Earnings Call Transcript
WASTE MANAGEMENT INC (WM)
Earnings Call Transcript - WM Q4 2025
Operator, Operator
Good day, and thank you for standing by. Welcome to the WM Fourth Quarter 2025 Earnings Conference Call. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Ed Egl, Vice President of Investor Relations. Please go ahead.
Edward Egl, Vice President of Investor Relations
Thank you, Olivia. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2025 earnings conference call. With me this morning are Jim Fish, Chief Executive Officer; John Morris, President and Chief Operating Officer; and David Reed, Executive Vice President and Chief Financial Officer. You'll hear prepared comments from each of them today. Jim will cover high-level financials and provide a strategic update. John will cover our operating overview, and David will cover the details of the financials. Before we get started, please note that we have filed a Form 8-K that includes the earnings press release and is available on our website. The Form 8-K, the press release and the schedules in the press release include important information. During the call, you will hear forward-looking statements, which are based on current expectations, projections or opinions about future periods. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are discussed in today's press release and in our filings with the SEC, including the most recent Form 10-K and Form 10-Qs. John will discuss our results in the area of volume, which unless stated otherwise, refers specifically to internal revenue growth or IRG from volume. During the call, Jim, John and David will discuss operating EBITDA, which is income from operations before depreciation, depletion and amortization. References to the Legacy Business are total WM results, excluding the Healthcare Solutions segment. Any comparisons, unless otherwise stated, will be with the prior year period. Net income, EPS, income from operations and margin, operating EBITDA and margin, operating expense and margin and SG&A expense and margin have been adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations. These adjusted measures, in addition to free cash flow, are non-GAAP measures. Please refer to the earnings press release and tables on the company's website for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures. This call is being recorded and will be available 24 hours a day beginning approximately 1:00 p.m. Eastern Time today. To hear a replay of the call, access the WM website at www.investors.wm.com. Time-sensitive information provided during today's call may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of WM is prohibited. Now I'll turn the call over to WM's CEO, Jim Fish.
James Fish, CEO
Okay. Thanks, Ed, and thank you all for joining us. We're pleased to report another year of outstanding results in 2025, including a record performance in operating expenses as a percent of revenue. This performance, combined with our disciplined approach to pricing, drove full year operating EBITDA margin 150 basis points higher in the Legacy Business. Strong operational performance translated to double-digit growth in cash flow from operations and nearly 27% growth in free cash flow. Our results highlight the strength and momentum we built in our business model through operational excellence, scaling sustainability businesses and integration of Healthcare Solutions. You've heard me talk about the strength of our collection and disposal business with our differentiated assets and the best people in the industry. All of these were on display in 2025 as we drove our best ever operating leverage in our collection and disposal business, reflecting the intentional investments we've made in our people, technology and fleet. Better frontline retention and a decreased average age of our trucks delivered improvements in labor and maintenance costs. Meanwhile, we continue to drive organic revenue growth from both price and volume. By using data and analytics, we're offering pricing that reflects the premium value of our service, our leading commitment to environmental sustainability and the strength of our asset network. It's our unmatched network, particularly our transfer and disposal assets that drove volume growth in 2025, more than offsetting the residential volume declines as we shed some low-margin business. In our Healthcare Solutions business, 2025 was a year of teamwork, focus and execution to build momentum to our integration. Our service delivery metrics and customer service scores have improved to levels above our Legacy Business. Customer call volume has been trending down, and the standardization and enhancement of customer-facing processes and invoices are all leading to rising customer satisfaction. Just last week, we received an acknowledgment from one of our largest Healthcare Solutions customers for the improvements we've made on invoicing, which indicates the significant progress we've made in the last year in our systems and back-office processes. At the same time, we continue to significantly reduce SG&A and operating costs, streamline our operations and greatly improve asset efficiencies. While there's still work to do, the progress we've made to date puts us in a good position to grow the earnings and cash flow from this business with a lean and efficient cost structure, a healthy pricing environment and new opportunities for volume growth through both cross-selling and market share expansion. On the sustainability front, we drove notable strategic expansion in our sustainability businesses. We commissioned 7 new renewable natural gas facilities, expanding our renewable energy network and further positioning WM as a leader in environmental sustainability. We completed automation upgrades at 5 recycling facilities and added facilities in 4 new markets, which are enhancing the performance of our recycling network and creating new opportunities with customers. The value of our recycling investments is clear, particularly when you consider our recycling segment delivered over 22% operating EBITDA growth despite nearly 20% lower commodity prices in 2025. This combination of operational excellence and strategic investment across our business has produced record margin performance and accelerated cash generation. As we enter 2026, we're well positioned to convert more of our earnings into long-term shareholder value. Turning to our outlook. We expect continued strong growth in the year ahead. Our guidance is for operating EBITDA growth of 6.2% at the midpoint or 7.4% when you normalize for wildfire cleanup volumes in 2025. Free cash flow is expected to grow nearly 30% at the midpoint, reflecting structural earnings strength and the benefit of our investments. As announced in December, our Board approved a 14.5% increase in the planned quarterly dividend rate in 2026, our 23rd consecutive year of dividend growth. We also authorized a new $3 billion share repurchase program. We plan to return about $3.5 billion to shareholders through dividends and share repurchases in 2026, representing more than 90% of free cash flow we expect to generate. We will continue to balance these returns with disciplined reinvestment, tuck-in M&A and a solid investment-grade credit profile. Looking ahead, our priorities are clear: first, growing the core business by leveraging our focus on customer lifetime value, operational excellence and network advantages; second, capturing and maximizing returns from our investments in our recycling and renewable energy businesses; and third, driving accretive growth in Healthcare Solutions as we take the business from integration to scalable growth. Finally, executing our disciplined capital allocation plan to deliver compelling long-term shareholder value. Our results reflect the hard work of our entire team who serve our customers with pride every day. Their commitment fuels our performance and sets the foundation for the opportunities ahead. In 2026, we will build this momentum strengthening the core, scaling our growth platforms and creating meaningful value for all our stakeholders. I'm incredibly proud of what we've accomplished and excited for what's ahead. And with that, I'll turn the call over to John to provide more detail on our operational performance.
