this year's ranking, Waste Management collects, recycles, and disposes of garbage in the United States and Canada. It also owns and operates landfill gas-to-energy facilities via subsidiaries in the U.S.

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Waste Management is an environmental solutions and waste management company that provides collection services for residential, commercial, industrial, and municipal customers. It owns and operates hundreds of active landfills and transfer stations and offers materials processing and recycling; it also operates landfill gas-to-energy facilities for renewable electricity and gas. Waste Management completed a $7.2 billion acquisition of Stericycle in 2024.

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Waste Management (WM): Company Profile, Stock Price, News, Rankings

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Waste Management

waste management

Good day, and thank you for standing by. Welcome to the WM Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker host, Ed Egl, Vice President of Investor Relations. Please go ahead.

Thank you, Livia. Good morning, everyone, and thank you for joining us for our third quarter 2026 earnings conference call. With me this morning are Jim Fish, Chief Executive Officer, John Morris, President, David Reed, Executive Vice President and Chief Financial Officer, and Tara Hemmer, Executive Vice President and Chief Operating Officer. Jim will cover high-level financials, John will cover an operating overview and provide a strategic update, and Dave will cover the details of the financials. Following our prepared remarks, each of these members of our leadership team will be available during the Q&A portion of the call. Before we get started, please note that we filed a Form 8-K that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, the press release, and the schedules for the press release include important information.

During the call, you will hear forward-looking statements, which are based on current expectations, projections, or opinions about future periods. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are discussed in today's press release and in our filings with the SEC, including our most recent Form 10-K and Form 10-Qs. We will discuss our results in the areas of yield and volume, which, unless stated otherwise, are more specifically references to internal revenue growth, or IRG, from yield or volume. During the call, we will discuss operating EBITDA, which is income from operations before depreciation, depletion, amortization, and accretion. Beginning this year, landfill accretion expense was moved from operating expenses to depreciation, depletion, amortization, and accretion to enhance comparability and better reflect operating performance.

For comparability purposes, 2025 actuals have been updated to reflect that change. Any comparisons, unless otherwise stated, will be with the prior year period. Net income, EPS, income from operations and margin, operating EBITDA and margin, operating expenses and margin, and SG&A expense and margin have been adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations. These adjusted measures, in addition to free cash flow, are non-GAAP measures. Please refer to the earnings press release and tables, which can be found on the company's website at www.wm.com, for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures. This call is being recorded and will be available 24 hours a day beginning approximately 1:00 P.M. Eastern Time today. To hear a replay of the call, access the WM website at www.investors.wm.com.

Time-sensitive information provided during today's call, which is occurring on October 28th, 2026, may no longer be accurate at the time of a replay. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of WM is prohibited. Now I'll turn the call over to WM CEO, Jim Fish.

Okay. Thanks, Ed, and thank you all for joining us today. As most of you know, after concluding ten years as CEO, I'll be retiring in early January. At that time, John Morris will become WM's new CEO. John's promotion is the result of a thoughtful, deliberate succession planning process by our board of directors, and I have the utmost confidence that John is the right person to lead WM into its next chapter and build on the momentum that we've established. Looking at the results, we're right on track to achieve our guidance for the full year, with revenue and free cash flow expected to finish at the high end of our ranges. During my tenure as CEO, we've achieved or beaten our original operating EBITDA guidance every year except for 2020 during COVID, and we're on track to do that again this year.

Taking a look at the third quarter, the company grew operating EBITDA by 5.8%, grew revenue by 6.3%, continued to reduce our SG&A down to 9.3%, maintained operating EBITDA margins at 31% in the face of strong headwinds from fuel, and grew free cash flow by 20%. Lastly, I'm pleased that our Healthcare Solutions business is in such a good place after two years of hard work on the integration. For the first time since the acquisition, revenue is up year over year, and we grew operating EBITDA 33%. I believe this is going to prove to be one of the best acquisitions in the history of the company. I want to finish my brief remarks today with a thank you and a farewell.

