Q2 2021 Waste Management Inc Earnings Call
Good afternoon, Thank you for standing by and welcome to the waste Management, Inc. Second.
Second quarter 2021 earnings conference call at this time, all participant lines are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during this session you will need to press star 1 and your telephone. Please be advised today's conference is being recorded.
Sure.
And your operator assistance just press Star Zero now I would like to turn the call over to director of Investor Relations and Eggo. Please go ahead Sir.
Thank you Holly and good morning, everyone and thank you for joining us for our second quarter of 2021 and earnings Conference call with me. This morning are Jim fish, President and Chief Executive Officer.
John Morris Executive Vice President and Chief operating Officer, and Divina, Rankin 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 an operating overview and Davita will cover the details of the financials.
Before we get started please note that we have filed a form 8-K. This.
Recall that includes the earnings press release and is available on our website at Www Dot Wm Dot com.
And the form 8-K, and the press release and are scheduled for 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.
And that could cause actual results to differ materially.
These risks and uncertainties are discussed in today's press release and in our filings with the SEC, including our most recent form 10-K.
Doug will discuss our results and the areas of yield and volume, which.
Unless otherwise stated are more specifically references to internal revenue growth or IRG from yield for volume.
Germany.
Morning, Jim John and Davita will discuss operating EBITDA, which is income from operations before depreciation and amortization and.
Any comparisons unless otherwise stated, but we with the second quarter of 2020.
Net income EPS operating EBITDA and margin and SG&A expense results have been adjusted to enhance comparability by excluding certain items that management.
And I believe do not reflect our fundamental business performance or results of operations.
These adjusted measures and addition of free cash flow are non-GAAP measures. Please refer to the earnings press release and tables, which can be found on the company's website at www Dot Wm com for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures and.
During the call projections.
This call is being recorded and will be available 24 hours a day beginning approximately 1 P. M. Eastern time today and until 5 P. M. Eastern time on August 11th.
A replay of the call over the Internet access the waste and under website at Www Dot <unk> Dot com.
Telephonic replay of the call dial 855, 8 and 5.9.
Non-GAAP 2056, and enter reservation code 69657, and 4.3.
Time sensitive information provided during today's call, which occurred on July 27, 2021 may no longer be accurate at the time of a replay and.
Any redistribution retransmission or rebroadcast of this call and any for but without the express written consent of waste management.
And it is prohibited now I'll turn the call over to waste management, President and CEO Jim fish.
Thanks, Ed and thank you all for joining us.
Last quarter, we are feeling very good about the prospects for the year, and we announced our Q1 results and raised our full year guidance now more than halfway through the year all parts of our.
Right.
And have performed well above those revised expectations.
And the second quarter, we achieved operating EBITDA of 131 billion.
Which we converted into strong cash from operations more than $1 billion.
First and foremost this superb performance as a result of our outstanding core.
Our business model and addition.
This performance was driven by our continued focus on providing our customers with exceptional service offering our employees a great place to work and driving sustainability to our business.
Our very strong results and addition to our confidence and the transformative changes, we're making to our business model led.
Biz and increase our full year guidance once again.
The size of our revisions and each of these first 2 quarters clearly demonstrates the earnings producing potential of our strategy.
And the back half of the year, we expect continued strong volume and pricing that offset inflationary pressures and.
And record results from our commodity based businesses.
Yes.
With all of this.
And the powerful momentum.
We now expect to generate 2021 operating adjusted adjusted operating EBITDA of at least $5 million for free cash flow of at least $2.5 billion.
All while continuing to make growth investments and our sustainable solutions and technology platforms.
At the core of these strong results as our recycling business, which is central to our sustainability and business strategy.
Our efforts to improve the recycling business combined with robust demand for recycled commodities led to second quarter delivering the recycling business is best ever financial performance by a considerable margin.
We've made substantial progress and derisking, our our recycling business by shifting to a fee for service contract structure, which has lifted the floor for recycled returns and created and economically sustainable business model.
We've also made significant technology investments to improve the cost structure and grow the business.
At our automated.
Abilities.
Labor costs were 35% lower and the second quarter compared to our other single streamers.
These investments not only.
Lower operating costs and improved plant efficiency, but also allow us to adjust our equipment to respond to evolving and market demands for example.
And we're.
We're now segregating out specific plastics that in the past were sold as a bundled and lower lower priced fail reacting quickly as markets evolve for new recycled commodity types.
And the capability to efficiently sort these materials allows us to extract more value for these.
And these as demand increases for recycled material overall, our investment and recycling technology.
Our investments and recycling technology are generating solid returns and we are accelerating our plans to rollout this new operating model across our MRF network.
Sustainability.
And he has been a central part of.
Come out how did you for many years, so I want to take some time to highlight.
And we're advancing our sustainability journey.
At the beginning of the month, Tara Hemmer transitioned into a new role as senior Vice President and Chief Sustainability Officer for.
And together, our sustainable solutions and ESG efforts under 1 umbrella.
We.
We believe this strong focus is critical to continuing to integrate environmental sustainability and social responsibility and to a strategic business framework.
Our supply chain goals, which include increasing our spending both with sustainable and diverse suppliers are examples of how they want to see.
This integrated and our day to day operations.
Our next month, we're hosting a supplier diversity initiative called share the green, which will give women owned businesses the opportunity to become a supplier for 1 or more of the 45 companies participating in the events.
This 3 day nationwide event will provide great opportunities for diverse businesses and help participating companies and secure.
Suppliers.
And finally, we continue to make real progress on our digital transformation to differentiate our customers' experience.
In the past I've mentioned are automated and setup process that streamlines customers' orders and reduces our cost to serve.
Through our advanced technology, we're eliminating nearly all.
Our average annual steps and setting up a customer count, allowing setup to occur almost instantaneously after and orders processed.
And this will save us several million dollars annually improve and setup accuracy and increase customer satisfaction.
This for accurate setup customers also helps us to auto route these.
All members, which increases operational efficiency, and we will optimize routes without manual processing.
We are now connecting our advanced technologies to automatically uncertain and 90% of our new commercial customers into existing routes and reducing our cost to serve and improving our speed of service.
Our customer and digital teams continue to enhance the capabilities of our digital tools to provide a unique and engaging experience for our customers. While at the same time connecting this fronts and experience to our operational systems to allow for improved efficiency and lower costs.
We expect that these investments.
And technology will continue to benefit us for many years to come.
In conclusion strong performance across all of our businesses collection and disposal recycling and renewable energy generated outstanding results. So far this year.
Our focus on disciplined pricing and cost management helped to offset the inflationary.
Sherri and cost pressures that we've seen and we expect to continue this focus into the second half of the year to help us deliver on our newly revised outlook I will now turn the call over to John to discuss our operational results for the quarter.
Thanks, Jim Good morning, everyone. We're pleased with the excellent second quarter results, we achieved across our business we produced.
