Waste Management Earnings Call Highlights Cash, Margins, RNG

Waste Management ((WM)) has held its Q4 earnings call. Read on for the main highlights of the call.

Waste Management Earnings Call Signals Robust Momentum Despite Pockets of Pressure

Waste Management’s latest earnings call struck a distinctly upbeat tone, with management highlighting record margins, powerful cash generation and visible benefits from fleet, labor and sustainability investments. While executives were candid about integration issues in the Healthcare Solutions business, lower recycling commodity prices and tough comparisons from last year’s wildfire cleanup work, the overall message was one of strong execution and confidence in the company’s ability to grow earnings and cash returns to shareholders.

Record Margin and Cost Performance

Waste Management delivered its strongest profitability in company history, underscoring tight cost control and pricing discipline. Full-year operating EBITDA margin rose to 30.1%, up 40 basis points from the prior year, with the legacy business posting roughly 180 basis points of normalized margin expansion. In the core collection and disposal franchise, operating EBITDA margin climbed 160 basis points in the fourth quarter alone. Operating expenses fell to 58.5% of revenue in Q4 and 59.5% for the full year, marking the first time the company has ever kept annual operating costs below 60% of revenue—a key structural win for investors focused on durable margin improvement.

Strong Cash Flow and Free Cash Flow Growth

Cash generation was a standout theme. Cash flow from operations grew more than 12% to $6.04 billion, while free cash flow jumped nearly 27% to $2.94 billion. Management is guiding to another step-change in 2026, with free cash flow expected to rise about 30% to roughly $3.8 billion at the midpoint. That kind of growth, on an already large base, highlights the earnings quality behind the numbers and reinforces Waste Management’s ability to fund investment, reduce leverage and still return significant capital to shareholders.

Operational Execution: Fleet and Labor Tailwinds

The company’s operational initiatives are clearly gaining traction. Investments in newer trucks and updated fleet strategies reduced repair and maintenance needs and lowered reliance on third-party service providers. On the labor side, driver turnover dropped to 15.7%, the lowest level of the year, which is helping stabilize labor costs and boost technician productivity. These operational wins are not only improving the cost structure today but also setting up more predictable performance going forward.

Disciplined Pricing Supports Resilient Top Line

Pricing power remains a core pillar of Waste Management’s story. Core price reached 6.2% in the fourth quarter of 2025, and the company expects solid pricing again in 2026, with collection and disposal core price guided at 5.6%. Overall, management is building roughly 3% revenue growth into its 2026 outlook, with disciplined price realization highlighted as a key driver of continued margin expansion. For investors, this reinforces the company’s ability to offset inflationary pressures and protect profitability even in a modest volume environment.

Sustainability and RNG: A Growing Profit Engine

Sustainability investments, particularly in renewable natural gas (RNG), are becoming a more material contributor to growth. In 2025, Waste Management commissioned seven new RNG facilities and expects to double RNG output in 2026 versus 2025. The company has committed additional capital to sustainability projects and guided to a 2026 operating EBITDA contribution of $235 million to $255 million from this segment. Management expects roughly 60% of that to come from renewable energy and about 40% from recycling, underscoring how green initiatives are increasingly intertwined with the company’s financial performance.

Recycling Segment Shows Resilience in a Weak Commodity Tape

Despite nearly 20% lower commodity prices year-over-year, the recycling business turned in an impressive performance, with operating EBITDA climbing more than 22% in 2025. The gains were driven by automation, higher throughput and improved labor efficiency. The company upgraded automation at five facilities and opened new recycling centers in four additional markets, strengthening its network. This resilience suggests that Waste Management is becoming less dependent on volatile commodity prices and more dependent on operational excellence and technology.

Capital Allocation and Shareholder Returns Step Up

Waste Management is translating its cash-flow strength into increasingly generous returns for shareholders. The board approved a 14.5% increase in the planned quarterly dividend rate for 2026 and authorized a new $3.0 billion share repurchase program. Management expects to return around $3.5 billion to shareholders in 2026, an amount that represents more than 90% of projected free cash flow. For investors, the message is clear: after funding growth and strategic projects, excess cash will be actively returned to owners.

Balance Sheet Discipline and M&A Strategy

The company continued to strengthen its balance sheet in 2025, paying down $1.0 billion of debt and bringing leverage down to 3.1x, with an eye toward its 2.5x–3.0x target range in 2026. At the same time, Waste Management remains active in bolt-on acquisitions, deploying more than $400 million on tuck-in deals in 2025. Looking ahead, management expects a more normalized M&A pace of $100 million to $200 million annually, emphasizing disciplined, strategic transactions that enhance the existing footprint rather than large-scale, transformational deals.