John Morris, President and COO
Thanks, Jim, and good morning. WM delivered another fantastic quarter to close 2025, driven by disciplined pricing and continued cost efficiencies across the business. In the fourth quarter, operating EBITDA in our collection and disposal business grew more than 8% and operating EBITDA margin expanded by 160 basis points, supported by strong execution and the ongoing benefits of automation and technology across our operations. The strength in Q4 was driven by operating expenses as a percentage of revenue improving 180 basis points to 58.5%, marking our third consecutive quarter below 60%. And for the full year, our cost management is just as impressive. We finished 2025 at 59.5%, which is the first time in company history that operating expenses have come in below 60% for a year with each quarter of 2025 improving sequentially. As I said on Investor Day, we are fundamentally changing our cost structure through the investments we're making in our people, technology and processes. 2025 was a year we proved the change is real and durable, and we're well positioned to continue capturing these benefits for years to come. The improvement in operating cost was led by substantial improvement in repair and maintenance costs on both a dollar basis and as a percentage of revenue, driven by operational and fleet strategies that are yielding tangible benefits. Accelerated investments in new trucks over the last 3 years have improved our average fleet age, significantly reducing unplanned repairs and the need for third-party maintenance support. And at the same time, our disciplined focus on fleet optimization and a more streamlined maintenance model increased technician productivity and reduced reliance on rental units and external services. These structural improvements were complemented by enhanced route automation and resource planning tools that lessen wear on the fleet and improve overall asset utilization. Taken together, these initiatives reflect our strategic commitment to operational excellence and are driving sustained cost efficiencies that strengthen our performance. Our repair and maintenance costs were not the only cost category reflecting the strength of our operating model as we saw a similar story in labor. In Q4, labor costs improved as we continue to see benefits from our people-first culture across our frontline teams. Driver turnover reached its lowest level of the year at 15.7%, demonstrating our ability to sustain our meaningful improvements in frontline retention. We've implemented a people-centric approach to onboarding, training and accountability, which is improving retention, safety and operating efficiency while also reducing overtime hours and training needs. We also benefited from our connected truck platform, which gives leaders real-time visibility into sequencing, downtime and efficiency to help reduce labor dependency while improving service reliability. And it's also worth noting that our connected truck benefits are not limited to cost advantages as the technology enables rightsizing service levels and other revenue opportunities. These people, process and technology-driven improvements extend beyond our Legacy Business. And now that we've successfully integrated the Healthcare Solutions business into our existing field operations management structure, we expect to extend these improvements we've already seen in on-time service delivery, driver turnover, asset rationalization and network optimization. In both the Legacy Business and the Healthcare Solutions business, we are structurally lowering our labor cost base, strengthening day-to-day execution, enhancing service reliability and delivering continued opportunities for long-term operating improvements. Turning to the top line. We delivered another quarter of strong balanced growth. Pricing continues to be a strength for us with core price of 6.2% in the fourth quarter, not just because of disciplined execution, but because of our strong customer focus and the consistent value we provide to our customers. Our asset positioning at scale, service reliability and the investments we've made in technology and automation differentiate our service offering, which all support our pricing. And on the volume front, we've seen notable growth in 2025 in special waste, renewable energy and recycling. In residential collection, intentional shedding moderated in the fourth quarter, and we continue to drive operating EBITDA and margin growth. We anticipate steady residential volume improvement as we move through 2026. In closing, I'll thank the entire WM team for their commitment and execution throughout 2025. We're entering 2026 with strong momentum, an optimized operating model and clear opportunities to continue delivering value to our customers and shareholders. And now I'll turn the call over to David to discuss our 2025 financial results and 2026 financial outlook in further detail.
