Waste Management's Q3 2025: Contradictions Emerge on Wildfire Volumes, Industrial Growth, Healthcare Pricing, and Earnings Outlook

Date of Call: October 28, 2025

Financials Results

• Operating Margin: Operating EBITDA margin 30.6% (best quarterly result); WM legacy operating EBITDA margin 32%; company raised full‑year margin expectations to 29.6%–30.2%.

Guidance:

• Full-year revenue expected at the low end of prior guidance.
• Consolidated operating EBITDA margin guide raised to 29.6%–30.2%.
• Company remains confident in meeting prior operating EBITDA and free cash flow guidance for 2025.
• Early view for 2026 free cash flow approaching $3.8 billion.
• Target leverage 2.5x–3.0x by mid-2026.
• Healthcare Solutions synergy capture and internalization expected to support targeted EBITDA contributions.

Business Commentary:

* Strong Financial Performance and Growth: - Waste Management, Inc. (WM) reported a strong performance in Q3 2025, with operating EBITDA growth of more than 15% and free cash flow growth of nearly 33%. - Growth was driven by robust volume trends, strong price-cost spreads, and strategic investments in sustainability and technology.

• Collection and Disposal Business Strength:
• The core collection and disposal business contributed more than half of the year-over-year increase in operating EBITDA, with an operating margin expansion of 100 basis points to 38.4%.

• This was supported by strong landfill volumes, discipline in price-cost spread management, and operational efficiency improvements.

• Sustainability Business Success:

• WM's recycling segment operating EBITDA grew by 18% despite a 35% decline in recycled commodity prices, reflecting operational and technology improvements.

• Growth was driven by success in managing contract structures and leveraging innovative technologies to reduce costs and improve operating margins.

• Healthcare Solutions Integration:

• The strategic value of the medical waste platform was evident, with strong customer engagement and expected revenue contributions aligning with initial projections.
• The integration process and optimization efforts have led to improved margins in this segment, now at 17.5%.

Sentiment Analysis:

Overall Tone: Positive

• Management reported operating EBITDA growth >15% and free cash flow growth nearly 33%, a record quarterly operating EBITDA margin of 30.6%, raised margin guidance to 29.6%–30.2%, and an early 2026 free cash flow view approaching $3.8B — all cited as evidence of strong execution and confidence.

Q&A:

• Question from Patrick Brown (Raymond James & Associates, Inc., Research Division): Devina, year-to-date how much have you benefited from the one-time cleanup work at the landfill? Also, can you go through a couple of the charges this quarter (is the plastic film plant idled due to commodities or technology?) and what was the genesis of the landfill closure and the charge in renewables?
  Response: Wildfire cleanup had virtually no impact in Q3; YTD wildfire revenues were about $115M with higher-than-portfolio flow-through (~45%); Natura was idled due to weak market pricing; the landfill impairment resulted from abandoning a long‑pursued permit expansion.

• Question from Patrick Brown (Raymond James & Associates, Inc., Research Division): Jim, on the early look for 2026 free cash flow, can you give help on the pieces to get there — e.g., EBITDA improvement, drop in green CapEx, etc.?
  Response: 2026 FCF is expected from harvesting sustainability investments, reduced fleet capex (normalizing truck buys), steady legacy business performance, and continued Healthcare Solutions synergies, supporting a FCF view near $3.8B.

• Question from Patrick Brown (Raymond James & Associates, Inc., Research Division): On sustainability EBITDA tracking (midpoint target) and the near‑$800M incremental by '27 — given commodity and RIN moves, should we expect a haircut or delay?
  Response: Despite recycling commodity headwinds, management remains confident in the multi‑year sustainability targets while noting recycling sensitivity (~$25–30M impact per $10/ton) and positive RNG/RIN dynamics.

• Question from Noah Kaye (Oppenheimer & Co. Inc., Research Division): Now that landfill volume didn't benefit from wildfire in 3Q, can we double-click on the strength in MSW and what drove the positive inflection in industrial volumes?
  Response: MSW and industrial volumes rose broadly, reflecting the strength of WM's post‑collection network and incremental internalization/cross‑sell from Healthcare Solutions plus improved temp roll‑off activity.

• Question from Noah Kaye (Oppenheimer & Co. Inc., Research Division): Broad thoughts on what would take you to the low end versus the high end of the raised margin guide?
  Response: Management expects midpoint‑to‑upper end of the 29.6%–30.2% range, driven by collection & disposal execution and accretive Q4 RIN sales; downside is unlikely.

• Question from Trevor Romeo (William Blair): On Healthcare Solutions, why were pricing increases deferred, what customers pushed back, and confidence in capturing mid‑single‑digit revenue growth long term?
  Response: Top‑line moderation was ERP‑related (deferred PIs, customer credits, some churn); management believes these are largely transitory and remains confident in long‑term growth and synergy capture.