It's been a tremendous privilege to be in this role for ten years at this great company and to work with such a fantastic team of 60,000 people. You are all truly amazing. I want to say to our many investors and to each of you on the sell side who cover our stock, how much I've appreciated all of the support you've given me over the years. Your questions have been fair, your coverage has been comprehensive and intelligent, and your faith in us has been unwavering. I wanted to tell a quick story here. When I was just coming into my CFO role and my first investor meeting, Ed and I were out in San Francisco, and we met with Charles Elwine at Capital Group. In my naive way, I told him that we had a plan to get SG&A down to 11%.

I think at the time, it was at 12.7%. Charles, in a nice way but in a firm way, said, "Jim, I know you're new in the job." Just so you know, though, we've heard that from you guys for a long time. To be honest, I don't believe you. I'll believe it when I see it. A couple of years later, when we actually did get SG&A down to 11%, I'll never forget, Charles called me and he said, "Jim, I didn't believe you at the time, but you did prove me wrong, so thank you for that and great job." I don't know whether Charles is on the call today, but I have to say that no other call from an investor meant more to me than that call that day from Charles.

Now that we're at 9.3%, and I expect that to drop below 9% at some point down the road, I do think back on that, so I wanted to tell that story. Lastly, I want to tell you that I am leaving WM with tremendous confidence, not only in John, but in Tara, in David, in the rest of the senior leadership team, and the entire leadership of WM. The company is in such a great place strategically, financially, customer-wise. When I'm no longer on the inside, I will have the greatest trust in this management team. I love the culture that we've built here at this company, and I strongly believe in the long-term strategy of the company. So I am truly a shareholder for the long-term.

It's been a joy for me to work alongside so many amazing people over this 25 years, and I look forward to supporting John and the team through the transition and watching WM continue to create value for all of its stakeholders. With that, I'm going to turn the call over to John, and he can share his perspective on the quarter, on our outlook, and on the opportunities ahead for WM.

Thanks, Jim. It's certainly an honor to have the opportunity to lead WM, and I appreciate the confidence that you and the board have placed in me. Over the years, I've experienced firsthand the strong foundation we've built centered around our people, culture, and strategy. I look forward to building on that foundation and driving opportunities to deliver value for our customers, employees, communities, and our shareholders. Now let's turn to our performance in the quarter and our outlook for the business. WM delivered another quarter of solid operating and financial performance. Operating EBITDA grew 5.8%, driven by strong price to cost spread in the collection and disposal business and growing contributions from our Healthcare and sustainability businesses.

Our results reflect the earnings power of our diversified business as growth came from every one of our operating segments, with operating EBITDA increases of more than 30% in each of the Healthcare and Sustainability segments in the quarter. In collection and disposal, disciplined pricing and technology-enabled cost optimization continued to drive results. Core price again was strong at 5.8% for the quarter. Despite a 70 point headwind from higher fuel costs, total company operating expenses remained below 60% of revenue, demonstrating the increasingly important role technology, combined with process improvements, is playing in sustaining our performance and helping us to structurally lower our cost to serve. Growing the collection and disposal business through tuck-in acquisitions remains a strategic priority. We have completed $239 million of deals through the first nine months of the year and expect to close another $140 million in the fourth quarter.

We have also signed a $250 million transaction that we expect to close early next year, and our pipeline remains robust, supporting continued acquisition activity into 2027. Turning to Healthcare Solutions, I am very pleased with the progress we have made in the business in the third quarter, with revenue up by 3.7% and operating EBITDA increasing 33%. We had two year-end targets for the business as we exit 2026: core price at 5.5% and SG&A of between 15% and 16% of revenue. We achieved both of those targets earlier than expected, with third quarter core price coming in right at 5.5% and SG&A at 15.2% of revenue. This progress reinforces our confidence that we can bring the same price and cost discipline to healthcare that has driven our success in solid waste.

