Waste Management's Q3 2025 Earnings Call: Contradictions Emerge on Industrial Volumes, Healthcare Solutions, and Stericycle Integration

Date of Call: October 28, 2025

Financials Results

• Operating Margin: Total company operating EBITDA margin 30.6% in Q3 (best quarterly result in company history); WM legacy operating EBITDA margin 32% in Q3 (surpassed long-standing >30% ambition); collection & disposal operating EBITDA margin 38.4% (expanded 100 bps).

Guidance:

• Full-year 2025 revenue expected at the low end of prior guidance range.
• FY2025 consolidated margin guidance raised to 29.6%–30.2%.
• Early 2026 view: free cash flow approaching $3.8 billion driven by harvesting sustainability investments, lower fleet CapEx and healthcare-synergy carryover.
• Target leverage 2.5–3.0x by mid-2026; continue disciplined capital allocation including dividends, M&A and potential share repurchases.
• Renewable energy and RNG contributions expected to remain supportive; recycling near-term commodity weakness but automation benefits intact.

Business Commentary:

* Strong Financial Performance and Revenue Growth: - Waste Management reported a 38.4% operating EBITDA margin in Q3, a record high, with operating EBITDA growing more than 7%, supported by strong performance in core collection and disposal businesses. - The growth was driven by increased landfill volumes, disciplined pricing, and operational efficiencies.

• Sustainability Business Performance:
• The recycling segment's operating EBITDA grew by 18% despite a 35% decline in recycled commodity prices.

• This performance is attributed to improved operational efficiencies and automation investments.

• Cross-Selling Opportunities and Strategic Acquisitions:

• Waste Management leveraged cross-selling opportunities from its acquisition of WM Healthcare Solutions, with revenues from healthcare solutions contributing $80 to $100 million in synergies.

• The strategic value of the acquisition is evident as it has led to significant customer spend increases and integration benefits.

• Free Cash Flow Projections and Investments:

• The company is forecasting a significant increase in free cash flow to $3.8 billion in 2026, driven by the harvest of investments in sustainability and technology.
• This trend reflects the completion of large-scale projects like landfill infrastructure and fleet improvements.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted operating EBITDA growth >15% and free cash flow growth nearly 33%, a record quarterly operating EBITDA margin of 30.6%, WM legacy margin of 32%, confidence that 2026 FCF will approach $3.8B, and repeated statements of confidence in healthcare synergies and sustainability investments driving future cash flow.

Q&A:

• Question from Tyler Brown (Raymond James): Year-to-date benefit from one-time wildfire/cleanup work; details on charges (Natura plastics idled, hazardous landfill impairment, renewables charge); drivers behind 2026 free cash flow target and sustainability EBITDA trajectory?
  Response: Wildfire-related revenue ≈ $115M YTD (higher flow-through vs. portfolio); Natura plastics idled due to weak market/low virgin prices (temporary); impairment recorded for a cancelled hazardous-landfill expansion and accelerated closure costs; 2026 FCF drivers are harvesting sustainability investments, lower fleet capex (normalize truck buys), and healthcare synergy carryover; renewables on track while recycling lags commodity prices but automation helps.

• Question from Noah Kaye (Oppenheimer): What drove broad MSW strength and the positive inflection in industrial volumes; what would drive outcomes to the low vs. high end of the margin guide?
  Response: MSW strength was broad and network-driven; industrial pickup was partly Stericycle internalization and better temp roll-off; margin upside to the high end depends on continued collection & disposal execution and accretive rent/RNG sales and sustained cost improvements.

• Question from Trevor Romeo (William Blair): Which customers pushed back on healthcare price increases and how confident are you in reclaiming pricing power and achieving mid-single-digit revenue growth for the business?
  Response: Price deferrals and credits were deliberate, customer-centric actions to stabilize accounts amid ERP issues and AR cleanup; management remains confident in long-term pricing power and mid-single-digit growth once systems stabilize.

• Question from Toni Kaplan (Morgan Stanley): Can you discuss yield in the quarter (including industrial yield being the lowest since COVID) and how customer conversations look heading into 2026?
  Response: Yield remained solid (MSW ~6.7%, commercial ~4.7%, residential ~6.5%); lower industrial yield was mix-driven (temporary roll-off and national-account mix) rather than a price-permanence failure, and management expects to maintain a favorable price-cost spread into 2026.

• Question from James Schumm (Citi): How are medical waste and document-destruction businesses performing; quantify landfill internalization benefit; clarify hazardous landfill impairment and count?
  Response: Regulated medical-waste saw some one-time credits and modest churn but strong renewals (~$200M at low-double-digit PIs); auto-shred/purge recovered; synergies/internalization contributed materially (management cited $80–$100M synergy realization in 2025); impairment reflects a cancelled hazardous-landfill expansion—company count moves from five to four hazardous landfills.

• Question from Rob Wertheimer (Melius Research): Is the industrial volume pickup effectively cross-selling/internalization from healthcare and how is cross-selling ramping?
  Response: Yes—internalization is bringing volumes to WM landfills; cross-selling is already strong (thousands of small-customer cross-sells and multiple large customers adding seven-figure spend), supporting pipeline and synergy capture.

• Question from Faiza Alwy (Deutsche Bank): Where are churning healthcare customers going and do you expect to win them back once ERP stabilizes?
  Response: Churn is often partial and driven primarily by ERP-related billing/friction; many customers are likely recoverable and may return to a single-provider model once ERP and invoicing stabilize.