Healthcare Solutions: Integration Issues and Revenue Drag

Not all parts of the portfolio are firing on all cylinders. The Healthcare Solutions business faced integration challenges, including lost accounts and credit memos, which weighed on revenue and diluted overall growth. For 2026, management is guiding Healthcare Solutions revenue growth of about 3.0%, anchored by 4.2% pricing but tempered by near-term volume pressure from accounts that will anniversary in the back half of the year. This business remains a work in progress, with improvement expected but not yet fully realized.

Elevated Healthcare SG&A Still a Headwind

Healthcare Solutions also continues to carry a heavier cost structure than the rest of the company. Selling, general and administrative expenses were 20.8% of revenue in the fourth quarter of 2025—high by corporate standards but still an improvement of 350 basis points year-over-year. Management emphasized that synergy initiatives are underway and progressing, but it will take more time for SG&A in this segment to normalize toward company targets. Until then, the healthcare unit is likely to remain a modest drag on overall margin mix.

Recycling Commodity Price Headwinds and Sustainability Sensitivities

Recycled commodity prices, down nearly 20% versus 2024, posed a notable headwind to revenue. Management acknowledged that long-term sustainability EBITDA targets are sensitive to commodity-price assumptions and noted that a lower-price baseline now translates to reduced projected sustainability growth EBITDA compared with prior expectations. While operational improvements have helped offset some of the pressure, volatility in commodity markets remains a key external risk factor for the recycling and sustainability story.

Wildfire Cleanup Comparability Clouds Year-Over-Year Metrics

Another nuance in the results and outlook is the impact of elevated wildfire cleanup volumes in 2025, which create challenging year-over-year comparisons. For 2026, Waste Management’s operating EBITDA guidance implies 6.2% growth at the midpoint, but that figure jumps to about 7.4% when adjusted for the non-recurring contribution from wildfire cleanup work in 2025. Management estimated that the wildfire comparison represents roughly a 1.2 percentage-point headwind to reported growth, a detail investors should keep in mind when assessing headline numbers.

RNG Market and Policy Risks

While RNG is a key growth engine, it brings exposure to commodity and policy risk. Roughly 40% of 2026 RNG volumes are expected to be sold into voluntary markets and rely on pricing for renewable identification numbers (RINs). Management is assuming RIN prices in the roughly $2.30–$2.40 range, but cautioned that some domestic voluntary markets are currently softer and that regulatory timing and pricing volatility remain uncertainties. These factors introduce some variability into the projected returns on Waste Management’s RNG investments, even as the broader trend remains favorable.

Accounting and Comparability Adjustments

The company flagged several accounting-related adjustments that will affect cross-period comparisons. 2026 guidance excludes about $150 million of projected accretion expense to enhance comparability, while changes in the timing and level of investment tax credits are expected to provide roughly $110 million of benefit in 2026—about a $75 million headwind relative to the prior year. These items mean investors will need to pay close attention to adjusted figures and underlying cash metrics when tracking performance over time.

2026 Outlook: Solid EBITDA Growth and Stronger Cash Conversion

Waste Management’s 2026 guidance points to steady growth and accelerating cash conversion. The company is targeting operating EBITDA of $8.15 billion to $8.25 billion, implying about 6.2% growth at the midpoint, or 7.4% when normalizing for last year’s wildfire cleanup. EBITDA margins are expected to expand by approximately 30 basis points at the midpoint—and about 50 basis points excluding wildfire effects. Free cash flow is projected to increase nearly 30% to roughly $3.8 billion, driving EBITDA-to-free-cash-flow conversion above 46%. Planned capital spending of $2.65 billion to $2.75 billion includes around $200 million for sustainability projects and about $85 million for two RNG facilities plus a recycling project. The outlook assumes an effective tax rate near 24%, a year-end diluted share count of about 402 million and a target leverage range of 2.5x–3.0x, even as the company plans approximately $3.5 billion of shareholder returns through dividends and buybacks.

In sum, Waste Management’s earnings call portrayed a company in strong operational health, translating cost discipline, pricing power and sustainability investments into record margins and rising cash flow. While integration issues in Healthcare Solutions, commodity volatility and one-off comparisons add complexity to the story, the core waste business remains robust and increasingly efficient. For investors, the combination of solid underlying growth, expanding margins and aggressive capital returns makes Waste Management a noteworthy defensive name with a growing sustainability kicker.