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    WM
    Earnings call· Mar 2025(Q1 FY25)

    WASTE MANAGEMENT Q1 FY25 earnings call WM

    Apr 29, 2025 Source

    Executive summary

    Waste Management Q1 FY25 — Strong Start Exceeding Expectations with Sustainability and WMHS Integration Driving Growth

    Waste Management delivered a strong Q1 FY25, exceeding expectations with over 12% total operating EBITDA growth, driven by robust performance in collection and disposal, and significant contributions from sustainability and WM Healthcare Solutions. The company is focused on leveraging technology for cost optimization and executing strategic investments, while navigating volume pressures from residential shedding and industrial softness, and managing integration of recent acquisitions. Management remains confident in achieving full-year guidance, emphasizing predictable execution and strategic diversification.

    Highlights

    5

    • Total company operating EBITDA grew by over 12% in Q1 FY25.

    • Combined operating EBITDA from recycling and renewable energy grew by over 20% year-over-year in Q1 FY25.

    • WM's legacy business achieved 30% operating EBITDA margin for the fourth consecutive quarter, an increase of 40 bps YoY.

    • Operating expenses as a percentage of revenue were 60.5%, a 40 bps improvement from Q1 FY24, marking the sixth consecutive quarter below 61%.

    • Residential line of business operating EBITDA margin grew more than 130 bps, achieving 20% for the first time in 6 years.

    Concerns

    5

    • Operating cash flow decreased compared to Q1 FY24 due to planned increased cash interest payments and a headwind from working capital.

    • 30 bps headwind to total company margin from the expiration of alternative fuel tax credits in Q1 FY25.

    • Q1 FY25 collection and disposal volumes were flat on a workday-adjusted basis, impacted by strategic exit from low-margin residential business and economic pressure on industrial temporary segment.

    • WM Healthcare Solutions revenue was down year-over-year, primarily due to the shedding of Spain and Portugal businesses.

    • Analyst-cited CPI of 2.5% is down from a peak of 9.1% in 2022, indicating potential future pressure on pricing power.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full-year Operating EBITDA
    $7.45 billion to $7.65 billion
    high materiality
    High
    Full-year Free Cash Flow
    $2.675 billion and $2.775 billion
    high materiality
    High
    Solid Waste Acquisitions
    more than $500 million
    medium materiality
    High
    Leverage Ratio
    approximately 3.15x
    high materiality
    High
    WM Healthcare Solutions Annual Run Rate Synergies
    $250 million
    high materiality
    High
    WM Healthcare Solutions Synergies
    $85 million to $90 million
    medium materiality
    High
    Core Price Growth
    5.8% to 6.2%
    high materiality
    High
    Collection and Disposal Volume Growth
    0.25% to 0.75%
    high materiality
    High
    Incremental Tuck-in Acquisition Revenue
    $80 million to $125 million
    medium materiality
    High
    Residential Volume Growth
    negative 50 bps (approx.)
    low materiality
    Medium
    Labor Role Reductions (through attrition)
    940 roles
    medium materiality
    High
    RIN Pricing Sensitivity
    $5 million impact per $0.25 change in RIN pricing
    low materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Total Company
    Total company margin impacted by 150 bps from the addition of WM Healthcare Solutions business.
    Operating EBITDA growth: >12% YoY
    		———28.5%
    WM Legacy Business
    Margin improvement driven by 50 bps from favorable price to cost spread in collection and disposal and 20 bps from recycling automation projects, partially offset by 30 bps headwind from alternative fuel tax credit expiration.
    Operating EBITDA margin: 30% (fourth consecutive quarter)Operating EBITDA margin expansion: 40 bps YoY
    		———30%
    Collection and Disposal Business
    Achieved growth despite tough winter weather and alternative fuel tax credit expiration. Operating expenses at 60.5% of revenue, a 40 bps improvement YoY.
    Operating EBITDA margin expansion: 10 bps
    		———up almost 5%
    Residential Line of Business
    Driven by cost optimization, targeted contract renegotiations, and intentional shedding of low-margin customers.
    Operating EBITDA margin growth: >130 bpsAchieved 20% margin for the first time in 6 years
    		———20%
    Recycling and Renewable Energy
    Growth fueled by new RNG plants online in late 2024 and strong pricing for natural gas and renewable electricity. Recycling automation projects contributed 20 bps to WM legacy business margin expansion.
    Automated facilities operating EBITDA margin: nearly double non-automated facilities
    		———grew by over 20% YoY
    WM Healthcare Solutions
    Revenue decline primarily due to shedding Spain and Portugal businesses. Margin expansion driven by synergy capture and cost optimization efforts. ERP system optimization underway to improve customer journey.
    Synergy capture: $16 million in Q1 FY25SG&A margin expansion: 70 bps sequentially (Q4 FY24 to Q1 FY25)Regulated medical waste stops: slightly up (1%)Churn in national and hospital channels: 3% (stable)
    		down year-over-year——expanded by 20 bps