• Question from Emmy Zakaria (JP Morgan): Are churning customers leaving for price or network reasons and can you win them back after ERP fixes?
  Response: Churn stems mainly from ERP/billing frustration rather than network shortcomings; management believes customers will gravitate back to WM’s single-provider network once systems are stabilized.

• Question from Konark Gupta (Scotia Capital): Is healthcare SG&A intensity coming down to target and what commodity-price basket do you expect into Q4/early 2026 after the ~35% decline noted?
  Response: Healthcare SG&A has improved substantially (~700 bps since last year) and is tracking toward the multi-year ~17% target; recycling commodities are expected around ~$65–$68/ton in Q4 with a recovery likely in 2026.

• Question from Kevin Chiang (CIBC): How much RNG volume is pre-sold for 2026 (fixed vs. variable) and what RIN price assumptions are you seeing?
  Response: For 2026 WM has pre-sold about 45% of RNG offtake (mix of transportation and voluntary markets) and sees RIN pricing around $2.20–$2.30 per gallon for 2026.

• Question from Sloan Moore Rosenbaum (Steve Foley): Excluding healthcare internalization, is the industrial volume uptick a general recovery and what is the timeline to stabilize the healthcare ERP so pricing can normalize?
  Response: About half of the industrial uptick is healthcare internalization and half reflects an underlying rebound (temporary roll-off easing and more permanent hauls); ERP stabilization is expected by end of Q1 2026 with scalable growth starting in Q2 2026.

• Question from Stephanie Moore (Jefferies): Will M&A appetite expand beyond traditional solid waste into other sectors given the Stericycle deal or will you remain close to core?
  Response: WM intends to remain focused on core waste-related M&A (solid, hazardous, medical) and does not plan moves outside its core competency; Stericycle represented an adjacent, strategically aligned acquisition.

Contradiction Point 1

Industrial Volumes and Growth

It involves differing explanations for the growth in industrial volumes, which could impact investor expectations regarding the company's ability to drive revenue growth.

Why did industrial volumes turn positive after years? - Noah Kaye (Oppenheimer)

2025Q3: Industrial volumes saw a positive uptick, partly due to internalizing Stericycle's waste into WM's network. - Ed Egl(VP of Investor Relations)

Why are you surprised that you still expect pressure on industrial volumes in the second half of this year despite expressing hope for a stronger second half and overall year? - Tobey O'Brien Sommer (Truist Securities)

2025Q2: Industrial volumes were generally down as expected, despite some benefit from internalizing Stericycle's waste into our network. - John J. Morris(President & COO)

Contradiction Point 2

Healthcare Solutions Churn and Customer Relationships

It involves differing explanations for churn in the healthcare solutions business and the underlying reasons for pricing deferrals, which could impact investor confidence and strategic messaging.

Can you discuss the healthcare solutions business and pricing increase deferrals? - Trevor Romeo (William Blair)

2025Q3: The deferral of pricing increases is not due to customer pushback but rather a strategic step to stabilize customer relationships. - Ed Egl(VP of Investor Relations)

Can you provide details on the revenue split between medical waste and secure information destruction for WM Healthcare Solutions and EBITDA growth expectations? - James Joseph Schumm (TD Cowen)

2025Q2: We're managing the pricing increases a little more judiciously, giving the customers a little more time to digest the billing and reporting changes that we've made. - Rafael E. Carrasco(Senior VP of Enterprise Strategy)

Contradiction Point 3

Yield and Core Price Performance

It involves changes in the company's performance metrics, specifically yield and core price, which are critical indicators for investors and operational strategy.

What are current yield trends? How are customer conversations progressing at year-end? - Toni Kaplan (Morgan Stanley)

2025Q3: Yield in MSW was 6.7%, commercial 4.7%, and RESI 6.5%. - Ed Egl(VP of Investor Relations)

Why is the gap between core price and yield widening in the solid waste business? - Bryan Burgmeier (Citi)

2025Q1: Core price performance was strong, but yield faced pressure from special waste due to California wildfire volume and industrial haul losses. However, the yield conversion trend was negative but better quarter-over-quarter, indicating sequential improvement. - John Morris(COO)

Contradiction Point 4

Stericycle Margin Expansion and SG&A Improvement

It involves the pace and expected benefits of margin expansion and SG&A improvement for the Stericycle acquisition, which are crucial for financial planning and strategic assessment.

Can you explain the healthcare solutions segment, particularly the delay in pricing hikes? - Trevor Romeo (William Blair)

2025Q3: Deferral of pricing increases is not due to customer pushback but rather a strategic step to stabilize customer relationships. The business will stabilize, and revenue will restabilize in 2026. - Ed Egl(VP of Investor Relations), Devina Rankin(CFO)

How do you assess the recent EPA PFOS release and its potential impacts? - Noah Kaye (Oppenheimer)

2025Q1: Margin expansion limited by disposal and fleet costs, but long-term strategic steps like internalizing disposal volumes and optimizing fleet will drive improvements. - Devina Rankin(CFO)

Contradiction Point 5

Stericycle Integration Progress and Synergies

It involves the expected timeline and success of integrating Stericycle, which could impact revenue and operational efficiency for Waste Management.

Are there plans to adjust the 2025 sustainability EBITDA target? How should we think about the $800 million sustainability target by 2027? - Tyler Brown(Raymond James)

2025Q3: We are ahead of our integration plan. We are pacing about 3 years ahead of the plan for Stericycle. - John Morris(COO)

Are you including Stericycle’s incremental $400 million EBITDA, which would total $460 million when adding Q4’s results? - Patrick Brown(Raymond James)

2024Q4: We are confident we can deliver $400 million of synergies for 2025, and we expect the business to have double-digit earnings growth. - Devina Rankin(CFO)