And exceptional EBITDA growth of almost 24% and the collection and disposal business as the economy continues to recover from the pandemic steepness impacts and the second quarter of 2020.
Collection, and disposal volume climbed 9, 6% and the quarter, which exceeded our expectations and our focus on disciplined pricing programs produced a substantial.
And second quarter collection and disposal yield of 3.7%.
Turning more specifically to our volume results robust recovery and our highest margin businesses commercial industrial and landfill drove our very strong performance and the second quarter commercial and MSW volume reached pre pandemic levels and industrial volume.
Substandard recovered to levels, just shy of those before the pandemic.
And while we're very pleased with the pace of volume recovery. Thus far there remains opportunity for further volume improvement and the second half for the year from key areas of our business, including industrial special waste and certain geographies such as Canada. Additionally.
Additionally, pockets of our commercial business as such.
Volumes vacation and offices have yet to fully recover for.
For the full year, we now expect organic volume and the collection and disposal business to grow 2.5% or more.
Pivoting to price our second quarter results further demonstrate the focus of the entire team has on overcoming our cost headwinds as well as improvements following the intentional customer focused steps.
And the second quarter of 2020.
This focus is particularly evident and our residential core price of 5.4% landfill core price of 4.7% and transfer core price of 3.4%.
We continue to be committed to pricing programs that are aligned with our cost structure, which is even more important as we see pressure.
We took for transportation supplies and capital costs.
Our new full year outlook for collection and disposal yield is 3% or greater.
Our strong revenue growth was also supported by great results and our customer metrics churn was 8.8% and the quarter and service increases outpace service decreases.
And later than twofold. Additionally, we increased our net customer growth rate driven by optimization of our sales force and investments and technology.
Looking at operating cost second quarter operating expenses as a percentage of revenue improved 10 basis points to 61, 1% demonstrating that we are continuing to manage our costs as volumes recover.
Even in the face of inflationary cost pressures.
And it's no surprise to anyone who follows economic indicators that most businesses are experiencing inflation and their costs throughout 2021, and our business is no exception, particularly with regard to labor.
We expect to overcome these pressures by increasing operating efficiencies and executing on our.
And pricing programs.
And Theres no silver bullet and when it comes to attracting and retaining talent and we are using a multifaceted approach that includes addressing wages offering flexible schedules and broadening benefits.
Our long term focus is on keeping our people first so that we are the employer of choice overall inflation trends are something we are watching.
Very closely and managing very proactively with our area and supply chain and revenue management teams.
We continue to make progress on the integration of the advanced disposal operations to date, we've combined around 45% of the avs operations into our billing and operational systems, which has allowed us to capture synergies and provide additional services.
<unk> for those customers, we are on track to migrate virtually all the Acs customers by the end of the year.
Year to date, we have achieved more than $30 million of annual run rate synergies and we expect cost synergies of between 80% and $85 million and 2021.
This will bring the annual run rate synergies to around $100 million at the end of 2020.
And we won and we continue to forecast another $50 million to be captured in 2022, and 2023 from a combination of cost and capital savings and.
And finally, as Jim mentioned, our recycling team set new highs and this second quarter with record contributions to earnings and margins and we also achieved strong growth and our renewable energy business as we generated.
And sold more rins and sold them at higher prices we.
We've made significant investments and these businesses in recent years and we're pleased with the strong returns they are generating.
Before I turn the call over to Divina and I want to thank the entire Wm team for the remarkable job they have done and managing our operations and providing safe and reliable service to our customers.
Our people.
People really are the foundation of our success.
And with that I'll hand off to Davita discuss our financial results and further detail.
Thanks, John and good morning.
And our team once again delivered strong performance from the second quarter robust volume growth since last year's peak pandemic impact dynamic pricing effort.
<unk> recycling results disciplined integration of the 80 S business and our continued focus on cost management combined to deliver a 28% operating EBITDA growth and 50 basis points of operating EBITDA margin expansion.
As Jim mentioned these outstanding results and our confidence and the continued.
Lack of our business model and led us to raise our 2021 financial guidance yet again.
Full year revenue growth is now expected to be 15, 5% to 16% with organic growth and the collection and disposal business at 5.5% for greater.
Alright, and tested operating EBITDA.
Strength, we expect to generate between 5 and $5.1 billion.
And increase of $225 million at the midpoint from the original guidance we provided in February.
Our business is exceeding the strong outlook, we established at the beginning of the year on a number of fronts.
Volume has recovered.
Covered particularly and the commercial collection business at a faster rate than we expected.
Market values for recycled commodities and rents have increased our.
Our integration of the ATF business has generated more synergy value and certain of our technology investments focused on reducing our cost to serve have delivered more savings.
And plan.
While the bridge from our initial guidance for the current guidance has a number of puts and takes the most significant drivers are accelerated price and volume recovery and the collection and disposal business of about $135 million.
Improved recycling profitability of another 130.
And $35 million.
Renewable energy increases of about $55 million and.
And additional Atms synergies of around $25 million.
These increases are partially offset by elevated cost inflation and incentive compensation costs that we currently estimate to be about.
$125 million.
The increase and adjusted operating EBITDA guidance is expected to translate directly into incremental free cash flow and we now expect that we will generate between $2.5 and $2.6 billion for free cash flow for the year.
Turning to our second quarter results.
When I was 9.6% of revenue and the second quarter, a 30 basis point improvement over 2020.
This result demonstrates our success, making incremental technology investments that will benefit our customer engagement and cost to serve over the long term.
At the same time, we're realizing benefits from the integrator.
Steven of Ats and returns on certain of our new technology solution.
We also continue to focus on managing our discretionary spending to optimize our call.
Second quarter net cash provided by operating activities grew more than 20%.
This increase was driven by our extremely strong operating.
Integrate EBITDA growth.
There was an unfavorable working capital comparison, and then the second quarter, but we attribute that to timing differences and tax payments and cash receipts from C. N G credit.
We're encouraged to see continued progress on our DSO and D. T O measures.
And the second quarter.
Operating capital spending was $396 million, bringing capital expenditures and the first half of 2021 to just over $665 million.
While capital spending and the first half of the year was expected to be less and prior year due to timing differences and truck delivery schedules.
Our 2021.
For capital expenditures has been slower than we planned.
The slower paces due to supply chain and labor constraints impacting some of our vendors and we've made deliberate decisions to defer spending and some categories. As we observed what we expect to be temporary dislocation and certain market to.
And to offer.
And that these delays were proactively pulling forward capital investments in areas, we can and also where we know the returns will be strong.
As Jim mentioned, we're in the process of accelerating recycling investment as we have strong proof points for technology and equipment upgrades and reducing the cost structure of.
The business and improving delivered quality of process materials.
We continue to target full year capital spending was in our $1.78 to $1.88 billion dollar guidance range.
And the first half of 'twenty, 'twenty, 1 and our business generated free cash flow of $1.5 billion.
Dollars.
Our conversion from operating EBITDA of 61%.