    Operational metrics

    13
    Operating expenses as percentage of revenue
    60.5%40 bps improvement YoY
    Q1 FY25

    Reflects commitment to operating fundamentals and WM Way.

    Capital expenditures
    $831 million
    Q1 FY25

    Spending in line with expectations, with equipment for sustainability projects procured ahead of time.

    Capital returned to shareholders (dividends)
    $336 million
    Q1 FY25

    Returned through dividends.

    Leverage ratio
    3.58x
    end of Q1 FY25

    Targeting approximately 3.15x by end of 2025 through earnings growth and debt reduction.

    Tuck-in acquisitions (prior year)
    $800 million
    last year

    Historical spend on tuck-in acquisitions.

    CPI peak
    9.1%
    2022

    Historical peak of Consumer Price Index.

    CPI current
    2.5%down from 9.1% in 2022
    current

    Current Consumer Price Index level, indicating price moderation.

    Driver retention improvement
    80 bpsYoY
    Q1 FY25

    Improved retention benefits safety, customer service, and efficiency.

    Labor roles reduced (through attrition)
    2,600
    to date

    Achieved through natural attrition, reducing the need to refill positions.

    WM Healthcare Solutions SG&A margin expansion
    70 bpssequentially from Q4 FY24
    Q1 FY25

    Part of the path to 15% SG&A target and ultimately lower.

    WM Healthcare Solutions total customer book (shared wallet)
    17%
    current

    Percentage of customers who use both WM solid waste services and Stericycle medical waste services.

    WM Healthcare Solutions customer annual revenue threshold
    $50,000
    current

    Threshold for customers added to the contract data mart, revealing opportunities with lagging PIs.

    RNG volume generated
    75%YoY increase
    Q1 FY25

    Increase in volume from RNG plants, contributing to full-year trajectory.

    Industry KPIs

    8
    MetricValueDetails
    Yield4%%
    Volumeflat%
    Core price6.5%%
    EBITDA margin30%%
    Churn retention9%%
    Safety turnover80 bpsbps
    Price to cost spread50 bpsbps
    Recycling commodity impact—

    Deals & partnerships

    2
    StericycleIntegration of medical waste and secure information destruction businesses into WM's comprehensive offerings.

    Significant progress made in integration, focusing on synergy capture and cost optimization. Expanded margin by 20 bps in Q1 FY25.

    Spain and Portugal businesses (formerly Stericycle)Shedding of international businesses from WM Healthcare Solutions.

    Divested over the course of Q1 FY25.

    Capital programs

    3
    Next-gen recycling plantsunderway

    Benefit: 7 new facilities

    Two new facilities added in California and Texas; 7 more scheduled for 2025. Equipment procured ahead of time.

    RNG facilitiesunderway

    Benefit: 8 additional facilities

    8 additional RNG facilities are advancing construction and on track for completion this year. Equipment procured ahead of time.

    McCarran incinerator (WM Healthcare Solutions)online

    Benefit: taking in about 70% of total incinerator waste generation on West Coast; 100% internalization expected by year-end

    Put online as of end of Q1 FY25, saving transportation for disposal costs and expanding Rx Pro initiatives.

    Risks & headwinds

    7
    Expiration of alternative fuel tax creditsQ1 FY25 and full year 2025

    30 basis point headwind

    Mitigation: Overcome by solid waste price to cost spread and recycling automation.

    Tough winter weather impactsJanuary and February 2025

    Impacted Q1 FY25 collection and disposal volumes (flat on workday-adjusted basis)

    Mitigation: Volumes turned back up in March and April, indicating weather-related rather than economic downturn.

    Economic pressure on industrial temporary segmentQ1 FY25

    Offset positive landfill and commercial collection volumes

    Mitigation: Seeing some sequential improvement; March and April trends more consistent with expectations.

    Unexpected losses from large national accountsQ1 FY25

    Some unexpected losses

    Mitigation: Due to customer bankruptcies and store closures, not structural issues.

