Executive Summary / Key Takeaways

• Waste Management ($WM) is transforming from a traditional waste hauler into a comprehensive environmental solutions provider, leveraging its unparalleled asset network and strategic investments in technology and sustainability to drive outsized growth and margin expansion.
• The core Collection and Disposal business continues to demonstrate robust operational performance, achieving record margins and consistent EBITDA growth driven by disciplined pricing, cost optimization through automation, and improved labor efficiency.
• Strategic growth pillars in Renewable Energy and Recycling, backed by significant capital investments, are poised to accelerate earnings contributions and free cash flow generation in 2025 and beyond, positioning WM as a leader in the circular economy.
• The acquisition of Stericycle (SRCL) (WM Healthcare Solutions) adds a complementary, higher-growth vertical with substantial synergy potential ($250 million target), expanding WM's market reach and service offerings despite initial integration costs impacting near-term margins.
• While navigating macroeconomic uncertainties and integration efforts, WM's strong balance sheet, disciplined capital allocation, and clear guidance for significant EBITDA and Free Cash Flow growth in 2025 underscore a compelling investment thesis focused on long-term value creation and strategic dominance.

The Foundation: From Waste Collection to Environmental Solutions

Waste Management, Inc. ($WM) stands as North America's preeminent provider of comprehensive environmental solutions, a position forged over decades of building an unparalleled network of assets and expertise. What began as a fundamental service – collecting and disposing of waste – has evolved into a sophisticated operation spanning collection, transfer, disposal, recycling, resource recovery, and renewable energy generation across the United States and Canada. This evolution is not merely an expansion of services; it represents a strategic transformation aimed at maximizing resource value while minimizing environmental impact, embedding sustainability at the core of the company's mission.

The waste management industry itself, while mature and stable, is far from static. It is influenced by macroeconomic conditions, fluctuating commodity prices, and increasingly complex customer demands for material recovery and sustainable practices. Regulatory landscapes, with growing mandates for diversion and recycling, further shape the operational environment. In this dynamic setting, WM's strategy of "focused differentiation and continuous improvement," underpinned by a "people-first, technology-led" approach, leverages its extensive network – including 255 landfills and numerous transfer stations – to drive growth and enhance the customer experience.

Central to WM's strategic differentiation is its commitment to technological innovation. Recognizing the challenges of an aging and shrinking workforce, particularly in frontline roles, WM has aggressively deployed technology to improve operational efficiency and reduce labor dependency. This includes advanced routing and resource planning tools, sophisticated mapping systems, and the automation of residential collection routes. These initiatives have yielded tangible benefits: automated residential routes achieve over 30% efficiency improvement compared to traditional methods, contributing significantly to margin growth in that segment. Across collection operations, technology and process discipline have contributed to a 90 basis point reduction in labor costs as a percentage of revenue and a remarkable improvement in annualized driver turnover to a historic low of 15% as of late 2024.

Beyond collection, technology is transforming WM's recycling and disposal operations. Automated recycling facilities, a focus of recent capital investments, utilize advanced sorting technologies like computer vision to improve throughput and material quality. These upgrades have resulted in quantifiable advantages, including a 30-35% improvement in labor cost per ton and a 15-20% increase in the blended value of commodity sales due to cleaner output. Gross operating expenses at these automated plants are also seeing improvements of around 17%. In landfill operations, technology supports the capture and conversion of landfill gas into valuable resources like renewable electricity and Renewable Natural Gas (RNG). WM's R&D efforts are also exploring emerging diversion technologies, aiming to find new ways to extract value from the waste stream. For investors, this technological edge translates directly into a stronger competitive moat, enabling WM to operate more efficiently, expand margins, and offer differentiated, higher-value services that are difficult for competitors to replicate, particularly those with less capital or technological sophistication like GFL Environmental (GFL) or Casella Waste Systems (CWST). While competitors like Republic Services (RSG) and Waste Connections (WCN) are also investing in technology, WM's scale and integrated network allow for broader and potentially more impactful deployment of these innovations across its operations.

Performance Reflecting Strategic Execution

WM's recent financial performance underscores the effectiveness of its strategic approach, particularly the synergy between disciplined pricing and operational efficiency driven by technology. In the first quarter of 2025, the company reported operating revenues of $6,018 million, a significant increase from $5,159 million in the prior year period, primarily driven by the acquisition of Stericycle, higher yield in the core business, tuck-in acquisitions, and increased volumes in sustainability segments.

