Republic Servs Q3 2026 Earnings Call Transcript
Republic Servs (NYSE:RSG) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Republic Services reported Q3 2026 revenue growth of 8.2%, adjusted EBITDA increase of 4.8%, and adjusted EPS of $1.94.
The company highlighted successful pricing strategies and volume improvements, despite elevated diesel costs, contributing to strong financial performance.
Environmental Solutions segment saw a 21% increase in organic revenue, driven by large emergency response jobs, with expectations for continued growth into 2027.
Digital initiatives, including AI-enabled pricing and routing, aim to enhance pricing effectiveness and operational efficiencies, with full-scale deployment expected in early 2027.
Sustainability efforts include the construction of a polymer center, progress on renewable natural gas projects, and the expansion of the electric vehicle fleet.
The company invested $1.1 billion in acquisitions and returned $1.43 billion to shareholders year-to-date, with a strong acquisition pipeline remaining active.
Updated 2026 full-year guidance anticipates revenue between $17.425 billion and $17.475 billion, adjusted EBITDA between $5.5 billion and $5.575 billion, and adjusted free cash flow between $2.565 billion and $2.585 billion.
Management remains confident in achieving mid-single-digit revenue growth and further EBITDA margin expansion in 2027, supported by disciplined pricing and digital investments.
Full Transcript
OPERATOR
Good afternoon and welcome to Republic Servs third quarter 2026 investor conference call. Republic Servs is traded on the New York Stock Exchange under the symbol RSG. All participants in today’s call will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone.
To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to John Weeks, Vice President of Investor Relations. Please go ahead.
John Weeks (Vice President of Investor Relations)
Good afternoon. I would like to welcome everyone to Republic Servs third quarter 2026 conference call. John van der Ark, our CEO, and Brian Delgaccio, our CFO, are on the call today to discuss our performance. I’d like to take a moment to remind everyone that some information we discuss on today’s call contains forward-looking statements, including forward-looking financial information, which involve risks and uncertainties and may be materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations. The material that we discuss today is time sensitive. If in the future you listen to a rebroadcast or recording of this conference call, you should be sensitive to the date of the original call, which is October 29, 2026.
Please note that this call is the property of Republic Servs. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Republic Servs is strictly prohibited by our SEC filings. Our earnings press release, which includes GAAP reconciliation tables and a discussion of business activities, along with a recording of this call, are available on Republic’s website at republicservices.com. In addition, Republic’s management team routinely participates in investor conferences when events are scheduled.
The dates, times, and presentations are posted on our investor website. With that, I’d like to turn the call over to John.
John van der Ark (Chief Executive Officer)
Thanks, John. Good afternoon, everyone, and thank you for joining us. We delivered another strong quarter of results driven by disciplined pricing and improving volume trends while successfully overcoming elevated diesel fuel costs. Positive momentum across the business, including profitable growth in Environmental Solutions, underscores the strength and resilience of our business model and our ability to capitalize on improving macroeconomic trends.
Our results reflect our continued focus on pricing ahead of cost inflation and effective cost management while making strategic investments that strengthen our competitive advantages and position us to deliver sustainable growth and long-term shareholder value. During the quarter we achieved revenue growth of 8.2%, increased adjusted EBITDA 4.8%, delivered adjusted earnings per share of $1.94, and generated year-to-date adjusted free cash flow of $2.28 billion. With respect to customer zeal, our commitment to deliver world-class essential services continues to drive organic growth and strengthen customer satisfaction. Customer retention remained high at more than 94%. Customers value the quality and breadth of our services, which extends continued loyalty and supports our ability to earn attractive returns for the value of the services we provide.
Strong pricing across the business remained the primary driver of organic revenue growth during the third quarter. Core price on related revenues was 6.3%, which is relatively consistent with our second quarter performance. Combined with higher fuel recovery fees, the price increase is over 8%. Average yield on related revenues is 3.5% and continued to exceed our internal cost inflation. The sequential moderation in average yield was primarily due to better-than-expected volumes in our small and large container businesses, which included an increase in service levels.