    Potential tariff impacts on equipment costsPotentially 2026

    Little low single digits

    Mitigation: Equipment for 2025 sustainability projects and fleet replacement procured ahead of time; 1/3 of trucks already delivered.

    Recycling commodity price volatilityQ1 FY25, more pronounced in H1 FY25

    Small noise associated with recycling brokerage revenue (down relative to expectations)

    Mitigation: Very low margin and flow-through to EBITDA; brokerage team manages wide variety of markets (domestic and international).

    Retaliatory tariffs on OCC/fiber exportsFuture

    null

    Mitigation: Brokerage team has wide variety of markets, including domestic and global, reducing reliance on specific regions like China.

    What to watch in Q2 FY25

    5

    WM Healthcare Solutions synergy capture

    Q2 FY25 and beyond
    Current$16 million in Q1 FY25
    TargetAcceleration towards $85M-$90M for FY25

    Why it matters

    Demonstrates successful integration and value creation from the Stericycle acquisition, impacting overall profitability.

    We think that Q3 will be our strongest quarter from a margin perspective, and that really will show momentum behind the traditional business combined with value capture running at more peak levels for full realization over the course of the year of that $85 million to $90 million in total synergies for the Stericycle business in 2025.

    Q&A highlights

    8

    Seeking color on Q2 seasonality, especially for the new WMHS business, and quarter-over-quarter margin improvement for solid waste.

    Devina stated no unusual seasonality except for California wildfires. Solid waste margins expected to expand further YoY in Q2. WMHS margin improvement will accelerate from synergy capture, with Q3 expected to be the strongest quarter for overall margins.

    “We think that Q3 will be our strongest quarter from a margin perspective, and that really will show momentum behind the traditional business combined with value capture running at more peak levels for full realization over the course of the year of that $85 million to $90 million in total synergies for the Stericycle business in 2025.”

    asked by Bryan Burgmeier · answered by Devina Rankin

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Investments in Sustainability

    WM's sustainability businesses, including recycling and renewable energy, saw combined operating EBITDA growth of over 20% year-over-year in Q1. This growth was fueled by new RNG plants brought online in late 2024 and strong pricing for natural gas and renewable electricity. The company plans to bring 7 more next-gen recycling plants and 8 additional RNG facilities online in 2025, with equipment procured ahead of potential tariff impact🌐s.

    02

    WM Healthcare Solutions Integration

    The integration of WM Healthcare Solutions (Stericycle) is progressing well, with a focus on synergy capture and cost optimization. The business expanded its margin by 20 basis points in Q1, contributing $16 million in synergy value. Management targets $85 million to $90 million in total synergies for 2025 and $250 million in annual run-rate synergies by 2027, driven by sales coverage optimization, back-office streamlining, and internalization of fleet and disposal.

    03

    Core Business Operational Execution

    The core collection and disposal business demonstrated consistent progress, with operating EBITDA up almost 5% and margin expanding 10 basis points in Q1. This was achieved despite tough winter weather and the expiration of alternative fuel tax credits. Operating expenses as a percentage of revenue were 60.5%, a 40 basis point improvement YoY, marking the sixth consecutive quarter below 61%.

    04

    Pricing and Volume Dynamics

    Collection and disposal yield was 4% and core price was 6.5% in Q1, with churn remaining stable at around 9%. While Q1 volumes were flat due to strategic exits from low-margin residential business and industrial softness, positive landfill and commercial collection volumes were noted. Management expects full-year volume growth of 0.25% to 0.75% and core price growth of 5.8% to 6.2%.

    05

    Labor Optimization and Technology Adoption

    WM continues to focus on frontline retention, achieving an 80 basis point improvement in driver retention YoY in Q1. The company is leveraging automation and technology, including routing and resource planning tools, to drive efficiency and reduce labor dependency. Approximately 2,600 roles have been reduced through natural attrition, with a target of 940 additional roles not replaced in 2025.

    06

    Capital Allocation and M&A

    The company returned $336 million to shareholders through dividends in Q1. Share buybacks are currently paused to focus on deleveraging, with a target leverage ratio of 3.15x by year-end 2025 from 3.58x in Q1. WM expects to close on over $500 million in solid waste acquisitions in 2025, a significant increase from typical annual tuck-in spend of $100 million to $200 million, with an expected incremental revenue contribution of $80 million to $125 million.

    AI-generated summary of the company’s earnings call. Not investment advice.