David Reed, CFO
Thanks, John, and good morning. Our 2025 performance demonstrates the meaningful progress we're making toward our long-term strategic goals. Operating EBITDA margin expanded 40 basis points to 30.1% for the full year, which is a result that overcame a 140 basis point margin headwind from the combined impact of the acquisition of the Healthcare Solutions business and the expiration of alternative fuel tax credits. This result significantly exceeded the margin outlook we provided at the beginning of 2025 as we outperformed our own high expectations for cost optimization in our Legacy Business and synergy capture in the Healthcare Solutions business during each quarter of the year. Normalized for these known headwinds I just mentioned, our Legacy Business delivered 180 basis points of margin expansion for the year. This was driven by 120 basis points of growth in the collection and disposal business from the benefits of price, cost optimization and improved business mix, particularly growth in landfill volumes and the shedding of low-margin residential business. Margin growth was also bolstered by a combined 60 basis points from lower commodity pricing in the recycling brokerage business, recycling automation benefits, the growth of our high-margin renewable natural gas business and the lower risk management cost. Cost optimization remained a central theme in 2025. SG&A expense for the Legacy Business was 9.2% of revenue for the full year, a 10 basis point improvement compared to 2024 as we continue to rationalize discretionary spending. Within Healthcare Solutions, we are making consistent progress in reducing SG&A expenses as we integrate and optimize the business. Fourth quarter 2025 Healthcare Solutions SG&A of 20.8% of revenue is a notable improvement of 350 basis points from the prior year period and a significant step toward our long-term ambition to get the SG&A of this business in line with the rest of the company. At 10.4% for the full year, it is clear that we are on track to get total company SG&A as a percentage of revenue below 10% in short order. Our strong execution translated into robust cash flow generation in 2025. Cash flow from operations grew more than 12% to $6.04 billion, and free cash flow reached $2.94 billion, an increase of nearly 27%. These results showcase our success in driving margin expansion and disciplined approach to capital investment. For the year, we spent just under $2.6 billion on capital to support the business and $633 million on sustainability growth investments. In 2025, we allocated $1.3 billion to dividends and paid down $1 billion in debt, reaching a leverage ratio of 3.1x. We expect to reach a leverage ratio within our targeted range of between 2.5 and 3x during 2026. We also invested more than $400 million in tuck-in acquisitions to expand our traditional solid waste and recycling footprint. Moving to the outlook. We expect operating EBITDA to be between $8.15 billion and $8.25 billion in 2026. This projection reflects an update to the classification of accretion expense, a change we are making to enhance the comparability with our industry peers and to better reflect operating performance. As a result, our 2026 operating EBITDA guidance excludes projected accretion expense of approximately $150 million. Our plan calls for a typical quarterly cadence of operating EBITDA contributions across the year. Additionally, we expect an effective tax rate of approximately 24% and a share count at the end of the year of about 402 million shares. We anticipate capital expenditures for 2026 to be between $2.65 billion and $2.75 billion, which is inclusive of about $200 million directed towards high-return sustainability projects. Sustainability growth capital includes spending of about $85 million on 2 recently approved renewable natural gas facilities and one new recycling growth project, each expected to be completed and to begin contributing operating EBITDA by 2028. These projects are attractive opportunities to extend our network while bolstering WM's industry-leading return on invested capital. In 2026, we expect free cash flow growth of nearly 30% to $3.8 billion at the midpoint of the outlook, which drives our projected operating EBITDA to free cash flow conversion above 46%. Our guidance includes an anticipated benefit from investment tax credits of about $110 million, which is about a $75 million headwind from the prior year. In closing, 2025 underscored the strength of our business model, the resilience of our operations and the discipline with which our teams execute every day. We are proud of our progress toward our long-term strategic goals, driving margin expansion, strong cash flow generation and continued optimization across the enterprise. I want to thank our dedicated team members whose commitment makes these results possible. As we look ahead to 2026, we are confident in our ability to sustain this momentum to continue delivering operational excellence and to generate long-term value for our shareholders. With that, Olivia, let's open up the lines for questions.
Operator, Operator
Our first question comes from Sabahat Khan with RBC Capital Markets.
Sabahat Khan, Analyst
Just maybe starting with sort of the top line guidance. Can you maybe give us some perspective on the industrial activity has been weak for some time. There's some views just broadly out there that the economy picks up this year. Maybe just what you've embedded in terms of the macro backdrop. Obviously, we see the sort of the directional volume and pricing commentary. But if you can just delve into what you're seeing in some of your local markets? And is the industrial C&D type market picking up at all?
James Fish, CEO
Yes. Regarding the macro economy, I would say that we've said for the last few quarters that we're cautiously optimistic, and I think that we stay with that. I might even remove the word cautiously. I think we're optimistic about the macro economy. When we look at our own internal figures, and you mentioned the industrial line of business, that's a line of business that has been pretty soft over the last couple of years. I think we've been down 3% or 4% in volume each of the last probably 7 or 8 quarters. And that business actually has bounced back to almost flat. So that's an encouraging sign for us. I think similarly, as John mentioned in his remarks about the residential line of business, that's been negative for some time. That's been much more by design. But he also mentioned that, that is starting to come back to more of a normalized number. And we think by the time we get to kind of the back half, I think, John, of 2026, we should see that down maybe half.
John Morris, President and COO
Yes. Half. Yes.
James Fish, CEO
So all of those are encouraging signs. If you look at the landfill line of business, that's been a source of strength for us for a number of reasons, special waste, as John mentioned in his remarks as well, has been good. So all of that would tell me that the economy is on pretty firm footing.
Sabahat Khan, Analyst
Great. As a follow-up on the health care side, can you discuss the integration status? It seems to be largely complete, but what are your thoughts for 2026 regarding pricing and major initiatives focused on cost refinement? Specifically, how do you plan to improve the SG&A percentage to align with your goals? Could you also elaborate on the initiatives discussed earlier this year in the health care sector and what margins might look like over the next 12 to 24 months?
James Fish, CEO
We've made significant progress in Healthcare Solutions over the last quarter. There has been a lot happening between Q3 and Q4. We previously mentioned some accounts we lost last quarter that will continue to impact this quarter and into 2026, and that has indeed occurred. However, we have also seen substantial improvements in our customer service metrics, which are now surpassing those of our Legacy Business—this is very encouraging. From Q3 to Q4, we observed a peak in credit memos, which have been partly utilized to address past due accounts. We have effectively established a separation between ongoing back office operations and customer interactions, which is a positive development. Looking ahead to 2026, we expect improved price realization; although we've been obtaining price increases, we haven't fully realized them due to the impact of credit memos. For 2026, we anticipate a 4.2% price increase, while top-line growth is predicted at 3%, largely affected by the anniversary of lost accounts in the latter half of '26. Thus, although it seems that all our growth originates from price, it is indeed due to these lost accounts. On the expense side, we've integrated operations as John mentioned, and Rafa discussed how this integration has led to tangible benefits. The enhancements we've made to the Legacy Business over the last decade—through technology and processes—are now being applied to our routing and logistics operations under WM Healthcare Solutions. We're optimistic about the outcomes as we streamline the business. Lastly, regarding cross-selling, we previously included $50 million in our EBITDA synergy figures last June, and I believe that estimate will be exceeded. Discussions with our area leaders have revealed a strong sense of encouragement regarding sales efforts. It's important to note that some benefits from cross-selling may also appear in the collection and disposal sector, not solely in the Healthcare Solutions division.