This very strong result positions us well to tweet to achieve our new higher free cash flow outlook, even as we target capital spending increases and the second half of the year.
Our capital allocation priorities continue to be strong.
Wrong balance sheet, and prudent investment and the growth of our business and strong and consistent shareholder returns.
And the second quarter, we paid $242 million and dividends and allocated $250 million to share repurchases.
Our leverage ratio of 2.84 times has improved even.
Even more quickly than expected due to our strong operating EBITDA growth and it's tracking well toward our target leverage of 2.7 times 275 times by the end of the year.
At the same time, our robust cash generation and the first half of the year and positions us to increase our full year share price.
Share repurchase expectation up to our full $135 billion authorization.
With this increase we expect our weighted average share count for the full year to be approximately 422 million shares.
Thanks to the hard work of every member of the Wm and team.
We delivered another quarter of strong operational and financial results.
Successes of the first half of 2021 position Wm and to deliver on our commitments to our people our customers. The communities, we serve and our shareholders with that Holly, let's open the line for questions.
Ladies and gentlemen, if you would like to ask a question. Please press Star then 1 on your telephone keypad. Once again, that's star 1 to come into the question queue.
And our first question is going to come from the line of Tyler Brown with Raymond James.
Hey, good morning, all.
And so more.
Hey, Jim.
Jim obviously, a great quarter I know, there's been a lot of talk about labor of late and you touched on it and your prepared remarks, but can you just talk about labor availability. How it is impacting the business. This is more of a cost issue for us it actually precluding revenue opportunities and then are there any indications that it's easing or.
Were getting worse.
Got it.
And we're seeing and easing at this point, because we're hiring and.
As demand went through the numbers and John as well, we have had to hire at a higher rates.
I think <unk> mentioned $125 million is kind of a combination of incentive compensation and higher cost and so.
That action with our cost and large part are due to some of these inflationary pressures that we're seeing on the labor line.
And so and so if I use June as an example.
I think the number is we hired.
685.
And mostly drivers and technicians and the month of June.
So those.
And it wasn't just.
Churning people, because we had 101 hundred $25 and less so so the net addition was was pretty significant.
To replace some of these folks that have decided to sit on the sidelines because of.
The government programs.
And that are out there.
I would tell you those government programs, reflecting not just for affecting big and small businesses.
And right now at least in the United States. The federal benefits are scheduled to roll off on the 6 for September that it's.
It's not a stretch to say that there isn't a business out there that isn't looking forward to the 6% and September to your first.
June and about whether it is precluding growth or just.
Creating some difficulties with existing customers I think it's much more of the laterite and I don't see it.
Keeping us from growing and Thats reflected mostly and our volume figures.
Okay. Okay. That's yeah, that's very helpful. And then Davina do you specifically.
Question, what the average commodity value was for Q2, and then where is that commodity value today and basically what is in the back half guide.
Yeah, so and the second quarter and was just about $100 per ton on and make basis. Our second half guide is.
We had a little over $117, a tonne and bringing the full year outlook to an average of 1 out for July did see some really nice upticks from June levels and for context purposes June was at about $114 a ton. So that gives you an indication that we're on the right track.
For our outlook for the remainder of the year.
Tyler for growth real quick.
And 1 that 1 kind of indication as we think about recycled commodity prices.
Is that we do believe we're on a longer term bullish trend here and.
And there's a couple of reasons for that.
1 is we think theres a theres a purpose.
Permanent shift that's taken place, particularly.
Particularly as you think about OCC, but also plastics Jim.
To give you 1 and what other.
A data point here.
When we think about the OCC pricing and.
And how much room. It has to go were 17% above historical averages at the end of the second.
Quarter, but were still 40% below all time highs. So we think theres still has room to go.
And as we and.
And other companies are kind of moving forward. This ESG movement is really gaining traction.
We think that commodity just like classics will continue to increase and price. So so we're we're encouraged.
By the pricing trends and we don't think they are the same kind of ebbs and flows that's where short short lift and the past. We think these are longer term.
Okay, great and it will probably be a long call. So I'll turn it over thanks.
And our next question will come from the line of Jerry Revich with Goldman Sachs.
Yes, hi, good morning, everyone.
Good morning.
Jim.
Can you talk about how.
How much capex opportunities you have over the next couple of years to deploy towards recycling too low.
Landfill gas development whats the opportunity set because you know the payback periods.
So look pretty attractive across those investment sets and up and so I'm. Just curious if you could quantify the pipeline for us and and.
Maybe fried that context on the opportunity set between the 2 thanks.
Yeah. So you know over the last few years and invest and about $100 million.
And the recycling line of business and we had plans to continue at that pace, but as we mentioned and.
And our prepared remarks, we're looking to accelerate that pace and in the back half of the year, we're targeting somewhere.
Upwards of $65 million or more and incremental.
And they're all spend and the recycling line of business relative to what our plans for it because that is front and the places we see some opportunity to pull things forward and back from a return profile and not an area, where we've seen a significant.
Impact from supply chain constraints and the renewable energy business.
Catherine it's been.
A little more peaks and valleys with regard to our investment trend historically, but when we look forward the and the pipeline for continued investment is very strong we have 1 additional project that will complete and 2021 and we're already.
And looking at you know somewhere around 5 or more for the years to come and we're still in the process of considering whether or not that's something that we do.
Ourselves or that we look to do and partnership with others. Because this is a place where not only is there.
Means and for us to consider preserving our capital.
And all for high growth opportunities and the traditional collection and disposal business, but theres also tremendous interest and this type of investments and the space at sustainability and and projects like this that are so unique in terms of opportunity and.
Can create incremental value, but your point about the returns on them.
But on them and really good payback periods, and both recycling and renewable energy.
And in terms of just to shift gears, the clutch and yield was obviously.
And obviously impressive this quarter.
And it sounds like that surprised to the upside as well can you just talk about what aspects realm.
For your plan I was surprised to the upside would be it geographic or by line of business and do you view, the 4% plus yield and collection of sustainable into the back half of the year when the comps look a little tougher.
Yeah, So I think what's important here.
Is that when we look at our pricing performance in the first half of 2020, 1 and it really did in process to the upside on just about every line of business.
John's talked a great deal about the residential line of business and our intentional efforts there to improve profitability.
But most importantly, I think you saw us really strong pricing and industrial and commercial collection and then also the steps that we're taking to continue to drive price and the landfill line of business and our outlook for second half because of the year over year comps is that we'll have yield and the range of $2.7 and 5% reported.
3% and the back half of the year and Thats just representative of a more normalized pricing range that we had and in the second half of 2020 relative to the second quarter of last year. When we took those proactive steps that were really focused on customer.
Retention and and taking care of our customers and and are desperate time of need so really strong outlook for the second half I would tell you that I'm optimistic that there could be strength over and above even what our outlook presents currently.
Terrific and I appreciate.
Thanks.
No.