The benefits of disciplined investment and execution are evident in our Sustainability businesses, where the projects we have brought online are increasingly contributing to revenue and earnings growth. Recycling, processing, and sales segment operating EBITDA increased 40% to $91 million in the third quarter. That strong growth reflects the benefits of our investments in our automated network as well as year-over-year improvements on our blended average commodity price. On the renewable energy front, we added a new renewable natural gas facility in New York during the quarter, marking the 18th facility completed since 2022. Segment operating EBITDA grew more than 35%, despite slightly lower RIN pricing as compared to the prior year. With more than 90% of our expected 2026 production and about 40% of our 2027 production already contracted, we are also improving earnings visibility and reducing commodity price exposure.

As we move through the fourth quarter and prepare for 2027, our priorities remain clear: maintain disciplined price to cost spread, continue embedding technology and process improvement across our operations, execute additional tuck-in M&A, and capture the earnings and free cash flow benefits of our strategic investments. Our focus on these priorities gives us confidence in our ability to deliver strong results in 2027. Before I close, I want to thank our employees for their dedication and commitment they bring to serving our customers and communities every day. Our performance is a direct result of their hard work and strong execution, and I deeply appreciate all they do. With that, I will turn the call over to David.

Thanks, John, and thank you all for joining us. We are pleased to report another quarter of growth across each of our operating segments. The breadth of this performance underscores the durability of our business model and the consistent execution of our teams. In collection and disposal, favorable price to cost spread added 40 basis points of underlying margin expansion. Healthcare Solutions contributed another 30 basis points from cost management and pricing growth as we continue to realize the benefits from the integration and beginning to see pricing traction. These core business contributions were offset by primarily a couple of headwinds, 40 basis points from higher fuel costs, and 40 basis points from increased risk management costs within our corporate and other segment. Even with those headwinds, the underlying performance of the business remained strong and demonstrated our ability to protect profitability while continuing to invest for long-term growth.

Turning to revenue, strong pricing results were led by the commercial line of business. Collection and disposal volume was modestly negative, primarily reflecting continued intentional residential losses, which have improved each quarter this year, and the national account broker losses in commercial that we discussed last quarter. Overall, our core price and yield are tracking to the high end of our guidance, with volume still expected to be about negative 1% for the year or negative 50 basis points when excluding wildfire cleanup volumes from the prior year. Our energy surcharge program continues to effectively recover higher direct and indirect fuel costs in both the solid waste and healthcare businesses, even as diesel spiked to record highs in the quarter. Finally, higher recycling and renewable energy volumes from completed growth projects and year-over-year increases in recycling commodity prices added to the top line.

Turning to SG&A, expenses improved 70 basis points to 9.3% of revenue in the third quarter. This improvement reflects disciplined cost management across the company, together with continued synergy capture from the Healthcare Solutions business. As John mentioned, Healthcare Solutions SG&A was 15.2% of revenue in the third quarter, reaching our year-end target ahead of schedule and representing a 390 basis point improvement compared to the prior year. This reinforces our confidence in the integration and earnings potential of the business as we continue to streamline support functions, drive operating leverage, and scale the platform. Our earnings growth continues to translate into robust cash generation. During the first nine months of the year, operating cash flow increased 12% compared to the same period in 2025.

As planned, capital spending declined by more than 17% from the prior year, reflecting normalized investment in collection vehicles and lower sustainability capital as we approach the completion of our planned investment program. Together, these results drove free cash flow of over $3 billion, up more than 42% through the first nine months of the year, with operating EBITDA conversion of 50%. We remain focused on converting earnings growth into cash efficiently while funding the investments that support safe, dependable operations and attractive long-term returns. We allocated more than 90% of that free cash flow to shareholder returns during the first nine months of the year, repurchasing $1.58 billion of our shares and paying $1.14 billion in dividends. That balanced approach reflects our confidence in the business and our commitment to returning capital to shareholders while maintaining the financial flexibility to invest in our strategic priorities.