Operator, Operator
Our next question coming from the line of Bryan Burgmeier with Citi.
Bryan Burgmeier, Analyst
I appreciate all the detail in the press release. It was really helpful. I thought that Footnote h seemed to say that maybe discussion on the 2027 financial targets would be put on hold for a little while. I'm not sure if I'm sort of interpreting that correctly. And if I am, maybe from a high level, can you help us understand sort of what went into that decision? I guess there have been sort of some accounting changes. It's a pretty dynamic macro environment, but just kind of hearing in your own words would be really helpful.
James Fish, CEO
We anticipated a question regarding Footnote h, and Heather has brought it up. Regarding the 2027 figures, we provided some broad estimates during Investor Day. I want to clarify that those were not the detailed guidance we are providing today for 2026. We will present comprehensive guidance for 2027 in a year. Therefore, consider those earlier figures as estimates based on our best insights at that time. Our business typically allows us to look about 12 months ahead, and predicting commodity prices 18 to 24 months out is particularly challenging. So, I wouldn't view those earlier estimates as guidance but rather as what they were meant to be—estimates. However, I can say that we don’t foresee any concerning issues emerging for 2027. Additionally, our track record over the years shows that consistent performance is one of our strengths, and I believe that will continue moving forward.
Bryan Burgmeier, Analyst
Got it. Got it. It's really helpful. And then maybe just digging into the guidance for '26 a little bit more. Maybe, John, can you give us an idea of maybe the level of margin expansion that you're looking for in collection and disposal this year on sort of an apples-to-apples basis? I guess it's kind of noisy with the landfill accretion and the wildfire comps, but John, your thoughts on net price and maybe some key cost buckets could be quite helpful.
John Morris, President and COO
Yes, Bryan, you noticed the guidance we provided regarding yield and core price. We have been concentrating on the gap between price and cost, and we demonstrated solid progress in Q4 and this year, as I noted in my prepared remarks. We are continuously working to improve margins, which makes us very pleased. To address your question directly, there is some variability to consider. We mentioned that the wildfires contributed to this variability in Q2, but we are aiming for a 50 basis point improvement on a same-store sales basis in terms of margin enhancement across the portfolio.
James Fish, CEO
Don't grade me down by calling the wrong name. I think I called you Tony.
Operator, Operator
Our next question coming from the line of Trevor Romeo with William Blair.
Trevor Romeo, Analyst
First one I had was maybe on the 2026 outlook for Healthcare Solutions, particularly on EBITDA because I know you did give kind of a revenue outlook. You talked about kind of continuing to optimize the business. I was hoping maybe you could level set how much cost synergy capture you realized in 2025 and then how much is baked in for incremental in 2026? And then along with that, how much sort of underlying growth and margin expansion you expect from the business ex synergies?
James Fish, CEO
Yes, several of us could address this, but I'll begin and then perhaps David or John can add their insights. Regarding 2025, we previously estimated SG&A synergies to be between $80 million and $100 million, and we ended up exceeding that range, which is encouraging and provides a benefit that carries over into 2026. Some of this is gradual throughout 2025, which contributes to our carryover advantage as we move into 2026. We feel confident about our original synergy target of $300 million, which includes $50 million for cross-selling. There may be some confusion with these businesses because cross-selling affects collections and disposal as well. The same applies to our operating costs and SG&A. On SG&A, which is a key focus area, prior to the acquisition, we worked diligently to reduce SG&A, managing to lower it to about 8.9% in Q3 of 2024, while the annual figure for 2024 was around 9.4%. After the acquisition, this increased to a high of 11% in Q1 2025. Through our synergy efforts, we reduced it to about 10.3% by the end of the year. As David indicated, there’s a clear path to bring this figure below 10%, and the Healthcare Solutions segment previously operated at a much higher SG&A ratio of 25% when we acquired it, which has now dropped to 20%. Our synergy capture aimed for 17%, and Devina has noted that we could feasibly expect it to approach our target of around 9%. If we achieve that, we should see continued reductions in that SG&A number. John, would you like to discuss the operating side?
John Morris, President and COO
Yes, I would say from a synergy perspective, cross-selling and internalization, those avenues are going very well. And as Jim mentioned, Trevor, we're seeing a good bit of the benefit right now showing up sort of in the core solid waste business. I commented on our roll-off volume last quarter being a portion of it, about 60 basis points being driven by simply taking that work and putting on WM trucks. That's not something that's going to show per se in the Healthcare segment. And like I said, in terms of internalization and other synergies we're getting out of the business, that's all going extremely well.
Trevor Romeo, Analyst
Yes, that makes sense. I wanted to follow up on the RNG business. I'm not sure if Tara is on the call, but I appreciate that 60% of volumes are contracted for 2026, which is encouraging. For the 40% of uncontracted volumes, the press release mentioned an expectation of $24.50 per MMBtu for pricing. If we consider today's spot prices, that seems to suggest a significantly higher amount. Could you elaborate on that? Is that reflective of the current voluntary market, or is there some caution included in that figure? What are your thoughts on pricing?
Tara Hemmer, Head of Sustainability
Yes. So I'm here, and we're really pleased with the progress that we've made on selling a portion of our volume, a pretty significant portion. This is a testament to how we've been managing the risk that's in this business. On the 40% that remains unsold, this is going to be the first year. If you look at it, our volume is doubling year-over-year from about 40 million MMBtus to now 21 to 22 plus. So we're going to have a portion that is not allocated to our fleet that will be sold in the voluntary market, and that's what you're seeing in there. From a RIN pricing perspective, we're anticipating RIN pricing to hold steady in that $2.30 to $2.40 range. So that's what it's all based on.
