WM delivered a strong finish to 2025, achieving record operating performance with operating expenses as a percent of revenue dropping below 60% for the first time in company history (59.5%). Full-year operating EBITDA margin expanded 40 basis points to 30.1%, driven by disciplined pricing (core price of 6.2% in Q4) and significant cost efficiencies in labor and fleet maintenance. Free cash flow surged nearly 27% to $2.94 billion, supporting a 14.5% dividend increase and a new $3 billion share repurchase authorization. Looking ahead to 2026, management forecasts operating EBITDA growth of 6.2% (or 7.4% normalized for wildfire volumes) and robust free cash flow growth of nearly 30% to approximately $3.8 billion, underpinned by the ongoing integration of Healthcare Solutions and expansion of sustainability platforms.
| Metric | Value | Change |
|---|---|---|
| Operating EBITDA Margin | 30.1% | +40 bps YoY |
| Operating Expenses as % of Revenue | 59.5% | -150 bps YoY |
| Free Cash Flow | $2.94 billion | +27% YoY |
| Core Price (Q4) | 6.2% | N/A |
| Healthcare Solutions SG&A | 10.4% | -350 bps YoY |
WM is executing a structural transformation of its cost structure, achieving a historic milestone by reducing operating expenses to 59.5% of revenue in 2025. This improvement was driven by a strategic fleet renewal program that lowered the average age of trucks, thereby reducing repair and maintenance costs, and the deployment of 'connected truck' technology to optimize routes and labor. Management emphasized that these efficiencies are 'real and durable,' positioning the company to sustain margin expansion even as inflation moderates.
The integration of the Healthcare Solutions (formerly Stericycle) business is progressing, with SG&A expenses dropping significantly to 10.4% of revenue and customer service metrics improving to levels above the Legacy Business. Management highlighted the creation of a 'wall' between back-office integration issues and the customer experience, which has stabilized the business. While near-term revenue growth is dampened by lost accounts, management anticipates a return to growth in the back half of 2026 as these issues anniversary and cross-selling initiatives gain traction.
Sustainability platforms are maturing into high-margin growth engines. The recycling segment delivered over 22% EBITDA growth despite an 18% drop in commodity prices, proving the value of automation investments. Simultaneously, the Renewable Natural Gas (RNG) business is scaling rapidly, with volumes doubling year-over-year and 60% of 2026 volumes already contracted. Management views these investments as critical for long-term value creation, with $235-$255 million of sustainability EBITDA growth expected in 2026.
Management signaled a shift toward aggressive capital allocation to shareholders, declaring 2026 a 'year of harvest.' The company plans to return approximately $3.5 billion (over 90% of expected free cash flow) through dividends and share repurchases. This strategy is supported by a robust balance sheet and a targeted leverage ratio of 2.5-3.0x, indicating that the heavy lifting on internal investment and integration is largely complete, allowing excess cash to flow back to investors.
The Healthcare Solutions segment continues to face integration headwinds, specifically regarding billing accuracy and customer retention. Management acknowledged 'lost accounts' that will impact revenue growth in the first half of 2026 and noted that 'credit memos' (refunds/credits) peaked in Q4 2025 to address past-due receivables and billing disputes. While customer-facing metrics have improved, the reliance on manual back-office fixes and the potential for further customer churn remain a risk to the segment's turnaround trajectory.
Management clarified that previous long-term financial targets for 2027, discussed at Investor Day, should be viewed as 'estimates' rather than formal guidance. This distinction was highlighted due to the difficulty in forecasting commodity prices and tax credits beyond a 12-month horizon. The removal of formal 2027 targets introduces uncertainty regarding the long-term earnings power of the sustainability platforms, particularly given recent volatility in recycling commodity prices.
The 2026 guidance faces a significant headwind from the lapping of 2025 wildfire cleanup volumes, which contributed approximately $82 million to EBITDA last year. This creates a 50 basis point drag on volume growth and requires the core business to execute flawlessly to meet the 6.2% EBITDA growth target. Management noted that they do not forecast natural disasters, leaving a potential gap if the core business underperforms or if no offsetting events occur.