Service increases are profitable and increase route density but typically have a dilutive impact on average yield. Organic volume decreased 70 basis points on related revenue and was positive 20 basis points after adjusting for one-time landfill event volumes received in the prior year. Importantly, volume in both small and large container businesses increased 50 basis points. This marks the first time in more than three years that both businesses generated positive volume growth at the same time.
Organic revenue in the Environmental Solutions business increased 21% compared to the prior year and contributed 2.1% to total company revenue growth in the third quarter. Revenue growth in this business was driven by a few large emergency response jobs. Revenue grew in this segment by approximately 9% excluding these jobs. We continue to see strong demand for our Environmental Solutions customers and expect positive revenue growth to continue through the rest of the year and into 2027.
Turning to digital, we continue to advance our technology and AI initiatives to improve pricing effectiveness, extend customer retention, and increase labor productivity. AI-enabled pricing technology is now deployed across the business, providing enhanced insights to support pricing decisions that reflect service requirements and market conditions. These enhanced capabilities are designed to better reflect customer needs and support long-term revenue retention.
We continue to pilot our new AI-enhanced routing platform to improve service execution, gain route efficiencies, and reduce disposal costs. This new technology combines AI capabilities with advanced routing algorithms to optimize every aspect of our routing logistics. Full-scale deployment is expected to begin early next year. And with respect to our call centers, digital tools are transforming how we manage 11 million inbound calls each year. We believe that over time more than half of these calls can be eliminated or handled through a lower-cost channel.
This enables faster resolution and a more seamless customer experience. Moving on to sustainability, construction of our third polymer center in Allentown, Pennsylvania, remains on track with commissioning planned for early next year. Our renewable natural gas projects with our partners continue to make progress. We are on track to complete two additional RNG projects by year-end, which would bring the total project additions for the year to four. We continue to electrify our fleet. During the quarter we launched Florida’s first fully electric residential recycling and waste collection fleet in the City of Coconut Creek.
We ended the third quarter with more than 280 electric collection vehicles in operation across our business. We remain on track to finish the year with more than 300 EV trucks. As we continue to grow this differentiated offering, we strive to be the employer where the best people want to work. Employee engagement remains high and turnover is at a record low. We were recently named one of 3BL’s 100 Best Corporate Citizens and earned Great Place to Work certification for the 10th consecutive year.
With respect to capital allocation, we invested $1.1 billion in value-creating acquisitions so far this year. We expect to finish 2026 with at least $1.2 billion in acquisition investments. Looking ahead, our acquisition pipeline remains active across both recycling and waste and Environmental Solutions. Year to date, we returned $1.43 billion to shareholders, including $884 million of share repurchases and $577 million of dividends. I will now turn the call over to Brian, who will provide more details on the quarter.
Brian Delgaccio (Chief Financial Officer)
Thanks, John. Core price on total revenue was 5.3%. Core price on related revenue was 6.3%, which included open market pricing of 7.6% and restricted pricing of 4.1%. The components of core price on related revenue included small container of 8%, large container of 7%, and residential of 5.8%. Average yield on total revenue was 2.9%, and average yield on related revenue was 3.5%. The 50 basis point sequential decline in yield on related revenue was primarily driven by increased unit growth in our small and large container businesses.
Fuel recovery fees increased total revenue by 1.8%, which offset higher fuel expense and related surcharges. Third quarter volume decreased total revenue by 60 basis points and related revenue by 70 basis points. The decline was driven by a 90 basis point headwind from event-driven landfill volumes received in the prior year. The rest of the business increased 20 basis points on a year-over-year basis. The details of volume performance during the quarter included a 50 basis point increase in small container volume driven by net new business and increased service levels by our same-store customers, a 50 basis point increase in large container volume primarily due to increased service levels, and a 6.4% increase in special waste revenue.
This was more than offset by residential volume, which declined 4.3% primarily due to certain municipal contract losses, and reduction in construction and demolition landfill volume, which related to the previously mentioned event work in the prior year. Moving on to recycling, commodity prices were $142 per ton during the third quarter compared with $126 per ton in the prior year. Recycling processing and commodity sales increased $15 million during the quarter driven by higher polymer center volumes and recycled commodity prices.