We also remained within our target leverage of 2.5x-3x, ending the quarter at 2.92x. Our strong cash generation, disciplined capital allocation, and continued focus on the balance sheet position us well to create sustained value. Finally, let me bring the pieces of our outlook together as we look to the balance of 2026. Strong pricing, cost optimization, and robust cash generation through the first nine months position us well to deliver our full year outlook. We expect operating EBITDA to be within the guidance range we established at the beginning of the year, and we anticipate revenue and free cash flow results to be at the high end of our prior ranges. Our expectations include full year SG&A of about 10% of revenue, reflecting cost discipline across the organization and the success of our integration and Healthcare Solutions.

Overall, the resilience of the solid waste business, continued progress in Healthcare Solutions, and growing contributions from our sustainability investments reinforce our confidence as we close out 2026 and build a strong foundation for continued growth. In closing, I want to thank the entire WM team for their hard work throughout the quarter. We enter the final months of the year with strong momentum, clear priorities, and confidence in our ability to finish 2026 on a high note. With that, Livia, let's open the line for questions.

Certainly, ladies and gentlemen, to ask a question at this time, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, simply press star one one again. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Tyler Brown with Raymond James. Your line is now open.

Hey, Jim. It has been a pleasure. Wishing you definitely all the best and John, big congrats. Hey, David, just appreciate the guidance color, but I was hoping for maybe a little more color.

Just on the Q4 EBITDA shaping, the range is still, call it $100 million at the EBITDA line. We typically see a slight step down in margins sequentially into Q4. Is that what we should expect? Would we maybe be shading towards the lower end on EBITDA for Q4?

Sure. I can give you some color here. We are obviously very pleased with the results through year to date. Fourth quarter should be consistent with the results we have posted all year. Note that similar to last year, we did have improving margins sequentially through the year, and we expect our best performance from a margin perspective in Q4. Having said that, if you think about the margin impact of fuel this year, which we are assuming is about a 40 basis point impact, our year-over-year margin comparison will likely be a bit lower than the fourth quarter of 2025, all else equal. That probably helps give you a little bit of color.

And then, in terms of a couple of things just to keep an eye out in terms of what would progress that performance up from there is really if you think about, we do have sequential improvement in our renewable energy business from Q3 to Q4. That will happen as most of our shortfall in RNG production related to startup activity that we alluded to last quarter actually occurred in the third quarter. So you will see a pickup in the fourth quarter. But then if you think about our sustained strength in our pricing program, both in solid waste and in healthcare, along with any improvement in the volume landscape, particularly things like special waste, that would aid our relative performance.

And then finally, the last thing I would point out is just obviously any incremental strength in recycling commodity prices would further improve our Q4 results towards or above the midpoint.

Stepping back, I would just say, if we think about the guidance range in general, given where we started at the beginning of the year and the moving pieces and the dynamics, we are definitely impressed with the resiliency and the strength of the business.

Yeah. Okay, perfect. John, I think you mentioned that risk was a sizable headwind. One, to be clear, was that in corporate? Two, was it accident or insurance premium related or what exactly is that? Is that something that lingers into Q4 and into 2027, or how should we think about that?

Tyler, it is a good question. I would tell you first and foremost, it is not related to our safety performance. It has more to do with an out-of-period adjustment that happened in Q3. If you look at our safety statistics and performance, that is not what is driving it. In fact, across the broader business, including our Healthcare business, we are seeing a nice improvement in our recordable injury rate and our accident rate. It is not that. I will let David comment on the actual number for the quarter.

Yeah, there is an element that is in corporate and other, and then an element outside of that. For the company in general, it is about a $63 million increase year-over-year for Q3. The higher-risk costs were attributed to three items. The first of which is we had a negative impact associated with our third quarter actuarial adjustment. It is always a little bit of a wild card, but I would point out that this follows six consecutive quarters of positive variances against our actuarial report. As John alluded to, it is not to be construed as a trend or a fundamental change in terms of the frequency or activity of events. Secondly, we had some cost estimate increases associated with a few large loss claims that were accrued during the third quarter.

Then third, we had a tough comp versus last year where we had an insurance recovery in the third quarter of last year. So the expense was higher than we expected, but we do not expect that to have an outsized negative impact as we carry forward.

highlight just one important point. About $40 million of that was in corporate and other, and $23 million was in collection and disposal. That is something that is impacting the collection and disposal growth.