Operator, Operator
Our next question coming from the line of Tyler Brown with Raymond James.
Patrick Brown, Analyst
I'll reiterate lots of good detail was in the release. But David or Tara, I just wanted to unpack the comments about the approaching $1 billion in sustainability EBITDA by '27. So I think in the release, you provided a baseline now. So I think that baseline is $300 million. And I just want to make sure that I have it right. But are you basically expecting the investments to yield, call it, slightly less than $700 million of incremental EBITDA over the time frame? And can we comp that to the $760 million to $800 million that you laid out at the Analyst Day? And if so, can we just talk about what's driving that delta?
Tara Hemmer, Head of Sustainability
So you absolutely have the parts right. And let me just take a step back on 2 key points. First, we're incredibly pleased with the progress on the recycling and the renewable energy investments. It bears repeating what was in Jim's script with 18% lower commodity prices and delivering 22% higher EBITDA on the recycling business. That's a testament to what we're delivering in labor savings, in premium savings, and we've had strong volume growth, which has a halo effect with our customers. And then likewise, really having a lot of momentum on the RNG business. I mentioned before that we're going to be doubling our output. What you can bridge from the $700 million to the $760 million is really just in 2 buckets. The first is a difference in recycled commodity prices. What was in our Investor Day materials was $125 a ton and now what is in the number is $70, which we do view as a low point. So you can consider that there could be some upside if and when commodity prices come back. And that's over half of it. The other piece is, if you go back to 2023, when we had come out with this broader platform, we've learned a lot. And one of the things that we've learned is that there have been some differences in operating costs, primarily related to electricity costs, which is a bit of a headwind, but also in the medium and long term, a potential tailwind for us because we do have a robust landfill gas-to-electricity platform, and that is something that we can lean into as we look at whether or not we expand those types of facilities on our landfill.
James Fish, CEO
Tyler, this is an example that illustrates my earlier point about the difficulty of making long-term predictions in our industry. We discussed the 2025 Investor Day and can look back to the 2023 Investor Day regarding sustainability, which is inherently challenging. We're working with the information available at the moment. Yes, commodity prices have dropped, leading to the $700 million figure. However, it emphasizes the point that, as Tara mentioned, these businesses are strong investments with excellent payback periods, especially for renewable natural gas plants. While we initially estimated paybacks at 2.5 to 3 years, they may now range from 3 to 4 years, but they still offer tremendous returns. Nonetheless, anything related to commodities is difficult to predict over such long horizons.
Patrick Brown, Analyst
Yes. No. I just was trying to get the delta. That was extremely, extremely helpful. John Morris, a question for you. So if I look at the normal course CapEx, it looks like that CapEx number is running at less than 9.5% of sales. It just feels maybe a bit light. I realize that Stericycle is less capital intensive, so that's part of it. But is this kind of a good, call it, forward capital plan? Is there something unique in '26 that keeps the budget down? I think you and Jim mentioned the lower fleet age, but I just want to just try to level set on where that CapEx will run longer term.
John Morris, President and COO
I think it's likely a bit higher than what you mentioned, probably around 10 percent off the top of my head. There are several factors to consider. First, we indicated that 1,500 trucks is likely the normal run rate for the traditional solid waste business. As Jim noted, we are actively catching up and making progress on some of those investments, which are clearly yielding positive results. As I stated in my prepared remarks, we still need to address some issues with the fleet, particularly on the health care side, because they have leased nearly all of their vehicles. We are systematically addressing those leases as it makes sense and at the right time. Additionally, the sustainability investments are decreasing significantly, from about $400 million to $200 million. So there are various factors at play, but to summarize, I believe that the 10 percent range is a reasonable target for our future capital.
Operator, Operator
Our next question coming from the line of Toni Kaplan with Morgan Stanley.
Toni Kaplan, Analyst
I also wanted to ask about the Healthcare business. You talked about the 3% growth next year, the 4.2% pricing. It sounds like you're still having some of the issues with the Stericycle customers. You mentioned the credit memos. Do you expect all this to be resolved this year? And how are you thinking about growth in this segment for future years? And just maybe if you could talk about market conditions within the medical waste space and if that's proceeding how you sort of saw when the deal was launched or when you announced the transaction where you were talking about sort of a higher market growth for the health space?
James Fish, CEO
Yes, that's a fair question. I would like to clarify that we are at a point where customers are receiving accurate invoices. There is substantial effort happening behind the scenes, particularly for our larger customers. The same goes for our larger clients in the Legacy Business and national accounts, where there is significant manual work involved. Our aim has been to separate the ongoing back office work from what customers experience. That's why I mentioned the improvements in our customer service metrics have surpassed those of our Legacy Business. This progress is encouraging, and one of our major clients acknowledged us for enhancing our invoicing process. Although I won't name the customer, it was a significant one. All these factors indicate that we have successfully established that separation, allowing customers to focus on receiving quality service and accurate invoices without worrying about background processes. We are addressing the system and process challenges, and progress is being made on that front. This is all part of the ERP system we've discussed numerous times. Speaking to your question about growth, we've indicated a potential growth range of 5% to 6%. For 2026, we projected a 4.2% price increase, but only a 3% top line growth. The decline in volume is primarily due to accounts we've lost, a factor we anticipated would impact Q4 and the first half of 2026. However, we expect that the second half of 2026 could provide us with a positive year-over-year effect. To wrap up, we are optimistic about the strategic business case here. Although there has been some skepticism about whether we can achieve that growth rate, removing the lost accounts shows we're nearly there already. As we approach the latter half of next year and into 2027, considering our pricing power across the organization and the demographic trends in health care—with an aging population in the U.S., Canada, and the U.K.—we believe this sector will benefit significantly. To sum up, we are confident in our growth trajectory and pleased with the advancements we've made; we're not finished yet, but we've created that separation, allowing customers to experience quality invoicing and service.