With respect to Environmental Solutions, third quarter revenue increased $96 million compared to the prior year. Environmental Solutions revenue increased 21% compared to same-store revenue in the prior year and contributed 2.1% to total company revenue growth. Adjusted EBITDA margin in the Environmental Solutions business was 25.4%, which represented 440 basis points of margin expansion compared to the prior year. Total company adjusted EBITDA margin was 31.8%.
Margin performance during the quarter included a 50 basis point decrease from net fuel, a 40 basis point decrease from landfill event volumes received in the prior year, and a 60 basis point decrease from elevated health care costs. This was comprised of 20 basis points from a prior year rebate that did not repeat and 40 basis points from above-average large claims activity. Health care claims activity returned to more normal levels in the month of October.
The rest of the business expanded margin by 50 basis points, which was in line with our expectations. Year to date, adjusted free cash flow was $2.28 billion, driven primarily by EBITDA growth in the business. Total debt was approximately $14.2 billion and total liquidity was $2.3 billion. We ended the quarter with a leverage ratio of approximately 2.6 times. With respect to taxes, our combined tax rate and impact from equity investments in renewable energy resulted in an equivalent tax impact of 21.7% during the quarter. For the full year, we expect an equivalent tax impact of approximately 24%.
I will now turn the call back over to John.
John van der Ark (Chief Executive Officer)
Thanks, Brian. Based on results to date and our outlook for the remainder of the year, we updated our full year 2026 financial guidance as follows. Revenue is now expected to be in the range of 17.425 billion to 17.475 billion. Adjusted EBITDA is now expected to be in the range of 5.5 billion to 5.575 billion and adjusted free cash flow is expected to be in the range of 2.565 billion to 2.585 billion. Most of the revenue increase is due to higher fuel recovery fees related to elevated diesel fuel costs.
As a reminder, our fuel recovery program is designed to offset the cash impact of changing diesel costs and is dilutive to margin when fuel costs are increasing. As we look to the year ahead, we remain confident in our ability to execute in a dynamic market and are encouraged by the momentum building across the business. We are still in the middle of our planning process and our initial perspective regarding 2027 is that our long term growth algorithm is intact. This calls for consistently delivering mid single digit revenue growth while growing EBITDA, EPS and free cash flow even faster than revenue. This is designed to drive 30 to 50 basis points of annual EBITDA margin expansion.
Our perspective is supported by continued disciplined pricing, improving volume trends and the momentum building in our environmental solutions business. Benefits from investments in digital capabilities and sustainability innovation should further support profitable growth and continued value creation. We plan to provide 2027 guidance on our earnings call in February. With that, operator, I would like to open the call to questions.
OPERATOR
Thank you. We will now begin the question and answer session. To ask a question you may press star then one on your touchtone phone. In the interest of time we ask that you limit yourself to one question and one follow up question today. If your question has been answered and you would like to withdraw your request, you may do so by pressing star then two. If you are using a speakerphone, please pick up your handset before pressing the keys. Your first question today comes from Sabahat Khan with RBC Capital Markets.
Please go ahead.
Sabahat Khan (Analyst at RBC Capital Markets)
Great. Thanks and good afternoon. Hoping you could provide a little bit more color on the ES segment and the evolution there. I think last quarter you alluded to sort of the incrementals getting better and some upside momentum through H2. Maybe just talk about what materialized through Q3 in that silo on the top line and the margin progression and sort of what’s embedded for Q4. Thanks.
John van der Ark (Chief Executive Officer)
Yeah, I think we talked about at the outset of the year that the first half was going to be tougher and we saw an inflection point and momentum into the second half of the year and that’s what we’re seeing. And, you know, we were calling that shot because the sales pipeline was building and we saw a number of jobs that were confirmed but hadn’t started yet and we saw a lot of that momentum in Q3. Obviously there were a couple of big jobs that helped create an outsized outcome, but I think we mentioned you strip that away, we were still up 9%, and so very broad based growth geographically and across verticals.
So I think that’s a function of the underlying industrial economy continuing to improve. And then I think our team executing at a high level.