• Question from Trevor Romeo (William Blair): How are you thinking about price/cost spread beyond this year given yields, wage trends, turnover improvements, and incident rate gains?
  Response: Price‑cost spread remains healthy—core price ~6% vs. CPI ~3%—and improved retention and lower maintenance costs support continued margin expansion into next year.

• Question from Toni Kaplan (Morgan Stanley, Research Division): Can you talk more about yield this quarter and customer conversations for year‑end/2026?
  Response: Yield was robust across lines (MSW 6.7%, commercial 4.7%, residential 6.5%); company focuses on preserving the price‑to‑cost delta while engaging customers for durable contracts.

• Question from Toni Kaplan (Morgan Stanley, Research Division): How is the M&A pipeline and should we expect a bigger M&A year in 2026 or still digesting Healthcare?
  Response: Expect modest traditional solid-waste M&A in 2026 ($100–$200M) but remain opportunistic for strategic assets; capital allocation will also include dividends and likely substantial buybacks.

• Question from James Schumm (TD Cowen, Research Division): How are medical waste and document destruction businesses performing within Healthcare Solutions?
  Response: Regulated medical waste saw credits tied to ERP issues but has strong renewals (~$200M) at low‑double‑digit PIs; document/auto shred performance is recovering with improved sales productivity.

• Question from James Schumm (TD Cowen, Research Division): On the hazardous waste landfill charge — was this an expansion that didn't come to fruition or a closure of an existing site, and how many hazardous landfills do you now have?
  Response: Impairment was related to an unoperational site where a permit expansion pursuit was abandoned; the company counts 4 hazardous waste landfills now (previously disclosed as 5).

• Question from Rob Wertheimer (Melius Research LLC): Are you referring to cross‑selling/internalization for the Healthcare volumes moving into WM landfills, and how does cross‑sell ramp?
  Response: Yes — internalization is converting former Stericycle volumes to WM; cross‑sell is broad (including >7,000 small/medium customers) and is already producing seven‑figure customer uplifts.

• Question from Faiza Alwy (Deutsche Bank AG, Research Division): You're seeing cross‑sell success but also higher churn in Healthcare — where is churn happening vs. cross‑sell strength?
  Response: Churn is concentrated among customers most affected by ERP problems (often partial losses), while cross‑sell gains are broad across channels and WM expects to win back customers seeking single‑provider solutions.

• Question from Faiza Alwy (Deutsche Bank AG, Research Division): You mentioned lower maintenance and risk costs — how much more runway do you see into 2026 and beyond?
  Response: OpEx as a percent of revenue has moved materially below 60% and management sees additional runway through operational changes, technology and new ways of working to drive further improvement.

• Question from Tami Zakaria (JPMorgan Chase & Co, Research Division): Where are customers that churned going and will you expect to win them back once ERP is stabilized; are they unprofitable?
  Response: Many churn instances are partial and not systemwide; exit interviews show customers value a single‑provider network and WM expects to win back accounts as the ERP stabilizes and service normalizes.

• Question from Konark Gupta (Scotiabank Global Banking and Markets, Research Division): Healthcare SG&A intensity gap versus Legacy has tightened — are you on track to hit targets and what drove the faster improvement?
  Response: Healthcare SG&A improved ~700 bps since last year due to low‑hanging cost fixes and surgical overhead reductions; management targets ~17% SG&A over the three‑year horizon and expects further improvement in 2026 before tapering.

• Question from Konark Gupta (Scotiabank Global Banking and Markets, Research Division): You noted commodity prices down ~35% in Q3 — what basket/pricing do you expect into Q4 and early 2026?
  Response: Near‑term commodity basket expected around $65–68/ton into Q4 2025; plastics at all‑time lows; management expects a rebound sometime in 2026 (typical 12–24 month cycles).

• Question from Kevin Chiang (CIBC Capital Markets, Research Division): On RNG, how much of 2026 volume is presold/fixed vs variable and any update on RIN price assumptions?
  Response: For 2026 roughly 45% of RNG offtake is presold (split between transportation and voluntary markets); management sees RINs in the $2.20–$2.30 range for 2026.

• Question from Kevin Chiang (CIBC Capital Markets, Research Division): After owning Healthcare ~1 year, how does pricing elasticity compare to expectations and to solid waste?
  Response: Management finds elasticity in line with expectations; after stabilization and one‑time credits, they expect to implement price increases and achieve mid‑single‑digit revenue growth long term.

• Question from Shlomo Rosenbaum (Stifel, Nicolaus & Company, Incorporated, Research Division): Industrial volumes turned positive — excluding Healthcare internalization, is the underlying business improving or just bouncing off the bottom?
  Response: Excluding Healthcare internalization (~50 bps of the pickup), industrial volumes still rose modestly, indicating some underlying demand improvement (less negative temp roll‑off drag and small increases from permanent customers).

