Waste Management, Inc. (NYSE: WM) saw its shares decline 2.9% in after-hours trading on Tuesday, closing at $232.50, after the waste hauling company lowered its full-year revenue outlook. During the regular session, the stock had ended the day up 0.6% at $239.41.
The company reduced its 2026 revenue midpoint by $150 million, bringing the range to $26.275 billion to $26.475 billion, down from the previous outlook of $26.425 billion to $26.625 billion. However, WM maintained its adjusted operating EBITDA guidance at $8.15 billion to $8.25 billion, and its free cash flow forecast at $3.75 billion to $3.85 billion. The adjusted EBITDA margin outlook was raised to 31.0%-31.2%, up from 30.8%-31.0%.
The revised revenue midpoint is $175 million below the FactSet consensus estimate ahead of the release. The after-hours sell-off suggests investors focused on the top-line shortfall, even as the company's earnings and cash flow projections remain intact.
Second-Quarter Results
For the second quarter, Waste Management reported revenue of $6.684 billion, a 4.0% increase year-over-year but approximately $26 million below FactSet's estimate. Adjusted earnings per share came in at $2.02, surpassing the consensus forecast by four cents. The company's pricing strategy continued to be a key driver, with core price rising 5.7% and collection-and-disposal yield increasing 3.6%. However, business volume declined 1.8%.
Residential volume fell 2.9%, while yield rose 6.1%. WM has been actively reducing lower-margin residential contracts, a trend that contributed to the volume decline. Notably, the rate of volume decline improved by 210 basis points compared to the first quarter.
Chief Executive Jim Fish commented, "Second quarter earnings growth, margin expansion, and cash flow generation reflect the strength of our business model."
Cost Management and Margin Expansion
WM's adjusted operating EBITDA margin expanded by 40 basis points to 30.9%, driven by cost controls and improved mix. Adjusted selling and administrative costs improved by 60 basis points. The company's recycling and renewable energy segment saw adjusted EBITDA rise by $40 million, or 32.5%, while Healthcare Solutions contributed an additional $11 million, aided by integration synergies and lower overhead costs.
Free cash flow surged 34.5% to $1.10 billion, supporting the company's capital allocation strategy. WM returned $1.04 billion to shareholders through dividends and share buybacks during the quarter.
Market Context and Valuation
At Tuesday's close, WM traded at 34.6 times trailing earnings, an 11% premium to Republic Services, Inc. (NYSE: RSG), which traded at 31.1 times. This elevated valuation leaves little room for volume shortfalls. Over the past five sessions, WM shares rose 1.3%.
Management is scheduled to discuss the updated assumptions in a conference call at 10:00 a.m. EDT on Wednesday. Investors will be watching for signs that the deceleration in residential contract losses is sustainable.
Risks remain, including potential further weakness in collection volumes, rising fuel costs, and challenges in integrating Healthcare Solutions. Any slowdown in pricing or delays in cost reductions could quickly erode the margin buffer.
