Although third-quarter revenues reached record levels for some of the nation’s top five publicly traded haulers, plummeting fiber pricing in October was an indicator for commodity values heading into 2025. | Huguette Roe/Shutterstock
Although third-quarter commodity prices contributed to record quarterly revenues and margins for North America’s largest garbage and recycling companies, their outlook has changed moving into the final stretch of the year.
The five largest haulers – WM, Republic Services, Casella Waste Systems, GFL Environmental and Waste Connections – held bearish views for recycled commodity pricing in Q4 and into 2025.
Even so, they noted automation upgrades are producing higher-quality commodity streams, which help support pricing and increase processing volumes.
In the calls, mostly held in late October before the U.S. presidential election, executives said they expected little effect on their business from the political outcome.
“No matter what happens with the election, no matter what happens with the economy, barring a disastrous geopolitical event, we’re very optimistic about 2025, 2026, 2027,” said WM CEO Jim Fish.
“I don’t think there’ll be much change from us in terms of how we operate or where we operate,” said GFL Environmental CEO Patrick Dovigi.
Executives offered insight into the coming months, on commodity pricing, labor, capacity and more.
Commodity pricing driven by swings on the paper side
A short dockworker strike in October sent prices for old corrugated containers, a key portion of the curbside recycling stream, plummeting as volumes destined for export quickly backed up into oversupply. This paper grade represents about 55-60% of the recycled commodity basket, and so it accounts for a sizable share of the average commodity pricing haulers report each quarter.
Nevertheless, with “continuing uncertainty associated with those impacts going into the fourth quarter, we’re less optimistic that you’ll see upside to recycling commodity prices continue into the quarter ahead or into 2025,” said WM chief financial officer Devina Rankin, adding that her company is “cautious” about recycling commodity prices through the end of 2024.
WM still expects full-year average commodity pricing at about $90 per ton, following a Q3 average blended commodity price of $101 per ton, an increase of 74% on the year. The company’s investment thesis assumed $125 per ton, “so getting a higher blended value on our commodities is very important,” said Tara Hemmer, chief sustainability officer, adding that WM assumes a price of $85 per ton in Q4.
The faster processing speeds and additional size of new and upgraded facilities offer increased volumes, but also “we’re creating a cleaner product” in the recycling commodities, Hemmer said. For example, automation has enabled WM to capture more corrugated material and improve the quality and value of the mixed paper it produces, she said.
Similarly, Republic Services CEO Jon Vander Ark cited improving recycled plastics commodity quality as a driver for plant automation upgrades, with a goal to “create the best product we can for the marketplace, which drives more circularity and drives a higher price per product on that front.”
“Listen, we think we’re producing some of the cleanest flake in the world,” Vander Ark added, which is “what the market needs.”
As with other haulers, Waste Connections enjoyed strong year-on-year gains in Q3 fiber pricing before prices plummeted in October. Chief financial officer Mary Anne Whitney said pricing has the potential to drop an additional 5-10% in Q4.
Q3 revenues were up by 55% on the year, though prices softened slightly from the previous quarter, said Whitney. She too cited the port strike and weaker demand for the drop of about 15% in October, after quarter-end.
Whitney also warned that next year commodity prices “based on where they are right now, would be a slight drag year-over-year.”
Likewise, GFL Environmental chief financial officer Luke Pelosi noted that an oversupply of corrugated material in the Northeast is applying downward pressure on pricing. He added, “I do think folks believe that this is going to come back, but if you line today’s pricing up with the average you realize in 2024, 2025 would be a slight headwind.”
Ambitious capacity expansions at MRFs and hauler-owned plastics plants
Of WM’s planned 39 planned automation and new market projects, 24 have been completed, including eight during Q3. The projects so far have added 1.5 million tons of annual recycling capacity in North America.
The company plans to complete the Denver MRF by Q2 2026, part of its $1.4 billion in investment from 2022 through 2026. The company also is building a new facility in Portland, Oregon.