Our next question will come from the line of Michael Hoffman with Stifel.
Thank you very much.
So if we start with the capital spending can you get the midpoint spent that's left which is about 1 billion too.
Given the supply disruptions, even if you pull forward.
Our current outlook says, we can get there and.
I'm less optimistic today than I was when we gave our guidance at the end of the first quarter, which is why we came off of the high end of the range that we had previously spoken to them.
I would tell you there's no shortage of opportunities.
For us to invest and the business then and we're going after that opportunity in a very targeted way and as I mentioned the recycling line of business. In particular is a place that we're accelerating and you know it's good for us to try and pull some of what we can forward. So that we don't create too much of a headwind in 2022 for capital.
Capital.
Because there are things that we see pushing into that year that we would've expected to spend currently such as Ah.
Landfill aerospace capacity, where we've seen liner cost and and availability be slower than what we would've expected.
And just to tease that out a little bit.
Most of you on the bigger companies locked and slots and pricing and 21 are they going to honor the price if it gets.
So I I lost you there Mike Bullard I'm sorry. This is for waiting just to get them to me.
The.
And we walked in your slots in 'twenty.
And for your trucks at a good price you're not you're not you're not bearing some of that inflation yet are they going to honor those prices going into 'twenty, 2 if the supply issues delayed deliveries.
Absolutely and and that's great point.
And the truck side in particular, it's all about making sure that we are positioned well for.
And 'twenty worries on a on a ready schedule and John will give a little more color on that but we do have.
Strong commitments both for the remainder of 2021 and early into 2022, Yes, Michael I think where we're seeing some pressures on the container side, which steel prices. So.
We're making some decisions on them.
For diligence by there, but that would be normal and to dominion's earlier point, where we are seeing stress on our supply chain with some other commodity based materials. We are pushing some of that and think about landfill liner and those kind of things not going to affect the business, but whether we buy now wear and push off our decisions, we're making with our supply chain team.
Day in and day out.
Okay.
And then.
And Divina your honor your guidance puts you at a 50% free cash flow conversion rate on the low and that's $5 billion.
And.
And the and 2 and a half excuse me is that a new baseline and 50% is that the way to think about the business going into the next year and beyond.
Yeah.
You know I think the baseline conversation is 1 we really want and having more fully discuss as we get later into the year, but we're really excited about the baseline that we've established we're making progress on the working capital front and we've certainly also made progress in terms of the investments that we're making in capital expenditures paying strong returns.
Terms and the place I would give a little bit of caution with respect to that being the right number is the recycling and renewable energy business is providing a lift from a flow through perspective, and you're not having to make and incremental capital investment to get that dollar. We did have a low bonus payment in 2021.
And as a result of the poor performance in 2020 and that will have.
And the opposite impact and the year ahead, and then there's also some uncertainty and what corporate taxes look like in 2022, but I will tell you that the returns that we're seeing on our technology investments and the reduced interest run rate that we've established.
<unk> given the recent debt transaction, having a fully integrated and the year ahead, and then just the general strong performance at the collection and disposal business all of those things do provide upside and so we're optimistic that we can maintain that 50%, but there is a little bit of caution that's prudent.
Okay Fair enough and last 1 for me Jim I appreciate the demand side of sustainability lifting and commodity values structurally and this is the hard part of modeling Theres also a supply issue going on and disruption so at some level.
Even if.
The next low has a much higher low.
And this is a tough question because it's it's what what are we at risk out and then I'm comparing it to your last peak, which was 2017 and.
And yet the business model is different because from 2017 of its commodity base today, it's 60% fee based so how do we how do we as Modelers think about.
Managing risk around that recycling revenue line.
And I think we've done a good job over the last couple of years since the last peak and really de risking the recycling business. Overall. So that's when we do have these these kind of high highs or low lows.
We.
And we tend to split those out and then really it's more smoothing out the low lows and smoothing out the iis, we'd like to take advantage of these very high prices when they get there but not.
Take it on the churn when we have the very low prices and so some of that de risking is moving to a fee based model.
Some of it is.
And that has really proven to be successful for us. Some of it is the name for the new technology that John and I mentioned.
Putting that into our into our network. So that we operate those at a lower cost structure I mentioned, 35% difference between the kind of the next gen plants vs current plants.
And.
Divina mentioned and acceleration of Capex, they're pulling that forward.
So that's the way that I think we mitigate some of this and.
And I do believe that that's.
And it probably was while it didn't feel like that at the time. It was probably a good thing that we ultimately lost our biggest customer and recycling which was China.
Years ago, because now it's all moved a lot of that's moved back stateside and and is more predictable and and so I think I think the recycling business has changed a lot from when we had our last peak, which was as you said 2017 and has changed for the better and I think it has changed permanently.
Okay fair enough. Thank you.
Very much.
Michael.
Our next question will come from the line and then.
Jeff Goldstein with Morgan Stanley.
Hey, good morning.
Just on the volumes for people to add some color to the volume growth by geography, and and I think you mentioned continued Canada softness and.
And your prepared remarks, but are the best performing volumes at this point now just the places that shut down the hardest and now have the easiest comps or is it more nuanced and that and then just in terms of volume trends are you able to talk to the month over month training trends and if that continues to get better throughout the quarter and now that July is almost done here.
Sure, Jeff really the only kind of persistent slowness that we're seeing right now is in Canada and I looked at July numbers again, this morning, and and that's still there and like the encouraging part about Canada is it looks like it's going to reopen fully sometime in the next 2 to 3 weeks. So that is encouraging for us, but a day, but it hasnt been great and it has been kind.
And a 3 to 6 months behind the United States.
So July numbers still look soft and Canada, that's really the biggest geographic difference for US I think when you John mentioned that commercial has fully recovered when you really compare to 2019, 2020 comparisons for obvious reasons or are not really meaningful but when.
And you start comparing to 2019 commercial has fully recovered.
But but it's only about a half a percent above 2019, we really haven't seen kind of the growth aspect of the economy hit that commercial line of business.
And then maybe most encouraging of all for.
And for us individually and and.
And and and also on a more macro basis for the overall economy.
Our C&D and special waste waste streams.
And when we look sequentially and how they did I mean, those 2 waste streams and took the biggest hit of anything last year during COVID-19.
And so they are.
Seeing the biggest.
Sequential improvement so they are on a great upward track and I think those 2 by themselves which tend to be kind of the most forward looking indicators for us are the best barometer overall of not only our business going forward, but maybe even the north American economies.
Good Matt.
Sign for the economy.
Great that was all very helpful color and then just a question on the 2 to 3 year pricing outlook as we sit here today and maybe just in broad strokes because I'm just thinking with your index contracts repricing on a lag and that figure looking like and it should accelerate next year.
Macro is it safe to say your pricing and 'twenty 2 should be above whatever you print this year.
Just how should we think about the potential for price to continue to.
And to improve into next year and beyond that really.