The core Collection and Disposal business remained a powerhouse, with net operating revenues of $4,922 million in Q1 2025, up 4.4% year-over-year. This growth was fueled by strong pricing, with total Collection and Disposal yield increasing by 4.0%. Commercial yield was particularly robust at 5.8%, while residential saw a 5.2% increase and industrial a 3.2% increase. Landfill and Transfer yields also contributed positively, up 1.6% and 5.7% respectively. Volume in the core business was flat on a workday-adjusted basis in Q1 2025, with positive landfill and commercial volumes offsetting strategic residential shedding and industrial softness.

Operational discipline translated directly to profitability. Operating expenses as a percentage of revenue improved to 60.6% in Q1 2025, a 30 basis point improvement year-over-year, reflecting efficiency gains, improved labor turnover, and the benefits of truck deliveries offsetting inflationary pressures and acquisition costs. The WM Legacy business (excluding WM Healthcare Solutions) achieved a 30% operating EBITDA margin in Q1 2025, marking the fourth consecutive quarter at this level and representing a 40 basis point expansion year-over-year. This margin expansion was significantly driven by a 50 basis point contribution from a favorable price-to-cost spread in the Collection and Disposal segment, highlighting WM's ability to outpace inflation through pricing and cost management.

The strategic focus on improving the profitability of the residential line of business through intentional shedding of lower-margin contracts and automation is yielding results, with residential operating EBITDA margin growing over 130 basis points to reach 20% in Q1 2025, a level not seen in six years. While this strategy leads to negative residential volume in the near term, it enhances overall profitability.

Beyond the core, the sustainability segments are beginning to contribute more meaningfully. In Q1 2025, WM Renewable Energy saw net operating revenues jump 31.9% year-over-year to $91 million, driven by higher energy prices and increased volumes from new facilities. Recycling Processing and Sales revenues increased 4.3% to $384 million, also benefiting from volume growth from new projects, although income from operations saw a slight decrease due to commodity price dynamics. Combined operating EBITDA from recycling and renewable energy grew over 20% year-over-year in Q1 2025, demonstrating the earnings power of these investments.

Total company income from operations in Q1 2025 was $1,013 million, resulting in a margin of 16.8%. This was down from 19.7% in the prior year period, primarily due to increased Corporate and Other costs associated with the Stericycle acquisition and integration, as well as higher depreciation and amortization expenses resulting from the acquisition. Net income attributable to WM also decreased to $637 million ($1.58 per diluted share) from $708 million ($1.75 per diluted share) in Q1 2024, largely due to a significant increase in interest expense related to the debt financing for the Stericycle acquisition.

Despite these near-term impacts from the Stericycle acquisition and integration, the underlying operational strength of the core business and the accelerating contributions from sustainability investments provide a strong foundation for future growth. WM's ability to maintain a favorable price-to-cost spread and drive efficiency through technology positions it well to continue expanding margins in its core segments, a key differentiator compared to peers who may face more pressure from cost inflation or less pricing power.

Strategic Expansion and Future Outlook

WM's strategic narrative is increasingly defined by its expansion into new growth areas and the scaling of its sustainability platform. The acquisition of Stericycle, completed in November 2024 for approximately $7.2 billion, is a transformative step, adding regulated waste and compliance services and secure information destruction to WM's portfolio under the new WM Healthcare Solutions segment. This move is strategically compelling, entering a sector with attractive growth dynamics and leveraging WM's operational expertise and national account capabilities.

Integration of Stericycle is a key focus for 2025. While the segment reported an operating loss in Q1 2025 due to depreciation, amortization, and integration costs, management is confident in capturing significant synergies, targeting $250 million on an annual run-rate basis by 2027, with $80 million to $100 million expected to be realized in 2025 (midpoint $90 million). These synergies are expected to come from optimizing SG&A, operational efficiencies (including fleet management and internalization of disposal), and leveraging WM's scale. Initial progress is evident, with WM Healthcare Solutions margin expanding 20 basis points sequentially in Q1 2025 and $16 million in value capture realized. Efforts are underway to optimize Stericycle's ERP system and improve process discipline, which is expected to unlock further value and enhance the customer journey. The regulated medical waste business is already seeing slight growth in stops, and opportunities exist to improve performance in secure information destruction. Long-term, the cross-selling potential between WM's traditional solid waste customers and Stericycle's healthcare clients is viewed as vast, though still being framed.