WM expects a payback period of six to seven years for new facilities, said Rankin, the company’s CFO. “When we look at the thing that made us so confident in this investment strategy, it really was the payback period of the recycling investments relative to investments we make in our traditional Collection and Disposal assets,” she said. “And we’ve always talked about the recycling investments being one of the best return on invested capital that we have across our portfolio. And we are seeing that not just hold, but accelerate.”
Republic Services’ first Polymer Center in Las Vegas continues to increase volumes, said CEO Vander Ark, and is on track to complete the new Indianapolis facility, which will be co-located with a Blue Polymers plant, by the end of 2024. Blue Polymers is a joint venture between Republic and plastics reclaimer Ravago, and these facilities will take in the sorted polymers from Polymer Centers for processing into new resin.
At the Las Vegas Center, whose customers for its output resin include Coca-Cola, Vander Ark said the company is happy with the pricing it’s getting and with the ramp-up in volume. “We got off to a little later start than we would have liked, for things all unrelated to the equipment,” he said, citing permitting and installation of utilities. “Maybe we were a little aggressive in our time line to begin with.”
The second Blue Polymers facility, in Buckeye, Arizona, is still expected to be completed in late 2025, he said.
Vander Ark added that Republic M&A over the next few years would include several new recycling centers. “We’re going to go studs up because there’s markets where we need capacity on that front.” However, he said, most of the capital expenditures would be put toward upgrading the existing sites, which number around 75.
Vermont-based Casella Waste Systems finalized its acquisition of Royal Carting and Welsh Sanitation on Oct. 1, bringing its acquisitions total for the year to six. CEO John Casella also noted that modernization of the Willimantic MRF in Connecticut will start later this year.
Canada-based GFL Environmental has commissioned two new MRFs so far in 2024, including one in Calgary, and expects two more to come online in early 2025.
Looking ahead, CEO Dovigi said GFL does not intend to shift its longtime strategy focus away from Canada, though U.S. market size and scale is larger by nature. GFL will focus on expanding in existing markets where it has post-collection capacity. As for 2025 M&A, Dovigi said that as yet no M&A activity is planned.
Labor costs remain elevated despite slowing inflation
At WM, automation upgrades have helped lower operating expenses, which dropped to 60.6% of revenue, contributing to the record profit margins in the overall business. A year ago operating expenses were 61.6% of revenue.
“Our automated recycling facilities are consistently delivering lower labor costs per ton and higher blended value on our commodity sales compared to our legacy plants, which translates into better operating EBITDA margins,” said Fish. Nevertheless, the recycling EBITDA margin dropped in the quarter to 12.7%, lower by 2.4 points on the year.
Chief operating officer John Morris added: “While inflation is generally coming down, we’re not seeing that with our front-line wages. And that’s part of the reason why you hear so much conviction about the continued investments in automation and technology, whether it’s the core business, whether it’s recycling facilities.” For example, WM is hiring technicians at an hourly rate that “starts with a four now, and it’s going to start with a five,” Morris said.
With labor costs a top concern among North American haulers, GFL has benefited from its focus on secondary markets, which has experienced lower wage pressures than in dense urban areas, and from effort to reduce employee turnover, Dovigi said. “The labor dynamics is something near and dear to us that we’re watching closely.”
GFL stands to benefit from Canadian EPR
Looking to the growing impact of extended producer responsibility legislation, GFL expects EPR contracts to contribute $5 million to $10 million of EBITDA for full-year 2024, and $40 million to $50 million in 2025, Dovigi said. In addition, there is potential for more contracts in Canada’s eastern provinces of Nova Scotia, New Brunswick and Prince Edward Island, as well as Alberta and Saskatchewan and parts of Manitoba. “Those are the sort of next big ones to fall,” Dovigi said.
He added, “From an asset positioning perspective, we’re in very good shape in a lot of these markets.” And considering GFL’s existing relationship with Canadian producer responsibility organization Circular Materials, “I think we’re in a good spot to get our fair share.”
Pelosi, GFL’s chief financial officer, added that EPR should contribute at least $130 million to margins over the next couple of years. Some GFL extended producer responsibility related collection contracts started up in Q3, and more will start by 2026.