Yes, So let me and I'll, let John John Chime in on the resi piece real quick I'll, just give you a little bit of.
You kind of overview on pricing.
First of all we were when we looked at our pricing numbers again, another metric that's not overly meaningful year over year, because as you recall last year, we really put the brakes on with respect to some of our pricing actions, but when you look sequentially and what we did and.
In terms of collection price and in terms of landfill price that's what gives us.
That's what makes us feel most encouraged about the potential going forward.
And to Davina points.
That that is an area of confidence for us the team understands that.
Pricing is critical to cost recovery, but then it's also critical to margin expansion. So we're not just looking at this as a cost recovery mechanism part of the success for the quarter was that we did use pricing to recover some of those cost pressures that we've discussed but it also helped us expand margins and that really is the.
The plan.
Going into 2022 that we will continue to use price to offset what we expect will be some continued inflation.
Not not not as as aggressive of and and.
And placement figures, we're seeing now because some of this we believe is temporary as I mentioned earlier caused by by some of the.
Current government's benefits, but there is some fields.
Seems like some structural inflation and the system pricing will help us more than recover that and.
And we will be a good thing for us going forward and John maybe you can talk about raising pricing a bit yeah, Jeff and I think on rest of you heard that and some of our prepared comments you know strong yield at $4.7 for the quarter.
Year to date same thing what's core price, we did shed a little bit of volume.
That happened and I know that's in fact, 1 big franchise, we had and South East, which was underperforming and we made a decision to move it up and.
Instead, it went out and I think what Youre seeing though is continued and increasing benefit from our focus on moving our residential.
<unk> number and not to be and.
Part of that you heard a lot of conversation about recycling part of fixing residential I've said. This on a few calls is fixing recycling because about 2 thirds of what we process comes from our residential streamed and either we collectors or another vendor collect so long story short we feel good overall about our pricing strategy the consistency and the upward.
For trend and specifically on residential we expect to and continue on a trend as well.
Alright, it sounds all very helpful and congrats again on the corner.
Thank you. Thank you.
Our next question will come from the line of Hamzah, Missouri with Jefferies.
Good morning, Thank you.
Good.
And maybe talk about what you're expecting in terms of pace of labor hiring and just specifically had gone and I know Jim you talked about the June number.
Could you talk about is that the pace, we should expect for the second half I know stimulus comes off and maybe labor shortages kind of go away but.
Could you offer any thoughts there.
Yes, good morning, Hamzah, what I would tell you is is that Jim pointed to June as being a particularly strong month, but really our progress.
On the hiring front really started for 5 months ago, as we started to get more confidence and what was coming back in terms of post Covid recovery, we tried to get out in front of it and so we have been making.
And the progress really in the last for 5 months it really flipped in June and we really saw the fruits of our labor and take hold and I wouldn't expect that going forward for the next handful of months, we're going to continue and at a similar pace keep in mind, though to the extent, we talked about volume recovery and what lines of business is coming from coupled with as an example, and residential where we may shed a little bit of volume.
Going forward.
And the right margins, we have to balance all of those things out, but I think Jim's commentary around what we did in June is something you can expect for at least for next handful of months Bahamas and I've also said a number of times that we're looking at this somewhat opportunities and instantly.
I have kind of available.
And the folks who would.
And work for this company is shrinking and and look I've heard that from my 18 year old daughter that people aren't interested and in her high school Senior High school glass and driving trucks.
And then and that actually is okay for us as long as we get ours and and that's what I've said is.
And if we get ours and and the pie is shrinking.
<unk>.
Don't care about the rest of the buy and all I care about is ours and so there is kind of an opportunistic approach to this but.
But to John's point, I mean, I think we are getting ours it hasnt been.
And completely smooth road for us to be honest, but.
But I think we're getting to a point and certainly September 6 will be helpful.
For everyone.
And when these benefits roll off.
Yes.
Got it very helpful. And then just my second question just is around M&A and and and the question really is you know your leverage would be 2.75, I think you said by the end of the year.
For clarity generating a lot of cash flow free cash.
Could you talk about M&A and <unk>.
Terms of outside for solid waste business, particularly you know you mentioned recycling investments and <unk>.
You mentioned and plastics are there technologies that can scale and plastics or I know, you're using maybe venture capital and investing.
Vesting and those funds versus actually buying technology, but just just broad thoughts on M&A outside the day.
For solid waste business longer term.
Sure so and <unk>.
And as you pointed out our balance sheet, and covenants and 2 divina and and John and the whole team for really getting our balance sheet back down to where.
And we said what we said it would be by the end of the year and that's pretty impressive.
Through this acquisition, we're already down below 3 and <unk>.
Dennis I think 285 so.
Regarding M&A and Hamzah.
Outside of core.
And.
And you mentioned, specifically plastics I think you are aware of the of the ownership position.
And a company called continuous.
Cereals, and and that company.
Company does turn and.
Plastics and pay for low value plastics, and mixed papers into a roofing material and.
And we have a.
And a 33 ish percent investments and them at this point so that we're excited about the potential.
And we have that and it helps us take some of that material that.
Otherwise find its way to the landfill pull it out of the landfill and because it doesn't.
And do anything in terms of creating any gas.
Gas or anything usable and coming out of landfill and doing something that's profitable in terms of.
And kind of the ESG, but also profitable financially for us. So we will look for those types of investments we're cautious about.
We're cautious about big and big acquisitions, regardless, but particularly cautious about big non core acquisitions.
And I just don't want Ed.
Stefan a landline here as we're walking down a pretty.
A pretty nice path and that could be a land mine and we produced something like that so.
Not opposed to doing non core acquisitions, we want to make sure that we have a lot of intelligence and those before we.
Before we do anything and I would be surprised.
Very surprised if you would see us do anything large and the non core space.
Got it.
Just lastly, I'll turn it over it's just a clarification or just didnt update could you update us how much of your book of business as CPI index and and and is.
Is it just a straight LTM CPI or they're just too or are there other indexes and what is what is that running today. Thank you.
Yeah, we're at about 40% and Hamzah and there is a mix there in terms of weather and.
CPI flat or the waste.
Sewer and trash.
<unk> index.
We continue to prioritize our push toward WSB, though I would tell you that we see strength and the CPI numbers.
And and therefore view that and something that provides some incremental value, particularly in the second half of the year.
What's important into 2022 as well I think hamzah, whether CPI has been up or down and we've always we've been demonstrating for us the last more than a handful of years that regardless of what's going on with CPI, we're going to make sure we price the business to at least cover our costs and expand margin.
Okay.
Got it thank you so much.
And our next question is going to come from the line of Sean Eastman with Keybanc capital markets.
Hi, Tim Thanks for taking my questions.
It looks like the recycling commodity rebates is a new disclosure unless I'm mistaken it would be great to just.
And quickly.
But then through the mechanics of that I guess those kick in at a certain.
Basket value and.
And recycling.