The sustainability growth strategy continues to build momentum. WM is investing approximately $3 billion from 2022-2026 to develop 39 new or upgraded recycling facilities and 20 new WM-owned RNG facilities. By the end of 2024, seven of the planned 20 RNG projects were expected to be online, with the remaining 13 under construction or starting construction in early 2025. These seven plants are projected to contribute approximately 6 million MMBtus of annual production in 2025. Eight additional RNG facilities are on track for completion in 2025. In recycling, 24 of 39 projects were completed by Q3 2024, adding 1.5 million tons of annual capacity, with seven more automation projects and new facilities expected by year-end 2024 and seven next-gen plants scheduled for 2025.

These investments are expected to drive significant incremental EBITDA. Management anticipates $190 million in incremental EBITDA from sustainability growth investments in 2025, accelerating contributions from these segments. The total sustainability growth investment program is expected to contribute operating EBITDA approaching $800 million in 2027. While CapEx for these projects remains elevated in 2025 ($625 million for sustainability growth, $225 million for WM Healthcare Solutions), it is expected to step down significantly in 2026, contributing to robust free cash flow growth.

WM's outlook for 2025 is bullish, reflecting confidence in continued execution and the benefits of these strategic initiatives. The company expects total operating EBITDA growth of 15% at the midpoint of its range ($7.45 billion to $7.65 billion), representing nearly $1 billion in growth compared to 2024. This includes over 7% operating EBITDA growth in the core Collection and Disposal business, $150 million in incremental EBITDA from sustainability, and contributions from WM Healthcare Solutions including synergies. Core price is targeted between 5.8% and 6.2%, with yield between 4% and 4.2%. Collection and Disposal volume is expected between 0.25% and 0.75%. Free cash flow is projected to grow over 17% to $2.725 billion at the midpoint, benefiting from increased earnings and an anticipated $220 million in investment tax credits from RNG projects.

The company is also actively pursuing tuck-in acquisitions in the solid waste business, expecting to close on over $500 million in 2025, a notable increase from historical levels, further strengthening its core network. While leverage is temporarily elevated post-Stericycle acquisition (expected ~3.15x by end of 2025), WM is committed to returning to its target range of 2.5x to 3x within 18-24 months through earnings growth and debt reduction, leading to a temporary suspension of share repurchases. Dividends are expected to continue growing, with the quarterly per share dividend increasing to $0.82 in 2025.

Key risks to this outlook include the inherent uncertainties in estimating landfill and environmental remediation liabilities, potential negative outcomes from ongoing litigation (including the securities class action and acquired Stericycle legal matters), integration challenges with the Stericycle ERP system and synergy realization, volatility in commodity prices (though mitigated by business model adjustments and contracting), and the potential impact of inflation and labor costs despite mitigation efforts. Regulatory developments, including those related to emerging contaminants like PFOS and the expiration of the alternative fuel tax credit in 2025 ($63 million EBITDA headwind), also pose potential challenges. However, management believes its strong balance sheet, operational capabilities, and disciplined approach position it to navigate these risks.

Conclusion

Waste Management is executing a clear and compelling strategy to leverage its foundational strengths – its extensive asset network, operational expertise, and technological leadership – to drive growth and create long-term value. The core Collection and Disposal business continues to demonstrate impressive resilience and profitability through disciplined pricing and technology-driven efficiency gains. Simultaneously, significant investments in high-return sustainability projects are establishing WM as a leader in renewable energy and advanced recycling, poised to contribute substantially to future earnings and cash flow. The strategic acquisition of Stericycle adds a promising new vertical with considerable synergy potential, expanding WM's market reach and service offerings.

While the integration of Stericycle and ongoing capital investments present near-term complexities and impact certain financial metrics, the company's robust guidance for 2025 signals confidence in its ability to deliver outsized growth in operating EBITDA and Free Cash Flow. WM's commitment to operational excellence, technological advancement, strategic expansion, and disciplined capital allocation positions it favorably within the competitive landscape, differentiating it through scale, efficiency, and a growing portfolio of environmental solutions. For investors, WM represents a stable, resilient business with accelerating growth drivers and a clear path to enhancing shareholder returns, making it a compelling opportunity in the environmental services sector.