Okay. Excellent. Perfect. Great color. Just last one real quick. I just want to make sure that I read the release correctly, which is always a little risky, but I think healthcare revenue was up maybe 4%. If I look at core price and volume, it only contributed maybe $1 million to revenue growth. I think, John, you said that core pricing was up 5%, so were volumes down about 5%? It seems that maybe most of that 4% was from fuel surcharges. Regardless, it seems like good SG&A management and the core pricing is what is driving the EBITDA there. Any color there would be helpful.

Yeah, I think you hit some of the big pieces of that. We are really proud about where core price is at 5.5%. We said a handful of quarters ago, I think I said we think that at some point that will approximate what we do with the solid waste business. We had targeted to be at 5.5% at the end of the year. We are there at the end of Q3. SG&A, we said 15%-16% at the end of the year. We are closing in on 15% at the end of Q3. So really good story there. I think the EBITDA comment you heard from Jim and from myself at over 30% improvement shows that we are taking a lot of what we would call the WMOA and working on price to cost spread and whatnot. There are still some volume headwinds that we have talked about.

What I would tell you, Tyler, is when you look at the trends, I am not putting a stake in the ground to say when they are going to get positive, but I will tell you both on the secure document side and on the healthcare side, we are seeing improving trends as we go into 2027. Lastly, there was some tailwind too from the fuel side in the healthcare business. Overall, as Jim mentioned, it has been two years of hard work, and I feel like we are really starting to hit our stride here in terms of what it is doing for the business from a segment perspective, and also what it is doing on the other side of the fence, if you will, with regard to the benefits on the core solid waste business.

Okay, perfect. Excellent. Thank you, guys.

Thank you. Our next question in queue coming from the line of Jerry Revich with Wells Fargo. Your line is now open.

Yes. Hi, good morning, everyone. Hi, Jerry. Jim and John, congratulations. Jim, I think the stock is up 6x since you were appointed CFO. So really, a fantastic performance by the team.

I want to ask, in terms of, we had some lumpier costs this quarter. Obviously, risk costs can move around on us. As you folks think about pricing heading into 2027, are you thinking about pricing for potential additional one-off risks? Should we expect 2027 to be an outsized year of the price-cost spread for you folks given some of the variability that we see here?

Jerry, the one area that we're really focused on is landfill and transfer station pricing. We think that we have an opportunity if you look at where our post-collection assets are and how critical and advantaged they are within the network. Also, we are experiencing some increased landfill operating costs, and we expect those to persist. A great example of that is in California, where there's new legislation that will require enhanced monitoring and some other things that will flow. We know that we can pass along these costs through pricing and leverage that. As we look to 2027 and beyond, we're going to look to continue to enhance our landfill and transfer station pricing.

Super. Thank you, Tara. Can I ask, in terms of the update on the RNG development plans, looks like those are coming along nicely. D3 RIN price is obviously a bit softer recently. Can you just talk about directionally the incremental earnings that you're expecting 2027 versus 2026? I know you'll give us a wholesome update in about three months, but I'm wondering, based on what you folks have been able to put into service, how does the growth 2027 versus 2026 compare to what you folks had laid out maybe six months ago?

Sure. When we look at the renewable energy business, what we reflect on is that we're through so much of the hard things. We have all of these plants constructed, 18 of them online. We'll have another one come online in Q4, and the last one will come online in early Q1 of 2027. We've learned a lot of lessons along the way on what it takes to start these up. We have also gotten through a lot of the pipeline issues that we referenced that impacted really Q3 of this year. The other thing that we've demonstrated is our ability to navigate pricing. We had given an outlook of $26 as a long-term number. This year, we should land a little bit higher than that, more like $27. That price impact, from a flow-through perspective, is being impacted by lower production, which we've already talked about.

We are pleased with the progress. The rollover impact, we are going to see increased EBITDA from these plants, those that came online in 2026 and also in 2027. Last thing I will say is we gave this framework of 80/40/20 to have 40% of our volume locked up for next year, and we are at that number today. We feel very confident about our ability to hit the $26 number. We will give a little bit more color on the EBITDA ramp in early 2027.