Any help just understanding that number and the mechanics would be would be helpful, especially maybe in reference to how it's built in and the second half.
And would be great.
Yes.
Sure Sean and so.
And this is a new disclosure that we're making and as the leading commentary on the table suggest what we are attempting to do here is just provide clarity where there is a bit of inconsistency across the industry and.
1 other thing.
Walk for taking them and that's really important and this business and the conversation about operating EBITDA margin and for Wm, and Q2 and 2021.
On an apples to apples basis as best we can when we compare across the business. Our operating EBITDA results were 31, 2% for the quarter when you.
Thanks and Behr.
With this approach more similarly aligned with 1 of our competitors in particular and all we're doing here.
You can look at the operating expense table that thing and the 10-Q and what you see there is the cost of goods sold line and that includes rebates that we pay and the recycling.
Compare business from the driver of that cost category and what we're doing here is reflecting that if you were a net that against the associated revenues rather than grossing it up between revenue and operating expenses the impact to our margin is up 130 basis points and the quarter the increase on a year over year basis.
And the strength of commodity prices, which we've talked about and so naturally with the continued strength and outlook for even better year over year comps and the second half of the year than we had and the first half of the year you would expect that to expand farther from the 130 basis points that we measured and in the second.
Let's letter, but really for us this is about comparability and trying to enhance that across the space.
Yeah.
Okay got it and I think I might have to spend some time with Ed on that 1.
And secondly.
And we haven't talked too much about it seems like the it seems like the integrations.
And quite smoothly.
Any color on the strength and the Avs book of business from a pricing program perspective and.
Whether even just anecdotally you've uncovered some of the cross sell opportunities that aren't fully reflected and that.
Synergy target.
<unk>.
Hey, good morning, Sean, Yes, I would say.
Integration continues to go really well you heard in my prepared remarks about our confidence around overall cost SG&A synergies and reiterating that we still think when it's all said and done we'll have $150 million and total synergies by.
2023.
You also heard from me that we're just about 45% of the way through.
Taking that data from databases and moving that over to Wm, So thats, allowing us to when you think about routing efficiencies and the other logistical benefits from combining the customer base.
And that is 1 of my prepared comments.
And I think from a revenue standpoint, as we're moving that business in and it becomes wm business and it goes into the portfolio and we're going to manage it and its similar fashion and we manage the rest of our business.
Okay terrific. Thanks, I'll turn it over.
And our next question will come from the lineup for Walter.
Walter <unk> with RBC capital markets.
Thanks, very much Robert and good morning, everyone.
I guess my first question here is back on M&A, and obviously, we've heard and executive order from President Biden and that seems to be singling out larger companies and respective industries that are exercising some pricing power and.
Waste doesn't necessarily.
Net flagged and that do you see any increased scrutiny by the Doj any increased pressure or any change in approach that they might take toward looking at deals that that you might do and the future that would put at risk and your ability to.
And to grow by acquisition.
At a pace that you otherwise would have.
And if this order ahead and come through.
Yes look.
To be to be honest, we haven't seen anything.
I'll read the news and we read comments.
And so you can kind of take those for whatever they.
But when we really low.
Some of the tuck ins and we've done posts and yes and.
And we haven't seen anything at this point.
What we are hearing thats not related and really any way to your question, but it is more about M&A is that.
And somewhat related I guess to the new admin.
Their work because if there is a tax change.
We are seeing that there are some some companies out there that are becoming sellers because of this.
Prospective change and tax law.
Similarly, we are seeing some some folks that are saying and what I don't like the labor environment right now.
Australia being there and looking at selling for that reason and then the third thing we're hearing is that.
And our industry, whether you're somebody small businesses. There just isn't in many cases are robust.
Succession plan for some of these companies so I think.
Not directly related to your question about Doj, but it is related to some of the things that are.
Happening within the current administration, whether it's.
And the subsidies for and unemployed or whether it is related to tax law changes, but Doj, we're not seeing anything at this point.
Okay.
And then turning to residential volumes, obviously coming up against.
And tougher comps here and.
I am curious.
And whether we.
We are seeing and it would make sense to see just wanted to confirm residential volumes now.
Coming down is as people get back to work, but the key question here is that.
Is there interest.
Virtually anything any changes that you've made during COVID-19.
That would.
With your contract on the residential side that would change what otherwise would be what we would expect with a slowdown in or a decline in residential volumes, so that the impact would be.
<unk>.
Less onerous or for perhaps would be would be complemented here based on the mix.
As we see residential volume has come off on a year over year basis.
While there are a few things we are we have seen a little bit of moderation as folks have returned back to their place of work.
But theres going to be a little bit of a.
Effective I think the work force is going to change a little bit youre going to see some more folks work remotely from home, but that doesn't look meaningful we have seen a little bit and Jim commented on this earlier, we have seen a little bit of a shift and the residential recycling stream, obviously, Amazon is doing well and we're seeing and show up and the percentage of cardboard thats coming out of fibers coming out of a lot of our residential.
Contracts, which is honestly a good thing, especially in this environment, we're seeing some improvement although not as significant by weight. If you will in terms of the quality and quantity of some of the higher margin streams, we talk specifically about plastics and the.
And that kind of mixed plastic we used to make versus the specific plastic products that net we're producing for customer.
Customers so.
View that all as positive I think overall and general volume in terms of units I don't think our message has changed we're going to continue to make sure that we move residential from a margin perspective up to where it competes with every other line of business and we're really making good progress there and if you look at our price versus volume and last handful of quarters.
And that has been slightly negative, but if you look at the core price and yield compared to that and that's certainly a tradeoff we're willing to make as I've said before we don't want and we're not trying to push the volume out, but we're going to make sure that the investments, we're making and that line of business aligns with our overall long term strategy from a profit and return standpoint, and John really covered the substance and the business drivers.
Very well and Walter 1 kind of claris and clarifying and facts that I just wanted to be sure and clear for Ed.
The volume decline that Youre seeing is different from container weights and.
And so the shift that we're seeing as people return to their workplaces and most people are.
Working from home.
Home is more about the container volume.
Volume measure that Youre seeing and does intentional steps that we've taken that John and spoken about to be very prudent in terms of making incremental investments and the residential line of business with our capital and with our workforce, but we are seeing kind of strength and that business that we knew that we would be setting.
And setting with Permian.
Great I appreciate the time as always.
Youre welcome.
Our next question will come from the line of Noah Kaye with Oppenheimer.
Good morning, Jim John Devine, and thanks for taking the questions I'd like to pick up on Michael's earlier observation.
And about sustainability fueling the higher demand for recycling to really try and understand how you see this opportunity for for the company.
And just given the acceleration and corporate commitments to recycle and use recycled content I think in the U S. Plastics pack, which is 100 corporate secretary and they just unveiled their roadmaps.
For 2025.
And at the same time and really seems like there's still a pretty big infrastructure gap around recycling these materials and getting them back to those producers you just look at the difference between.
