DruckFin

Waste Connections Sees Landfill Volumes Turn Positive Across All Three Waste Streams, but Warns 2027 Margins Hinge on Diesel and Commodities Offsetting Each Other

Third-quarter earnings call, October 22, 2026: Outlook raised again, with a 2027 framework of mid- to high single-digit revenue growth

Waste Connections reported third-quarter revenue of $2.638 billion, up 7.3% year-over-year, and adjusted EBITDA of $895.8 million, up 7.9%. Adjusted EBITDA margin was 34%, up 20 basis points. Surging diesel costs late in the quarter cost roughly 30 basis points of margin, so underlying expansion was 50 basis points. The company raised its 2026 outlook to revenue of about $10.09 billion and adjusted EBITDA of about $3.345 billion, a 33.2% margin. The new outlook implies fourth-quarter revenue of about $2.52 billion and a 33.3% margin, which management called its toughest quarterly comparison of the year.

Landfill Volumes Inflect, but Residential Construction Remains a Drag

The most notable operating development was in landfill volumes. Same-store landfill tons rose 3% in the quarter, against effectively flat in the second quarter. CFO Mary Anne Whitney said it was the first quarter in two years in which MSW, C&D and special waste all grew year-over-year. Special waste rose 7% and C&D 5%, with MSW up nominally. Total solid waste volumes still fell 1.2%, an improvement of 70 basis points from Q2, as roll-off pulls declined about 2.5% and fell in every region except the West.

Special waste breadth improved. Whitney said 60% of locations had positive special waste tons and four of six regions were up, versus two of six last quarter. Drivers included highway and infrastructure work, remediation, data center and chip plant construction, and commercial projects. She cautioned against extrapolating. Special waste stayed positive in October, but C&D did not repeat its third-quarter increase, and she noted that these projects are "sensitive to things like interest rates and fuel costs, and they're lumpy." The company's fourth-quarter revenue implication reflects that caution.

CEO Ron Mittelstaedt was blunt about the residential side. Historically it has taken 1.5 million to 1.8 million housing starts to create organic volume that converts to permanent volume. The latest figure was 1.2 million, and he expects it to fall further at current interest rates into 2027. In his words, "there is one economy going on" in infrastructure and data centers, and "a residential construction that is just really sort of struggling."

On data centers, management declined to quantify the contribution. The CEO said they are a construction-phase event, since a finished facility with about 10 employees generates roughly an 8-yard container of trash a week. He suggested the volume effect is more likely 20 to 40 basis points than 1%.

2027 Framework: Revenue Growth Is Visible, Margin Math Is More Conditional

On margins, the message was less generous than the headline. Management still sees 20 to 40 basis points of underlying expansion excluding fuel. It expects diesel at recent levels to remain a headwind, to be "largely offset" by commodity-related tailwinds. Whitney said that "the expectation is that one would support the other," and that lower fuel would be a tailwind only if other commodities held up. Cost creep is also showing up in parts, materials, property and repairs, which Whitney attributed to higher fuel. Management is targeting a price-to-cost spread of about 150 basis points, so 2027 pricing will depend on cost inflation, which management said will "crystallize" over the next few months. The company has also had little opportunity to hedge 2027 diesel at attractive levels.

Nothing is assumed from AI. Mittelstaedt said the three main AI initiatives will not be fully deployed until the end of 2027, and one not until mid-2028. Margin benefit should begin in 2028 and be fully realized around 2029. Pricing tools have already exceeded expectations, supporting retention and fewer rollbacks.

Pricing and Surcharges

Core price was 5.5%, ranging from below 4% in the largely exclusive Western region to above 6% in competitive regions. Fuel and material surcharges added 1.3%, about $30 million, up roughly 20% sequentially. Management said it has recovered higher fuel costs faster than expected. It acknowledged that smaller competitors may not have imposed surcharges, which creates some customer sensitivity in certain markets.

Chiquita Costs Keep Falling

Management reiterated that the Chiquita Canyon landfill reaction is behaving as expected, with spending stepping down in 2026 as guided and a similar step-down expected in 2027. The CEO said the reaction is following a typical decelerating curve, so leachate generation and disposal costs are falling. Some work, such as expanding the geosynthetic cover and buffering the west toe, does not repeat. The company has drilled about 300 wells and does not expect that count to rise materially. Specific 2027 figures will come in February.

Asked how a future event would compare, Mittelstaedt said it would be far smaller because it would not be in California, cutting scope and cost "90% to 95%." He added that lessons from centralized well monitoring, faster leachate extraction and earlier gas well installation would also reduce costs.

Free Cash Flow Conversion

Year-to-date adjusted free cash flow was $1.09 billion, and the company remains on pace for at least $1.4 billion for the year. Conversion is around 42%, against a long-term target of 48% to 50%. RNG capital spending of about $75 million this year largely does not repeat, and Chiquita outlays decline. The 2026 EBITDA raise did not flow through to cash flow guidance because of interest. Record buybacks of over $1 billion, or 2.5% of shares outstanding, raised interest expense by about $40 million. Debt is about 80% fixed with an 8-year weighted average tenor, a roughly 4% average cost and no near-term maturities. Leverage is about 2.75x.

E&P and Commodities: Upside That Producers Do Not Yet Believe

E&P waste revenue rose another 6% sequentially and about 5% year-over-year, with the U.S. up 9% on a Permian rig count up about 10% this year. Canada was flat on a normalized basis. Management argued that activity does not yet reflect crude near $100, since rigs are still down about 50 from early 2024. Mittelstaedt said producers will not respond to what they view as a short-term stimulus tied to the "on again, off again hourly war in Iran and the Strait." If prices prove durable, that could change. He also said E&P is 6% to 7% of revenue, and the company is comfortable with it shrinking as a share. The company does not plan an outsized deal and has no interest in transportation or field services.

Recycling revenue rose about 12% as OCC values are up 35% since year-end, partly offset by weak plastics. Landfill gas sales rose 35% on new RNG volumes and RINs about 10% higher at roughly $2.50.

M&A and Capital Returns

Year-to-date acquisitions total $130 million of annualized revenue, including two West Coast collection franchises. That is below recent years. The CEO rejected the idea that buybacks are crowding out M&A, saying the company has capacity for both and is simply disciplined. He criticized peers buying "poor assets" and private equity paying prices he considers undisciplined. He said $200 million is now a normalized low watermark for annual acquired revenue, and that 2027 "could be a record" given the pipeline. The dividend was raised 10%, the 16th consecutive double-digit increase.

Rail and Internalization

Arrowhead landfill is peaking at 7,000 to 7,500 tons per day by rail, about triple the level 2.5 years ago. Management sees 8,500 to 9,000 tons over the next 24 months, which requires more track and facility investment. A Miami-Dade rail project started at the end of Q2 and should keep ramping into 2027. Internalization was 58%, versus 60% last quarter, which management attributed to mix, and it expects a 58% to 60% range.