Thank you. Our next question in queue coming from the line of Toni Kaplan with Morgan Stanley, your line is now open.

Thanks so much. I was hoping you could update us on some of the volume trends in the core business, including particularly the intentional shedding in resi. Are we through with that at this point, or is that going to continue?

Yeah. Good morning, Toni. Thanks for the question. For the full year, we said we will be about a 1% decline in volume or about 50 basis points if you take out the wildfire comp year-over-year. To your question, though, I would tell you, starting with residential, we are pleased with what we are seeing, which is what we told you folks is in the second half of the year, we would start to see this trend towards positive. While we are -3.5 year-to-date, we are 2.6 for the quarter. We are tracking along. What I would also tell you is if you look at the core price yield and revenue bill for residential, we are up about $40 million in revenue despite the volume loss. We are tracking the right way there.

We have said, again, not putting a stake in the ground on when it is going to go positive, but we feel good about the trend going into 2027. To continue on volume, if you look at our industrial roll-off, it was flat, slightly positive, which is frankly what we have been seeing through the year. That is probably a line of business, got some indication of what is going on in the broader economy, in particular around construction. Even though that has been a headwind on the construction and disposal volumes, we are pleased that our roll-off volume has held up. That tells you about the rest of the industrial line for us. Commercial down about 1.3%, which was slightly more negative than what we printed in Q2. I would tell you, it is really two major things.

It is one, is what we talked about, some national account and broker decisions that we made last year that we should lap right around the end of Q1, and then a little bit of pressure on the SMB business. I would tell you where construction and housing are doing what they are doing, it is not a total surprise that we are not seeing the same strength in the business formation. What I would tell you, though, is some of the metrics we keep an eye on, whether it is service increases and decreases, whether it is our churn rate, our ability to get pricing in commercial, even in this high fuel environment, we are seeing no wavering in that. In fact, we have seen some positive trends there net of these two bullet points in commercial.

That is great. Then shifting to technology investments, hoping you could just give us some color on the benefits you have been seeing from maybe the pricing program and what is sort of next on the technology side. Thanks.

Sure. Obviously, technology is something that we've leaned into as a company, and we've been leaning into for some time, whether it's Smart Truck that we have on our trucks that helps us look at where we might have overages. That's something that we're continuing to enhance. On the operating side, we have technologies in play that are helping us with the health and safety of our employees, some tools in our trucks, and also routing algorithms. We have something called NVO on the industrial side of the business that's helping us route on a daily basis much more effectively and using it for traffic conditions in real-time. We're also looking at where we might have opportunities to leverage AI in some unique applications relating to helping our dispatchers.

The way I would frame our technology journey is this is something that's been a part of our fabric for several years now and is going to be what we lean into to continue to expand margins in that 50 to 100 basis point range consistently over time.

That's a great answer, Tara. I think the one thing I would add, Toni, is on the Healthcare side, too, we're in a very early innings, and we've talked about the benefits of our technology applications over top of what Healthcare is. It's the things Tara talked about, sort of the operating expense benefits we can get from routing and the other forms of technology we're embedding in the business. One example there is we've been upgrading a lot of the robotics capabilities inside some of the processing plants, which is helping us meet some of the challenges with the broader labor market. I think on pricing, I mean, we've talked about this a good bit. I think the predictive analytical tools that we've built, Mike Watson and team have shown up and continue to show up in our ability to syndicate pricing across the broader business.

Frankly, you're really starting to see it show up in the Healthcare business in the last few quarters.

Thank you. I will add my congratulations to Jim and John. Sorry about that. All right. Thanks.

Thank you. Our next question in queue coming from the line of Tami Zakaria with JPMorgan. Your line is now open.

Hi. Good morning. Thank you so much, and congrats to both Jim and John. I wanted to follow up on Toni's question. In hindsight, what are some of the key reasons or factors that drove your volume outlook to fall short this year versus your original expectation of it being up?