The commingled bells, and the individual grades of plastics.
So would just love to understand kind of your roadmap for.
For how this is a growth opportunity for the company both in terms of putting in more infrastructure in terms of helping to close the loop and getting some of these materials back from the manufacturers and then being able to potentially capture organic share gains with those types of manufacturers as a result.
For fun.
Kind of a key microeconomic.
Piece here, which is that finally, it looks like demand is catching up with supply and we've always had a supply but.
We haven't until fairly recently had as much demand as we would like we've had demand, but maybe maybe not as much as we would like and I think we're seeing.
Thank you and just the companies are now with this real focus on virtually every company.
ESG focus.
Are inclined to use recycled material recycling.
Improve the recycled content percentages and so that's been a benefit for US there is still to your point. There is still this opportunity I think to expand.
Infrastructure.
Particularly here in the U S, but but we are seeing it's.
We're seeing encouraging signs there and we have outlets through our.
Through our brokerage group outside of the United States, which has been 1 of the real benefits there and when.
China and went away literally overnight our brokerage seamless.
Seeing and to move commodity is pretty quickly to other spots and other places around the world and we still have those and we will continue to move commodities there.
But I do like for long term trends.
Not only for our recycling business, but as Ed.
As someone who is.
Very focused on the <unk>.
And was able to.
The fact that we're moving to.
To becoming more ESG focused and that were the companies that are using and.
Producing materials are looking to use recycled content as opposed to just using Virgin carbon.
Great.
And I guess the follow up for that would be you mentioned some of the significant savings around automation and the mers.
Labor and otherwise.
Have you really seen a lot of innovation and the last few years I guess, following China national sort around those pieces of equipment those.
Technologies that are driving these returns.
Is there more innovation coming down the Pike I guess, what I'm basically asking is is the rate of technology innovation in and around recycling.
Improving at a rate that supports some of these day.
And then commitments from from.
From the eventual buyers of the content.
Yes, no I think Thats a great question I think what you see and the numbers that we referenced around how we're how pleased we are with the investments we made and this advanced and advancing technology I think that supports that.
The model, we are very pleased with the plants that we've invested and thus far.
Jim mentioned.
Labor arbitrage and we're benefiting from that and by the way that's not just labor for labor sake. Those are positions that are certainly been and continue to be hard to fill so it's solving a few problems. There I think around the demand and the customer. We all mentioned that that that side of the equation is as strong now as it's ever been and for all the comments made or made around ESG.
And we feel confident that that's going to continue to grow and I think plastics is 1 example, I mean, we've got the material stream either through our plants or through and other parts of the waste stream and what Youre seeing is some migration from what was and the waste stream, obviously now to higher value commodities and Divina said this not today, but on other calls when you look.
At it from a return standard return on invested capital standpoint, and a recycle plants are at the top of the top of the heap. So to the extent, we keep investing more capex. There we're going to be very pleased with that and we think that the technology is advancing.
Form and fashion and that's going to allow us to continue to meet the customers' demands.
Yes.
Great. Thanks very much for.
And nice job and that's all.
Our next question will come from the line of Kevin Chiang with CIBC.
Alright, Thanks, and thanks for taking my question, maybe just 1 for me.
And maybe on the ESG angle as well.
Can you just give us an update on.
The color and the EV strategy, I think you reevaluate and a couple of trucks and Tri Ed.
It's simple.
And what do you think you need to make a larger order to kind of hit some of your emission reduction targets and I guess, how do you balance and the technology, we're seeing now.
You know versus maybe what's in the development pipeline, whether it's solid state or fuel cell.
And when you think you are making vs.
Its fleet transition.
Hey, Kevin Good morning, no good questions when we get off and what I've said on our last call and and then publicly and other venues where you are working with a number of vendors to watch to see how the battery technology is advancing as I said before I think naturally we're going to and we were.
And the passenger vehicles and more pricey and light duty vehicles and some cases, we're seeing it already so we've got a number of vendors, we're working with to watch the way the different technologies.
Advanced I would tell you in terms of our strategy on fleet, we've said before we pivoted from the traditional.
Diesel fleet that we had to see and G. I wouldn't say it was seamlessly.
Seeing it the way our fleet plan works is we have some flexibility and be able to move from diesel to <unk>, and we view and <unk> too bad earlier battery electric vehicles is the same way I would tell you what what I think will happen is and I talked about this at the conference to be and and I read a few weeks ago at waste Expo I am confident.
And at that over time, they're going to solve the weight issue. The range issue the parasitic load of our refuse vehicle all of those things I think will get solved I think the bigger question is is the infrastructure piece and we're also watch net to to see what kind of infrastructure, we would need and our distributed environment to be able to service a fleet of 20000 vehicles.
That's helpful.
But if and when you think of low that problem being solved is that within kind of the construct of a lithium ion battery or do you think.
It's an evolution from this you know how they're using fuel cell extenders or even moving to.
Different propulsion system.
You know, Kevin and I went and that's something I think is a little.
The clip, it's still a little murky at this point. That's the reason why we are working with a handful of different vendors just to make sure. We've got our iron all of the different potential solutions to your good question. Okay.
Okay. That's helpful. I'll leave it there thank you very much and great quarter guys.
Thank you.
Our next question will come from Jeff Silber with BMO capital.
Little bit.
Thank you so much I wanted to move over to the low.
And regulatory side.
I believe earlier this week the cow.
Hi.
Pushed through a potential bill on P fast to required EPA to establish national drinking water standards can you give us and update.
And what you think is going on there and how long the timeline is going to be for this.
I don't know that we know exactly what the timeline is we saw that as well.
Maybe a bit more of a.
And kind of a macro answer to that and is that we do look at.
P fast as being.
Okay.
Our cash cost impact for us, but we look at it is as a much bigger opportunity for us and a cost impact and we know there and there may be some added costs.
Albeit some.
We have had our eye on for quite some time.
And I haven't honestly and working with EPA on it for quite some time, but.
But we also.
And car looking at this.
And with a pretty interested I because because once we do know those details that you referenced there I think it really opens up a big opportunity for us and.
And so we're I'm not sure and behind you were saying and say we're excited about it but we do we.
Really hurts that this could be a a big stream revenue stream for us, but at this point, where and it's still is all you and.
John's words, it still was a little bit murky.
And we don't know exactly what the details are going to be on how they what they what they say about the past, but for example, where it feels a little bit like it's coal combustion residuals.
We are too.
Okay interesting and then continuing this theme, we're also hearing and reading a lot more and the ETR side.
And I know, it's big in Canada and we're.
Seeing some things going on and specific states and the U S. Again, if you can give us an update there and from your perspective, what you think the impact might be and your business.
Yes, Jeff.
And our entire teams follow and what's going on with <unk> and I think our position is still the same which is we feel like we have the assets and infrastructure of the network to solve for a lot of the challenges that come out of <unk>. So to the extent, we can continue to maximize use of our assets.