Sabahat Khan (Analyst at RBC Capital Markets)
Great. And then just for a follow up, the commentary around volumes getting a little bit better. Not asking for guidance on 27, but as you think about the mid single digits, do you expect at least year over year volume trends just sort of across your platform based on what you’re seeing now to be a bit more positive sequentially? Just maybe if you can break out some of the puts and takes you’re seeing on the volume front across your business.
John van der Ark (Chief Executive Officer)
Thank you. Yeah, I think the industry recycling waste is coming out of a four year period of really negative growth and Environmental Solutions is coming out of an 18 month period where I think it was kind of an air pocket in volume. I think both markets are now trending in a good direction. I think recycling and waste will tip to positive growth in 2027 across the industry and we’ll certainly try to match that or do a little better than that. Performance in Environmental Solutions will be on a nice growth trajectory and again we’ll try to match market or do a little bit better than that from a volume standpoint.
Sabahat Khan (Analyst at RBC Capital Markets)
Thank you.
OPERATOR
The next question comes from Brian Bergmeier with Citi. Please go ahead.
Brian Bergmeier (Analyst at Citi)
Hey, good afternoon. Thanks for taking the question. Maybe just on the updated EBITDA outlook for 2026, just curious if you could help us bridge that a little bit. I guess you’re going to have a little bit of help from commodities, a little bit of M&A. Not sure if ES beat in the quarter versus your model or if it was in line. Just any detail on the improved outlook there?
Brian Delgaccio (Chief Financial Officer)
Yeah, I’ll give you both pieces when you take a look at our guide that we updated in July compared to the guide that we just recently updated. So at the midpoint, revenue is up about $200 million on the revenue and 150 of that or so is related to fuel fees. 50 million is related to Environmental Solutions. Most of that has already occurred with those handful of large emergency response jobs that we called out. With respect to the EBITDA, we’re expecting some contribution from fuel fees, call it in the $10 million zip code, in part just because we saw the big spike in fuel costs in the month of September.
That moved from the kind of mid $5 a gallon up to $6.50 or so in September. So we expect our fuel recovery fee to catch up early in the fourth quarter. And about $15 million of the contribution from that 50 million on Environmental Solutions will positively impact EBITDA. And that’s how you go from the previous guidance to approximately $25 million of incremental EBITDA at the midpoint.
Brian Bergmeier (Analyst at Citi)
Got it, got it. Really appreciate that detail. And then one follow up for me, just going back to ES, you know, I suppose it’ll always be a bit of a lumpy business just given the nature of the work, but I’m just curious if you could try to frame what you think is maybe a sustainable level of margins. We’ve covered a lot of ground this year from high teens to mid 20s. Just curious about how you think about the sustainability of the 3Q performance and sustainable margin level.
Thanks. I’ll turn it over.
John van der Ark (Chief Executive Officer)
Yeah, we talked about expanding the business 30 to 50 basis points. So we’ll try to kind of match that or beat that margin expansion within ES. We think there’s a lot of upside over the long term in that margin. I would tell you that if you measured exactly by the quarter, you might not get the exact results you want. I think you’ve got to look at the trend across years and when you measure that trend, it’s to the upper right. I think given the nature of this business, assets that are impossible to permit, the waste that moves long distances gets priced by the, you know, the pound or the yard versus the ton.
I think there’s a lot of opportunity to price for the value we deliver over time. And I think you’re going to see steady progress on that in the years to come.
OPERATOR
The next question comes from Noah K with Oppenheimer. Please go ahead.
Noah K (Analyst at Oppenheimer)
Hey, thanks for taking the questions, guys. Getting some questions on the yield dynamics you called out as relates to volume. Can you maybe just give us a little bit more of an explanation because it sounds like you’re picking up new business, you’re seeing volume growth, your same store price is good, but there’s just some business coming on at a lower starting price. So any more nuance to it than that or is this something that we should be expecting in coming quarters if we continue to see volumes improve?
John van der Ark (Chief Executive Officer)
I’d say that when the business expands, that’s either through service increases at existing customers or taking on new customers. And you are almost always going to take on those units that are profitable, but they’re below the average rate. That’s the nature of our subscription-based business and the recurring revenue elements of the business. And so that arithmetically puts downward pressure on yield, but it’s profitable business. And so normally you see margin expansion.