Overall: Management exhibited a high level of confidence and optimism throughout the call, frequently using superlatives like 'record performance' and 'outstanding results.' There was a notable shift from cautiousness to explicit optimism regarding the macroeconomic backdrop, with Jim Fish stating he might remove the word 'cautiously' from their outlook. Executives were direct and detailed when discussing operational successes but became more nuanced and explanatory when addressing the integration complexities of the Healthcare Solutions segment.
Confidence: HIGH - Management demonstrated strong conviction backed by specific metrics and outperformance against prior guidance. The tone was assertive regarding cost control ('fundamental change in our cost structure') and capital allocation, signaling comfort with the business trajectory despite external headwinds like commodity prices and wildfire comparisons.
$8.15 billion - $8.25 billion
~$3.8 billion (growth of nearly 30%)
5.6%
$2.65 billion - $2.75 billion
~24%
Hedging & Uncertainty: Management generally avoided hedging when discussing core operational results, using definitive language such as 'record performance' and 'fundamental change.' However, hedging appeared when discussing macroeconomic factors and long-term forecasts. For example, Jim Fish stated, 'It's hard to look at things like commodity prices 18 to 24 months out,' to explain the shift from 2027 targets to estimates. There was also temporal hedging regarding the Healthcare segment, with phrases like 'starting to come back' and 'encouraging signs,' indicating that while the trend is positive, full stability is not yet achieved.
I might even remove the word cautiously. I think we're optimistic about the macro economy. - James Fish, CEO
We are fundamentally changing our cost structure through the investments we're making in our people, technology and processes. - John Morris, President and COO
We've really kind of built a wall now between all that is continuing to go on, on the back office side of that business and the customer themselves. - James Fish, CEO
I wouldn't rely on those as guidance. I would rely on them as what they were intended, which is estimates. - James Fish, CEO
We do view 2026 as a year of harvest and a balanced capital allocation program. - David Reed, CFO
Analyst Sentiment: Analysts were highly engaged, focusing heavily on the mechanics of the margin expansion, the specific timeline for the Healthcare Solutions turnaround, and the math behind the sustainability targets. Questions were probing but generally constructive, seeking to bridge the gap between current performance and long-term estimates.
Management Responses: Management responses were detailed and patient, particularly regarding the Healthcare integration. They provided granular data on SG&A reduction and 'credit memos' to defend their progress. When pressed on the 2027 targets, they were firm in reclassifying them as estimates to manage expectations, showing a disciplined approach to guidance.
Discussion on the sustainability of 2026 margins given the step-down in price from 6.2% to 5.6%, with management explaining the lag effect of CPI and the focus on cost-to-serve.
Deep dive into the Healthcare Solutions segment, specifically the impact of lost accounts and the timing of when pricing power will fully translate to revenue.
Analysis of the Renewable Natural Gas (RNG) market, specifically the pricing of uncontracted volumes and the outlook for RIN credits.
Clarification on the 'wildfire' cleanup headwind impacting 2026 comparisons and the lack of similar one-off events currently in the forecast.
WM is demonstrating exceptional operational leverage, turning investments in fleet and technology into record margins and free cash flow. The core business is firing on all cylinders, with pricing discipline and cost control creating a powerful earnings engine. While the Healthcare Solutions integration presents near-term noise regarding lost accounts and billing, the rapid reduction in SG&A and improvement in service metrics suggest the worst is over. The company's pivot to returning 90% of free cash flow to shareholders via dividends and buybacks in 2026 signals management's high confidence in the stability of cash flows. With a clear path to 30%+ FCF growth and a 'year of harvest' narrative, WM offers a compelling combination of growth, income, and capital appreciation.
Management noted that the industrial line of business, which had been soft (down 3-4% for 7-8 quarters), has 'bounced back to almost flat,' indicating a firming macroeconomic environment.
C&D volumes grew 3.4% in 2025, a reversal from the negative growth in prior years, suggesting resilience or a pickup in construction activity.
Residential volumes remained negative due to intentional shedding of low-margin business, but management expects this to 'ratably decline' and return to growth by the back half of 2026.