Waste Management, Inc. (WM) Earnings & Analysis

Latest quarter

Waste Management’s third-quarter revenue exceeded the consensus by 0.61%, although both figures rounded to $6.8 billion. Adjusted earnings per share of $2.15 missed the consensus estimate of $2.18. The company reported diluted earnings per share of $2.05, up from $1.49 a year earlier.

The 10-Q reported revenue growth of 6.3%, attributing it partly to higher collection and disposal pricing, fuel-related surcharges, recycling growth and renewable energy volumes. Lower collection and disposal volumes and renewable natural gas prices partly offset those gains, according to the filing. CEO James Fish said Healthcare Solutions revenue rose year over year for the first time since the acquisition and its operating EBITDA grew 33%.

The filing reported an operating margin of 18.7%, compared with 15.3% a year earlier, and said the prior-year period included impairment charges. It also cited collection and disposal pricing and Healthcare Solutions synergies among the reasons for higher operating income. Operating expenses rose as a share of revenue, with the filing citing fuel, risk management and employee costs.

Waste Management’s 10-Q reported free cash flow of $985 million, up from $821 million a year earlier, helped by higher operating cash flow and lower capital spending.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

On the call, analysts asked about softer waste volumes and the outlook for demand. President John Morris said third-quarter commercial volume was down about 1.3%, citing earlier national-account broker decisions and pressure on small and midsize businesses. He said those account decisions should be lapped around the end of the first quarter. The filing also attributed lower collection volumes partly to the company’s deliberate exit from lower-margin residential business.

Asked about Healthcare Solutions, Morris said pricing and lower selling, general and administrative costs contributed to its earnings growth, while volumes still faced headwinds. He said the company was seeing improving trends in both healthcare and secure document services going into 2027, but declined to specify when volumes would turn positive.

An analyst asked about higher risk costs. COO David Reed said they increased by about $63 million year over year in the third quarter, citing a negative actuarial adjustment, higher estimates for several large claims and an insurance recovery in the prior-year quarter. Reed said the company did not expect the expense to have an outsized negative impact going forward.

On pricing, Reed said Waste Management plans to keep enhancing landfill and transfer-station prices as it faces higher landfill operating costs, including costs associated with California legislation. Morris said the company was applying predictive analytics to pricing and upgrading robotics in some healthcare processing plants.

Asked how fourth-quarter margins might develop, Reed said he expected a sequential improvement but a lower year-over-year comparison, all else equal, because of fuel costs. He added that Waste Management expected “sequential improvement in our renewable energy business from Q3 to Q4” after startup-related production shortfalls in the third quarter.

Reed said capital spending should rise sequentially in the fourth quarter, while Morris said the company plans to pursue more core solid-waste acquisitions and further integrate Healthcare Solutions.

Guidance

Fish said Waste Management expects full-year revenue and free cash flow to finish at the high end of its existing guidance ranges. Reed said fourth-quarter capital spending should rise sequentially and full-year spending would probably be toward the high end of its range, at about $2.75 billion.