• Question from Shlomo Rosenbaum (Stifel, Nicolaus & Company, Incorporated, Research Division): ERP impacts — timing to stabilize so customers see normal billing/pricing; are credits different from write‑offs?
  Response: ERP stabilization is expected by end of Q1 with scalable growth from Q2; customer credits are recorded as revenue reductions (not SG&A write‑offs), and many credits were one‑time to settle past AR.

• Question from Bryan Burgmeier (Citigroup Inc., Research Division): On flexible plastic recycling (Natura PCR) — what will it take to make it work at scale (EPR, CPG demand, policy), and how will WM participate while Natura is idled?
  Response: Natura produced quality PCR but buyers won't pay above low virgin prices; scaling requires policy (minimum content/EPR) and CPG commitment to pay a premium; WM will monitor markets and restart when economics support it.

• Question from Stephanie Benjamin Moore (Jefferies LLC, Research Division): Appetite for M&A outside traditional solid waste — will you pursue other sectors?
  Response: WM will remain focused on core and core‑adjacent acquisitions (solid waste, hazardous, medical waste); management does not plan to pursue unrelated industries.

Contradiction Point 1

Wildfire Volumes and Impact on EBITDA Growth

It involves the contribution of wildfire volumes to EBITDA growth, which impacts financial performance assessments.

What was the contribution of wildfire volumes to EBITDA growth? What were the charges related to the plastic film plant and landfill impairment? - Patrick Brown (Raymond James & Associates, Inc.)

2025Q3: The wildfire volumes contributed $145 million to EBITDA growth, with no significant impact in the third quarter. - Devina Rankin(CFO)

Can you detail the customer churn types in Healthcare Solutions and your strategies to win them back? - Faiza Alwy (Deutsche Bank AG, Research Division)

2025Q2: Wildfire volumes were not a material driver of revenue or EBITDA growth in either quarter. - Devina A. Rankin(CFO)

Contradiction Point 2

Industrial Volume Growth and Yield

It involves the explanation of industrial volume growth and yield, which are key operational metrics.

What drove the increase in MSW and industrial volumes, and why did industrial volumes improve significantly? - Noah Kaye (Oppenheimer & Co. Inc.)

2025Q3: Industrial volumes were boosted by conversions from competitor accounts to WM and increased temp roll-off activity. - James Fish(CEO)

How will the Q3 2025 margin trend compare to Q2? Will it remain flat year-over-year? - Bryan Nicholas Burgmeier (Citi)

2025Q2: Industrial volumes were in line with our expectations with growth in the high single digit range. - John J. Morris(COO)

Contradiction Point 3

Wildfire Volumes Impact on EBITDA

It highlights differing explanations of the impact of wildfire volumes on EBITDA growth, which is crucial for financial forecasting.

What was the - Patrick Brown(Raymond James & Associates, Inc.)

2025Q3: The wildfire volumes contributed $145 million to EBITDA growth, with no significant impact in the third quarter. - Devina Rankin(CFO)

How did the solid waste business yield in Q1 compare to expectations? - Bryan Burgmeier(Citi)

2025Q1: Special waste volumes decreased due to lower wildfire volumes, which are expected to be more seasonal moving forward. - John Morris(COO)

Contradiction Point 4

Pricing Power and Strategy in Healthcare Solutions

It involves differing explanations of the pricing strategy in Healthcare Solutions, which is critical for understanding the company's competitive positioning and financial performance.

Can you discuss how deferring price increases in Healthcare Solutions affects long-term pricing power? - Trevor Romeo

2025Q3: The deferral of price increases is part of a customer-centric approach to build long-term value, not a reaction to customer pushback. - James Fish(CEO)

Why was commercial yield flat year-over-year, and why did industrial and residential yields decline sequentially? - Kevin Chiang(CIBC)

2025Q1: We're seeing slightly softer pricing pressure in our healthcare business but overall still favorable macro conditions that continue to support the pricing environment for our industrial and commercial base. - Devina Rankin(CFO)

Contradiction Point 5

Earnings Outlook and Synergy Contributions

It highlights differing expectations for earnings growth and synergy contributions from acquisitions, which are critical for financial forecasting and investor expectations.

What factors drive free cash flow growth in 2026, and what are the key assumptions behind EBITDA improvement? - Patrick Brown(Raymond James & Associates, Inc.)

2025Q3: The free cash flow growth is due to the wind-down of sustainability investments, synergy contributions from Healthcare Solutions, and fleet maintenance capital. - James Fish(CEO)

What is your outlook for Q2 and the quarter-over-quarter margin improvement in solid waste, considering normal seasonality? - Bryan Burgmeier(Citi)

2025Q1: We are optimistic that Healthcare Solutions will increase its contribution to our bottom line. - James Fish(CEO)