I think there are two places where it is probably, Tami, a tad softer than we originally anticipated. I mean, clearly you see some of the volume declines in residential. A lot of that was planned, but it is contributing to the negative volume print. I think when you look at, there is a little bit of softness in some of the landfill volumes. I mentioned C and D. I think that is actually more a reflection of what is going on in the broader economy. The other one was commercial. It is not far off what we predicted. I do think some of what we are seeing in the macro environment is impacting some of the business formation in the commercial line of business.

Understood. That is very helpful. Then, excellent margin performance in the quarter on the Healthcare Solutions side. As we look into the fourth quarter, are you still expecting Healthcare Solutions growth sort of exiting the year with a mid-single digit percent type of growth rate?

Well, listen, we are really proud about the progress we made in the first half of the year and then going into the second half of the year. I know Brent and team are working hard to do two things. One is continue to make progress in the middle of the P&L, and you have seen the focus on the SG&A line and the progress that they have been able to deliver there, in addition to the pricing progress through the end of Q3. I would tell you, we are not going to take our foot off the gas there. As Jim mentioned, I think as we start to unpack more and more this Healthcare Solutions business, we see it as a really good strategic investment going forward.

Thank you. Our next question coming from the line of Faiza Alwy with Deutsche Bank. Your line is now open.

Yes. Hi, thank you. Good morning and congratulations from me as well to both to Jim and to John. I guess, John, I am curious, as you step into the CEO role, how should we think about your strategic focus, priorities? I know you have talked about potentially higher level of solid waste M&A, but curious if there is other areas of investments that you are thinking about, just kind of what your priorities are and if anything changes.

Well, I think what you have heard from Jim and David and I over the last couple of quarters is, one, us certainly being focused on returning cash to shareholders, and we have talked a lot about that, and I am sure Dave will get a chance to comment a little bit more on that. We do think now that we feel like we have turned a corner, if you will, on Healthcare, we have got the ability to be a little more aggressive in terms of what we do on the core solid waste side, and we see that as a strategic priority. As referenced in my prepared remarks, what we have done through the year to date, what we expect to close in Q4, and we have already got teed up for the first quarter, suggest that we have got good runway.

And listen, that's a core competency of the organization is to bring in those core solid waste businesses and tuck those in. At the same time, I think you'll continue to see us build on the Healthcare Solutions business and look for further ways to integrate and take the advantages of cross-selling, in addition to some of the operating expense opportunities we have in that business. I think other than that, I think you're going to see us continue. There's not going to be any big shifts in the way, I think, just because Jim's going to retire here in a few months. We've all worked together for a long time and built this strategy collectively. I feel like we've got a terrific path charted that we're going to continue to pursue.

Great. Thank you. Then question for David regarding free cash flow. I know you're saying you're not going to be at the high end of the free cash flow guide, and you haven't been specific around where in the guide you land on EBITDA. Just curious, what's driving that higher free cash flow? Is it timing and any thoughts, or whether that impacts next year?

Sure. We're very pleased looking three quarters into the year with printing over $3 billion of free cash flow, and then obviously the strong, almost aspirational number, but hitting the strong EBITDA to free cash flow print of 50%, which was really great to see. A lot of that was expected. We've talked a lot about this year being harvesting, so the strong earnings growth, the lower capital spending that we've been alluding to for a number of quarters now are playing out as we anticipated. I will say a couple of other areas that have been pleasant surprises. Cash taxes was a bit favorable relative to what we thought we were going to have for this year. We've had a nice sustained improvement in working capital, particularly around accounts payable. That's been driven by some of our active strategies in vendor management.

That's given us a little bit of extra push in terms of our results and expectations for the year. As we look into the fourth quarter, I do anticipate that we'll have sequentially higher CapEx spending, which is common as we close out the year. While we're going to be within our guidance range for capital spending, we're probably going to be more towards the higher end, as thinking about that $2.75 billion number as well. Again, really good result for the year. We talked up this being the year of harvest and returning cash to shareholders, and that's how it's playing out.