I think we got caught in a little unique circumstance this quarter with a comp in the landfills with a spiking diesel price, which that increase hurts us. We’re fine at the level, but the increase hurts us. And then some one-time healthcare costs that Brian mentioned that have already receded and come back down in October. Outside of that you see margin expansion. So we’d expect that yield number going forward to probably trend slightly up, but certainly the margin expansion to flow through because those units certainly contribute and are profitable when they come into the system.
Noah K (Analyst at Oppenheimer)
Yeah, makes sense. And look, I mean all things considered for the business your size, whatever it is, 18 to 20 million higher is not a massive number. But the healthcare cost spike was noticeable enough for you to call it out, I guess. Are there any other elements that maybe you’d call out as unusual for the balance of the year? You mentioned the rebate. I know that there have been some true-ups in the industry around risk management accruals. Is there anything we should be thinking about for 4Q?
Brian Delgaccio (Chief Financial Officer)
Nothing significant. When you take a look at our prior period results, it was fairly straightforward and that’s what we’re anticipating for this fourth quarter and that’s what’s included in the guide.
Noah K (Analyst at Oppenheimer)
Great, thank you guys.
OPERATOR
The next question comes from Tony Kaplan with Morgan Stanley. Please go ahead.
Yehuda Silverman (Analyst at Morgan Stanley)
Hi, this is Yehuda Silverman on for Tony Kaplan. Just a quick one on end market health. I think I heard you mention earlier in the call that combined price and higher fuel recovery fee was about over 8%. Just curious if you could discuss the customer receptivity to pricing and how that’s evolved, particularly in an environment with, it seems, this elevated fuel price and broader inflationary pressure might be here for a bit longer.
John van der Ark (Chief Executive Officer)
We certainly look at what the bill the customer is going to receive, and affordability is a very popular term right now. We’re mindful of that. This is where our tools really help us to understand the lifetime value of that customer. And we want to run the business forever, not maximize any type of in-year pricing or in-year return on that. So I’d say on the margin that probably caused us to back off slightly on pricing which we would have otherwise priced.
But in terms of the core price and what you’re seeing in the metrics, really positive in terms of receptivity. Again, I think the benefit of our tools is we’re getting that price right and that customer is staying with us.
Yehuda Silverman (Analyst at Morgan Stanley)
Got it. And just one quick one on the cost side, that labor and related benefit increased year over year a bit. Is that where the healthcare one-time came in there or some of the costs you saw step up?
Brian Delgaccio (Chief Financial Officer)
Yeah, that’s where most of it would be, is in that labor category.
Yehuda Silverman (Analyst at Morgan Stanley)
Great, thank you.
OPERATOR
The next question comes from Jerry Revich with Wells Fargo. Please go ahead.
Jerry Revich (Analyst at Wells Fargo)
Yes, hi, good afternoon and good evening everyone. I want to ask on the AI part of the conversation. In your prepared remarks, you folks spoke about some interesting pricing tools and opportunity to reduce the phone operator costs. Can we just talk about over what period of time do you think we’ll see a meaningful impact on numbers? How long will some of these initiatives take to play out? And can you just size for us, you know, if we’re talking about food service, how meaningful of a bucket is that as we think about the margin upside?
John van der Ark (Chief Executive Officer)
Pricing we’re already seeing right now. And you’re seeing that in the numbers and the impact, especially in the fuel-related environment, customer service, you’re starting to see just small bits of that. But most of that impact will come in next year. And then on the routing, which is the biggest opportunity, most of it will be rolled out next year. So you’ll see some impact toward the back end of next year. But that will really be a 2028 story in terms of getting the full benefit of that. I think we mentioned $100 million run-rate EBITDA by the end of 2028. And we still feel like we’re on track for that number.
Brian Delgaccio (Chief Financial Officer)
Yeah, remember, I mean we didn’t provide guidance, but we did talk about our long-term growth algorithm and we feel that ’27 is laying into the construct of what we talk about. That long-term growth algorithm calls for 30 to 50 basis points of margin expansion.
OPERATOR
The next question comes from Adam Buebs with Goldman Sachs. Please go ahead.