Toni Kaplan, Analyst
Great. You mentioned some technology and automation improvements you’ve made. As you look ahead to 2026, what areas are you prioritizing for efficiency or technology? Please highlight your level of automation and which areas have the most potential for growth.
John Morris, President and COO
Maybe I'll start and Tara can add her thoughts. On the recycling front, we've seen the benefits of our investments. Tara mentioned in her responses the progress we’ve made in this area, which has positively impacted our financial performance. Technology enablement and AI are already yielding results, and we’ve made significant advancements there. Considering the 15,000 refuse vehicles we operate, plus another 4,500 in the healthcare sector, building out technology in our logistics service is also yielding returns. If you examine our margins and operating expenses, the momentum we've created moving into 2024 and 2025, as well as Q4, should carry on into 2026. Lastly, regarding post-collection, we've discussed the value of our network and the strategic placement of our assets, including transfer, recycling, and landfill facilities. We're adopting an IoT approach at our landfills by integrating technology that enhances our operational visibility more efficiently than in the past. These operations are complex, and we see significant opportunities to use technology in landfills to effectively lower operating costs.
Operator, Operator
Our next question coming from the line of Faiza Alwy with Deutsche Bank.
Faiza Alwy, Analyst
I wanted to inquire about the volumes in the collection and disposal business during the fourth quarter. They seemed a bit below what we've previously observed. While I understand there have been some special waste volumes discussed, and earlier in the call you mentioned optimism regarding the industrial business and the macro environment, I'm curious if there's anything else we should consider regarding collection and disposal volumes this quarter, aside from special waste.
James Fish, CEO
Yes, we don't usually discuss weather as a factor, but it did affect us in December and will likely have an impact this week when we report our first quarter results. However, we compensate for that and ensure our local teams aren't using weather as an excuse for falling short of their budgets. While it did slightly influence our volume, as indicated by the numbers, it didn't affect the overall performance. We managed to balance it out on the EBITDA line. Specifically, MSW was somewhat weak, largely due to the impact of weather on two key areas: MSW and our industrial business. Both were noticeably affected by weather conditions in early December, and I expect they will feel the impact again this week. So, while this may have contributed to some softness, it does not influence the EBITDA results.
John Morris, President and COO
I would like to highlight that residential stands out as it's been negative for several quarters. However, we anticipate that it will start to transform into a growth engine in 2026. By the end of 2025, we recorded high teens in EBITDA margin and over 20% for the quarter in residential, which has consistently been a significant achievement for us. I view the volume decline in that area differently compared to other segments. It's crucial to note that our teams are shifting from a focus on reducing performance to enhancing margins as we move forward in that line of business.
James Fish, CEO
I think it's worth reiterating that for 2026, we are facing a 50 basis points headwind on volume due to the fire volume we experienced last year on the West Coast. Unfortunately, we don't forecast natural disasters for obvious reasons, so we currently haven't accounted for anything in our projections. We have tasked our field operations with finding ways to compensate for this challenge, which is difficult because it represents a significant headwind for both volume and EBITDA; last year's impact on EBITDA was $82 million. Consequently, while some reports may indicate a softer guidance, it’s important to note the 7.4% EBITDA growth we achieved, excluding the one-time effect from the fires. These events do occur, and while we hope nothing significant happens this year, should anything arise, we have the necessary resources and geographic coverage to support our customers effectively.
Faiza Alwy, Analyst
Yes. Understood. Makes sense. And then I was going to ask about just the margin guide for next year. And I was hoping there are a few moving pieces, in particular, with the wildfires and also, I guess, the roll-in of the sustainability projects. So maybe you can help us a little bit around the quarterly cadence of margins at a high level and how to think about that.
David Reed, CFO
Sure. I'll give you some of the components. This is David. I'd be remiss if I didn't talk just about the records that was mentioned previously, both in the quarter of 31.3% and for the full year of 30.1%, which I do think is a testament to how our team members focus and dedicate on this throughout the year. But as we look to 2026, we're calling for our fourth consecutive year of EBITDA margin expansion of 30 basis points at the midpoint. But as Jim just alluded to, 50 basis points on an adjusted basis. The biggest contributor to that is going to be from our collection and disposal business. So as we execute our pricing programs, while continuing our strategies around operational excellence and leveraging our network, that's a big piece. We also have some business mix, as we've alluded to, continued shedding of some lower-margin residential business relative to our volume growth in the landfill line of business. And then on sustainability, there's about 30 basis points collectively of benefit in '26 in terms of the bridge as we bring new plants online. We've got 4 recycling facilities and 6 RNG facilities coming online in 2026. There is a modest decline in recycling commodity prices year-over-year that will have a minimal impact on margin. And then Healthcare Solutions, as we've been discussing, will contribute to margin expansion overall for the year as we capitalize on our value capture opportunities, execute our pricing plan, continue our cross-sell efforts, even though that will show up most likely in the C&D business and then continue our progress on lowering our cost structure. And then in terms of cadence throughout the year, it's, call it, 47% in the first half, 53% on the back half in terms of mix, but that's in line with our historical averages.
Operator, Operator
Our next question coming from the line of Adam Bubes with Goldman Sachs.
