WM Blames $63 Million Jump In Risk Costs On One-Off Adjustment, Not Safety
WM's president says injury and accident rates are improving, while analysts pushed on whether full-year EBITDA lands at the low end of guidance.
WM's third-quarter risk-management costs rose about $63 million from a year earlier, Chief Operating Officer David Reed said on the waste hauler's earnings call Wednesday, and management insisted the jump is not a trend. Analysts spent much of the Q&A probing whether the hit pushes full-year operating EBITDA toward the low end of guidance.
Three causes behind the $63 million
WM, which collects, recycles and disposes of waste across the US and Canada and also runs a healthcare waste business, was asked what drove the higher risk costs. President John Morris said it is "not related to our safety performance," calling it an out-of-period adjustment in the third quarter and saying recordable injury and accident rates are improving across the business, including healthcare.
Reed named three items: a negative third-quarter actuarial adjustment, higher cost estimates on a few large claims, and a tough comparison with an insurance recovery in the third quarter of last year. The actuarial hit followed six consecutive quarters of positive variances, he said, and is "not to be construed as a trend."
Executive Vice President and Chief Operating Officer Tara Hemmer said about $40 million of the increase sat in corporate and other and $23 million in collection and disposal. Reed said the added cost was 40 basis points of margin headwind, matching a 40 basis point drag from fuel.
The low-end EBITDA question
Reed said WM expects full-year operating EBITDA within its original range, with revenue and free cash flow at the high end. He said fourth-quarter margins should be the best of the year sequentially, but the year-over-year comparison will likely be a bit lower than the fourth quarter of 2025 because of a roughly 40 basis point fuel impact.
An analyst from BNP Paribas said plugging that into the revenue figure put him just below the low end of the EBITDA range. Reed answered that the math isolated fuel only, and that better volumes, stronger pricing or higher recycling commodity prices would move results up the range.
Reed also said WM assumes diesel a little over $5.50 a gallon in the fourth quarter, about 40% above a year earlier.
Quarter and CEO handoff
Chief Executive Jim Fish said he retires in early January after 10 years in the role, with Morris succeeding him. Fish said third-quarter operating EBITDA grew 5.8%, revenue grew 6.3%, operating EBITDA margin held at 31%, and free cash flow rose 20%.
Reed said free cash flow topped $3 billion for the first nine months, up more than 42%, and WM spent $1.58 billion on buybacks and $1.14 billion on dividends in that span. Leverage ended the quarter at 2.92 times.
Healthcare Solutions revenue rose 3.7% and operating EBITDA 33%, Morris said, and SG&A fell to 15.2% of revenue. WM has closed $239 million of tuck-in deals this year and expects another $140 million in the fourth quarter, plus a signed $250 million deal expected to close early next year.
Management said it will give its 2027 outlook on the next earnings call, which Morris, Hemmer and Reed will lead.
Sources
- Waste Management Logs Higher 3Q Profit, Revenue — MarketWatch
- Compared to Estimates, Waste Management (WM) Q3 Earnings: A Look at Key Metrics — Yahoo Finance
- Waste Management (WM) Lags Q3 Earnings Estimates — Yahoo Finance
- Waste Management falls as quarterly earnings miss estimates, costs rise (WM:NYSE) | Seeking Alpha — seekingalpha.com
- WM Announces Third Quarter 2026 Earnings — businesswire.com