<unk>.
We understand that.
But that too is a little bit you know theres still some still some wood to chop on that front as well and it was some things that are unique going up and Canada, but I think we're well positioned there as well with in terms of of assets to help solve for that challenge.
Okay. Appreciate the color. Thanks, so much.
Thanks, Ed.
Our next question will come.
And I have David Manthey with Baird.
Hi, Thank you for squeezing me in here.
Last quarter, you mentioned that you expected landfill yield and particular to be strong.
I'm wondering this quarter was it up to your expectations and just could you give us a bit of and outlook on that business and particularly.
From the landfill yield.
And landfill yield and.
And with slightly above our expectations and the second quarter, I would say not as much above expectations and safety and I was and.
And we do expect it to moderate somewhat from the second quarter levels.
Particular still encouraged that with our focus on MSW pricing in particular, and then the strong pipeline that we have from a volume perspective, and C&D and special waste, but that will give some natural lift to yield and the back half of the year as those streams and Ken.
And to have strong pricing.
Pricing thats more difficult to predict specifically because it can vary by geography.
And where the streams come in but all in all our outlook is very strong.
Ed.
From a core price perspective, I really think that that tells the story and we're driving core price above 4% and the landfill and line of.
And business, which is the result, we want to see.
Okay. Thank you and Davita and you also mentioned something about incentive comp being higher in the future I wasn't sure. If that was a comment regarding the second quarter and started the second half of 2021 or if that was 2020.
2 or both could you clarify.
Sure.
And it really is.
A difference between whether youre looking at EBITDA, our free cash flow. So I'll start with EBITDA and it's something that has impacted us and the first half of the year. The total impact for the full year.
<unk> and now expect to be in the ballpark of around $60 million could be a little north of that from an EBITDA cost perspective, and so you are seeing some margin pressure from that when we look at the collection and disposal business in particular, when we disclose and in the press release that that business was.
And we had 10 basis points relative to prior year 50 basis points of that was actually incentive compensation and so when you adjust for that that shows that the traditional solid waste business actually made really strong progress and margin expansion and our cash flow impact.
Backwards on a year over year basis will show up in 2022, and so that's where I made the 2022 comment earlier, because this year and 2021 and when we paid last years bonus we had a little bit of a benefit to cash flow relative to what we would expect.
And power ahead, and I'm, just because 2000 twenty's payout was around 70% for the for the total company and we expect this year to be meaningfully higher than that.
Okay very good thank you.
Thank you.
And our last question will come from the line.
Line of Michael Feniger with Bank of America Merrill Lynch.
Hey, guys. Thanks for squeezing me and great Great quarter, just a question just for Divina and you guys raised your outlook, which is which is great.
Check my math is the margin range still the same with the April.
For guide and in the first half you guys expand and margins 80 basis points 50 bps in Q2, which is impressive with the volume recovery. So I'm just trying to get a sense of what youre, implying and the second half and is that what you were referring to earlier and the call Devine and when you said you feel like there is some conservatism still.
And this guide.
And it's a great question, Michael and and what I would say is the implied guide on margin is that we're basically flat to positive 50 for 50 basis points for the full year and what that implies about the second half and that we will have a.
A chance for a little.
And my margin degradation from the year prior.
What's behind that really comes down to the inflationary cost pressures that we've talked a great deal about incentive compensation, but also the conversation about the strength and hiring.
And we're going to have additional training hours and.
And the back half of the year as we get those new drivers on board all.
All of those things put slight downward pressure on the margin outlook, but there are a lot of positives and and we're focused on those positives and and think that they could outperform what we're currently projecting so too early to say the first is definitely the strength of the traditional.
Little bit of each business and we always have to lead with that certainly recycling commodity price and RIN values provide additional benefit from a margin perspective.
And then the a T S integration and the strength of that and the back half of the year and John's comments earlier about where we are year to date.
Solid when he but where we expect to and the ear and the Ats business. We estimate could have provided as much as a 75 basis point headwind to our margins in the second quarter, and we expect that that moderates in the back half of the year and we do things like moderate the level of incremental.
Rental investment that's needed and the fleet to get it to Wm and standard and we realize that synergy potential that we've outlined for everyone. So as much as there are some things that are working against US. We do think that there for some tailwind I'm just a little difficult for us to predict particularly given.
And any inflationary cost environment that we're all talking about.
Understandable divina that that makes sense and with that slight margin degradation that youre kind of expecting and the second half and you laid out from a positive I mean, I guess davita or Jim I mean.
This is a weird year, obviously with comps from from Covid and all of this gets normalized and 1 more thing about 2020.2 just to set the stage here or are we thinking like 2% plus volumes with this economic recovery yields shifting higher because the price thing is it cause it and the 3% range.
And what you're seeing on the pricing front and Devine and like what you suggested with some of these moderating investments I mean are we thinking about margin expansion above 50% and in 2022 with with what you guys are seeing right now and the yield you guys are expecting and the second half of this year and some of these costs that kind of fade.
And next year, maybe just help set that stage, if 50 bps and margin expansion kind of makes sense next year.
So Michael Ward from really just just kind of entering into our 2022 budgeting process here. So.
I would say we don't have.
A lot of detail on it yet but.
Day, it out and kind of a bigger scale here I do think we're feeling encouraged about the <unk>.
Volume and price.
Forecast as we as we think about 2020, 2 and even beyond 2022.
Pricing and particular feels like where we are.
And of course, and we're able to.
To not only cover inflationary cost increases but also.
Add to margin and we're very encouraged by the sequential signs we've seen both and collection.
And in landfill pricing so that gives us.
Quite a bit of confidence on the price front volumes.
Volumes have been good and.
And to your point 2020.
Comparisons were.
Not meaningful but.
But look volume hasn't totally retired and I talked about Canada, being soft and and we think Canada, obviously will come back when we get to 2020.2 so that would be.
A tailwind for us on the volume side.
Landfill volumes have not fully returned.
MSW is is the 1 and maybe the exception there, but I've mentioned special waste and Mcd that have not fully returned those appear though to be very strong right now and the <unk>.
<unk> and appears very good with special waste. So, we'll obviously give you more color.
And as we get to 2.
So our guidance session, but what we do.
And encouraged about what we're doing on Opex, what we're doing on what we're seeing on volume and price and we feel encouraged about the longer term trends for recycling.
All of that would bode well for for.
And the out years.
Thanks, guys. Thanks.
Jim.
Thanks, Michael and thank.
Thank you I'll now turn the call over to President and CEO Jim fish.
Alright, thank you a bit of a long call today, but we were particularly proud of the results for the quarter. So we wanted to make sure. We took all of your questions and thank you for your questions very good questions today.
And thanks for your time look forward to talking to you next quarter.
And.
Thank you for participating in today's waste Management, Inc. Second quarter earnings Conference call. This call will be available for replay beginning at 130 P. M. Eastern time through midnight on Sunday August 10th 2.
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