Adam Bubes, Analyst
Just had one more follow-up on margins, really impressive in the quarter. And I think if you just compare your 4Q margin prior exit rates to where you typically ended the next year, it would sort of imply that this 4Q exit rate points to potential for better than 30 basis points of margin expansion in 2026. So just wondering out of the 230 basis points of margin expansion in this fourth quarter, how much of that expansion was maybe more one-off? I know you called out the outsized RIN sales that were going to happen this quarter.
David Reed, CFO
I think for the most part, these are sustained initiatives that we've been executing on, and it just highlights our focus on disciplined cost management. And so we're just seeing it come to fruition. I think as Jim alluded to, with the volume, some of it which we can't control, like just the ability of the business to flex accordingly in the environment that we're operating in, it allows us to maintain and sustain that margin going forward. So for most of it, I think we can carry that forward versus a number of one-offs that was idiosyncratic to the quarter.
James Fish, CEO
So I'm probably going to make his point for him here, but one thing we haven't really talked too much about is the fact that if you look at our core price for next year, 5.6%, it's a 250 basis point delta, and we typically have gotten this question, so we haven't gotten yet today, but a 250 basis point delta to our forecasted cost inflation. I don't know how that measures up historically, but it's got to be one of the bigger ones for us. So I'm kind of making your point for you. But still, we do think that 30 basis points is reasonable considering the 20 basis points of headwind from the fire volumes. So that's where we came out.
Operator, Operator
Our next question coming from the line of James Schumm with TD Cowen.
James Schumm, Analyst
For WM Healthcare, can you give us the revenue split between document destruction and medical waste? And then maybe give some color on document destruction profitability and whether you see this as a core business for you going forward?
John Morris, President and COO
So James, I think the answer to your question is about 2/3, 1/3 between health care and the document destruction business. And then sorry, could you repeat the second part of the question?
James Schumm, Analyst
Yes, sure. Just in terms of like the profitability in document destruction, any color there? I think you talked about in the past that maybe you had an advantage here with your recycling business, maybe you got better paper pricing. But do you see this as a core business going forward?
John Morris, President and COO
Yes. I mean, first, to start on the recycling side. I mean, it's interesting. Both of those businesses are collection, disposal and/or processing businesses, right? And I think you heard some of that commentary from us earlier. So from that perspective, it lays nicely over whether it's on the SID side or on the health care side to what we see as some of our core competencies. The commodity side of it, I mean, Tara spoke to what we're going to see from a commodity side and probably some more green shoots on the fiber side into '26, which certainly benefit that business. And then when you look at the health care side, it is a collection and disposal and processing business. And Jim gave a good bit of commentary on where we're at. I would tell you that the integration into the areas, which has just occurred over the last, call it, 120 days, I think it's going to be a great platform for us to continue to drive some real expansion in margins now that our field leadership teams have sort of a full purview of the business at the local level, which not dissimilar to the WM core business, there's a lot of elements of this from an operating perspective that are local. So we're excited about what we're hearing from the teams. And Jim mentioned, we just had our quarterly business reviews last week and got a lot of good commentary and a lot of positive commentary on where that business is going.
James Schumm, Analyst
Okay. Great. And then Jim kind of touched on this, but collection and disposal core price in 2026 is expected to be like 5.6% at the midpoint, which seems very conservative off of 2025 6.3% level. So just curious like what was the customer churn number in Q4? And what do you see as the right number for churn?
John Morris, President and COO
Yes, we see that obviously bounce around a little bit quarter-to-quarter for a litany of different reasons, but we've talked about churn being in and around that 10% range, and we're still bouncing around in that range, although it varies from quarter-to-quarter. And you've heard us comment at times, it's been as low as 8% and change. It's been a little bit as high as 11%. But when you stretch the tape out, that 10-ish percent churn number is kind of what we anchor on. In terms of the price side, when we think about core price and yield and the conversion, obviously, that number has bounced around. It's been the high 50s to high 60s. But I think what I would point to is when we break it down by line of business and the margin profile of those businesses, what you're seeing is our operating expense under 59% in Q4, under 60% for the full year. So that's showing that we're making progress on the middle of the P&L. And then we look at that relative to customer lifetime value and what's the long-term perspective on pricing that we should take with each of those individual customer segments. And I think you're seeing it translate to all-time high margins. I mean the collection and disposal business was 39%, which I think that's an all-time high as well.
James Fish, CEO
Maybe one last point here on pricing, James. As you mentioned that you thought maybe 5%, 6% kind of conservative. Keep in mind that as CPI or some of these indexes come down, we've talked about this many times, but there is a lag in those index-based price increases that we can take largely on the resi side of the business, but sometimes on other lines of business as well. And so that lag can be up to 6 months. And so we do expect that as CPI has come down throughout 2025 that we will see a bit of a lag there that will negatively impact 2026 pricing. So hence, the 5.6% as opposed to something in the 6s for 2025. But as John just said, look, we're certainly making up for that on the margin line.
Operator, Operator
Our next question coming from the line of Jerry Revich with Wells Fargo Securities.
Jerry Revich, Analyst
John, could you provide an update on the benefits from connected trucks and other technologies that you mentioned in your prepared remarks? Are you seeing an acceleration in savings from logistics management? Additionally, following your session with Caterpillar at the Consumer Electronics Show, are the returns from your technology investments improving as we move into this year?
John Morris, President and COO
Yes. Starting with connected trucks, we've had that technology integrated into our commercial fleet for a while now. We've actually expanded it to include the automated components of our residential business. We still see growth potential in that area, and we will continue to develop it. Regarding connected landfill, especially concerning heavy equipment, we see significant opportunities that we are beginning to explore. A lot of details about our future plans were shared at Investor Day. If you consider the progress on connected trucks as being in the later stages, I would say we are just beginning with the post-collection segment and there is substantial potential to reduce costs in that part of the business as well.