Thank you. Our next question coming from the line of Bryan Burgmeier with Citi. Your line is now open.

Hi. Good morning. Thanks for taking the question. And, yeah, congratulations to both Jim and John on the next phase of your journeys.

Yeah, just on the quarter. Obviously a really big step-up in Healthcare margins as you flagged. Can you just maybe remind us how much of a benefit you have in 2026 from cost synergies and maybe how much is remaining there? Do you see this low 20s EBITDA margins as sort of an achievable run rate going forward?

Yeah, Bryan, we are super pleased with where we are on the margin front. To answer your question, I think we still have some room to go there. To your first part of your question, I think mid-2027 right now looks like where we are on track to hit kind of the synergy target, which would be a little bit ahead of what we originally planned. Credit to the team, some of the challenges we faced in the first year, 18 months, we have certainly weathered the storm, and now the team, like I said, has really seemed to hit their stride and gain momentum. So I think mid-year 2027 is when we should be right around that synergy target we have talked about.

Got it. Thanks for that. John, I think base CapEx for WM was down to maybe 9.5% this year. Just curious if, similar question, if you see that as kind of a sustainable level, or is there maybe a little bit of a catch-up going forward? Any thoughts around sort of fleet age or technology investments could be helpful. Thank you. I will turn it over.

Yeah, I think, Bryan, on technology, we have got that sort of baked into our capital run right now. On the fleet side, obviously, we talked about the fact that we have caught up, and you will see more steady state there. I think the long-term capital run rate is still probably 10%-10.5%. It is down a little bit this year relative. I think it is down 17% for the quarter, I think.

Yeah. Year-to-date, excuse me. Some of that has to do with we're slowing. We're completing the spending on a lot of the sustainability investments. The fleet spends has come down a little bit. But I think long-term, 10%-10.5% is still going to be the right range for us.

Thank you. Our next question in queue coming from the line of Konark Gupta with Scotia Capital. Your line is now open.

Thanks, and echo best wishes to both John and Jim here. First question on M&A opportunities. You guys laid out, obviously, some near-term opportunities in the fourth quarter and maybe early 2027. But I'm curious on your thoughts. In the event of one of the larger players spinning off some assets over time, would you guys be interested in any specific pockets of the markets or any specific types of assets in that spin-off potentially? Or, you guys have probably already a lot of density in various markets you want to be in, so you probably would pass on some of those opportunities.

Yeah. I think the way I would answer it, Konark, is if it's certainly solid waste core assets, we'd be interested in those. Hard to pick a geography where we wouldn't be more interested. Even on the haz side or the industrial side, where we've got assets and services that we could wrap those assets around, we'd be interested in that as well. I think the good news is that, credit to David and the team, that the balance sheet's in great shape. So regardless if it was a smaller one or a larger one, if it fit our strategic lens, it'd be something we'd certainly be able to pursue.

Yeah. Great. Thanks for that. Then just as a follow-up,

The current environment we are in right now, obviously the fuel prices and energy prices keep ticking up. We do not know when the inflation ends and all that. Do you think we are in a maybe more sustainably than before, higher for longer pricing environment and weaker for longer volume environment? Is that the trade-off that we are playing for the next one year or two maybe?

Well, I would tell you, we have obviously historically been able to price through sort of the ebbs and flows of inflationary pressures, whether you look at CPI or WST more recently. I think you look at what we have been able to do is certainly maintain across the price spread and actually improve that. Now, specific to $6.37 gallon diesel, let us all hope for everybody that that is not the case long-term. In the short-term, as you heard from us in our prepared remarks and some of the Q&A, that we are finding our way to recover that cost broadly across the portfolio.

Yeah. Great. Appreciate the color. Thank you.

Thank you. Our next question in queue coming from the line of Seth Weber with BNP Paribas. Your line is now open.

Hi, guys. Good morning. I just wanted to follow up on your comments about the SMB market. Given the strong core pricing, I am wondering if you are seeing any fatigue or higher churn on just the consumer side. Thank you.

Waste Management (WM) Q3 2026 Earnings Call Transcript

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