Jerry Revich, Analyst
Okay. Super. And then from a margin standpoint, just really impressive performance over the course of '25 even as recycling commodity prices got worse over the course of the year. David, I just want to make sure I'm not missing anything heading into the first quarter because normal seasonality and the accounting change implies that you're going to be at roughly, I don't know, 30.5% margins in the first quarter, which is typically your seasonally weakest margin quarter. So I just want to make sure there are no moving pieces off of the really strong run rate that you folks have achieved as the year unfolded last year.
John Morris, President and COO
Yes. I'm kind of thinking accretion aside, Jerry, to keep this kind of same-store sales. But you're right, Q1 is usually one of our softer quarters. And I don't know off the top of my head whether that's the right number or not. It feels a little bit high to me. I think it's a little lower than that, but we could circle back with you to confirm.
Jerry Revich, Analyst
Well, nice performance with the margin revisions consistently in '25.
Operator, Operator
Our next question coming from the line of Konark Gupta with Scotiabank.
Konark Gupta, Analyst
Just maybe one question on the top line. For the full year, I guess, you guys are expecting about 5% at the midpoint. Just looking at the puts and takes on the quarterly side, you have probably Stericycle is more like a second half story, Jim, I think you said. And then second quarter, you're expecting or seeing maybe tough comps from the wildfire last year. How should we think about the growth cadence for the year by quarter? I mean, especially in terms of how the volumes kind of shake out on the C&D side.
David Reed, CFO
Yes. I mean it's pretty balanced over the year, but you do see more of a pickup in the second half of the year. So call it, kind of below 5% in the first half and then above that in the second half in terms of the revenue bridge across the year. And the Q2, to your point, is the toughest comp with the wildfire volumes.
Konark Gupta, Analyst
And then volumes, do you expect that to be more evenly spread out throughout the year? Or is it going to be more skewed to the second half too?
John Morris, President and COO
I think the one area that will stick out as we mentioned, our residential volume has been negative 4-plus percent print, and we see that ratably declining. And by the end of the year, we should be right around 2%, maybe a little bit south of that in Q4. So that will be a clear tailwind to volume in the second half of the year.
Operator, Operator
Our next question coming from the line of Seth Weber with BNP Paribas.
Seth Weber, Analyst
Just wanted to go back to the health care cross-selling opportunity. I think on the third quarter call, you guys mentioned that it's largely been focused on small and medium-sized customers. I wanted to see if that's still the case or if you're getting any better traction with the large hospital networks at this point.
James Fish, CEO
I believe this will primarily present a significant opportunity with large customers. From what our sales team has reported, when engaging with decision-makers at these larger clients, it tends to be the same individual responsible for both solid waste and health care waste. This is encouraging for us. Additionally, we are confident in the services we currently offer in both sectors, which bodes well for our prospects. I anticipate this will predominantly involve our larger customers, categorized as A, B, and C, rather than the smaller D, E, and F segments.
Seth Weber, Analyst
Got it. Okay. Can you provide an update on your national accounts business across the whole company? It has been experiencing low double-digit compound annual growth rate for the last few years. Is it still performing at that same level in 2025?
James Fish, CEO
I mean, look, I would tell you, national accounts has been one of our real success stories. And both on the volume side, but also on the price side. I think we've done well with getting price increases based on really differentiated service and differentiated data and analytics that we provide our customers. So we're really pleased with the results of national accounts. I mean, gosh, I would tell you a decade ago, national accounts was kind of a mess for us. And today, it is one of our success stories.
Operator, Operator
Our next question coming from the line of Shlomo Rosenbaum with Stifel.
Shlomo Rosenbaum, Analyst
I want to revisit your earlier comments about the healthy economy. You mentioned that the outlook is not cautiously optimistic but genuinely optimistic. Could you elaborate on some of the metrics, such as the service interval trends and what you're observing on mature routes? Additionally, for residential, can you provide insights on the truck activity, including the temp roll-off performance, pricing, and pulls? If you could cover these points, I have a follow-up question.
James Fish, CEO
We are observing some leading indicators as we reach the end of the business cycle. The special waste stream appears to be a leading indicator because while these jobs are necessary, companies have some flexibility in scheduling them. Our sales team reports a strong pipeline for special waste, and we've heard from regional teams that these jobs are beginning to come up. That's one indicator we monitor. The roll-off segment is more closely related to our commercial operations, making it less of a leading indicator, although temporary roll-off has performed well for us. The construction and demolition (C&D) business has fluctuated over the years, showing a 3.4% growth this year compared to a negative number last year. C&D can also be considered a leading indicator, particularly regarding homebuilding trends. Interpreting macroeconomic signs is challenging, but I believe the GDP may be improving. Overall, our business tends to perform reliably in both favorable and challenging conditions, and I feel more optimistic now than I have in recent times. Yes.
Operator, Operator
Our next question coming from the line of Toni Kaplan with Morgan Stanley.
Toni Kaplan, Analyst
Listen, I can see your internal data on your roll-off market. Do you see where it will trend over the next quarter, I guess, typically seasonally that's down? But is that expected to be different this year?
James Fish, CEO
Yes. As you noted, on a seasonal basis, roll-off is generally down as we get into the winter months, January and February. But we expect a bounce back in March, especially as construction ramp-ups in the spring commence. We believe the strength in special waste should give additional lift to our roll-off business, fostering growth year over year.
Operator, Operator
And I'm showing no further questions in the queue. I will now turn the call back over to Mr. Jim Fish, WM CEO, for any closing remarks.
James Fish, CEO
All right. We had a 15-minute closing remark plan. But in light of time, I'll just say thank you all for your great questions today, and we will talk to you next quarter.
Operator, Operator
This concludes today's conference call. Thank you for your participation, and you may now disconnect.