Adam Buebs (Analyst at Goldman Sachs)
Hi, thanks for taking the question. I think organic growth ex event-related volumes in ES was 9%. Can you just help us understand the drivers of the strength there? How much is volume versus price? Which business lines are you seeing the strongest growth?
John van der Ark (Chief Executive Officer)
You bounce across both—more volume than price, but certainly got our fair share on price. I think what you’re seeing is just all the factors driving the industrial economy. PMI now has been over 50 for a number of months. You’re starting to see the reshoring activity, obviously a big buildout in all parts of the technology sector and semiconductors and data centers and everything else. And all of those things are contributing to our performance.
Brian Delgaccio (Chief Financial Officer)
Yeah, and to John’s point, it was broad-based. We saw increases at our hazardous waste landfills. We saw increases in E&P volumes. We saw it in our TSDFs and our field and industrial services. It was a very broad-based increase.
Adam Buebs (Analyst at Goldman Sachs)
And then on the residential side, I think you cited some municipal contract losses. Were those new in 3Q or was that already in the base? And then I think last quarter on the call you might have talked about potential to get closer to a down 2% number sometime in 2027. Does that still hold or should we think about this as incremental shedding?
John van der Ark (Chief Executive Officer)
No, all these were actions or decisions that were taken last year that we’re living with the effect through the course of this year and that we will certainly move up in our trend. And I think that roughly 2% is probably about where we’ll end up landing next year.
Adam Buebs (Analyst at Goldman Sachs)
Thanks so much.
OPERATOR
The next question comes from Trevor Romeo with William Blair. Please go ahead.
Trevor Romeo (Analyst at William Blair)
Hi, good afternoon. Thank you for taking the questions. Just a couple more for me on ES just because it was nice to see the improvement there. I mean, one, I appreciate the comments about the sort of long-term growth algorithm in ’27 and I know you don’t want to be getting into detailed guidance, but just thinking you’re already kind of organically, ex events, growing 9%, that kind of an easier comp in the first half next year, and you’ve got the manufacturing backdrop improving and all the other secular factors there.
So, I mean, how are you thinking about the potential for ’27 for ES to just be kind of an above-average growth year and kind of what needs to happen for it to get there?
John van der Ark (Chief Executive Officer)
We’ll continue to build the pipeline and have high aspirations for our team. I think we gave you the broad markers of how the business does. Keep in mind we’re still in the sub-15% of the overall business. When we give you the overall markers for how we’re going to do next year, you could still have outsized performance in ES and it could fit within the envelope that Brian talked about.
Trevor Romeo (Analyst at William Blair)
Okay, I appreciate that, John. And just a quick follow-up on ES as well. I mean, in the ER projects overall, how has this year been trending relative to a normal year? And then I know pricing on the ER work is something you’ve talked about maybe the past several quarters. Do you feel like that’s gotten back to an equilibrium at this point now that you’re winning more jobs?
John van der Ark (Chief Executive Officer)
Yeah, I think we’re getting better and smarter every day. We do thousands of ER jobs every year. Most of them are very small. It’s the outsized jobs that can kind of drive the economics. And really the last 18 to 24 months prior to this quarter, it’s been the dearth of those larger jobs. And so typically you see one, two, or three of these bigger jobs every year. We had a couple of them this quarter. The team did a great job and we leveraged the full capabilities of our offerings.
So it wasn’t just the Environmental Solutions field services team and post-collection group, but it was also our recycling and waste landfills that played a pretty big part in providing the right solutions for our customers.
Trevor Romeo (Analyst at William Blair)
Thank you.
OPERATOR
The next question comes from Tommy Zachariah from JP Morgan. Please go ahead.
Tommy Zachariah (Analyst at JP Morgan)
Hey, good afternoon. Thank you so much. I wanted to understand the mid-single-digit growth algo that you have for the long term a little bit better. So you’ve been able to achieve that despite residential construction, housing formation being very weak the last few years. So if and when that begins to recover, how should we think about a lift to that mid-single-digit number? Or what kind of improvement did you see in the past when prior resi up-cycles began?
John van der Ark (Chief Executive Officer)
Yeah, I’m very optimistic about the U.S. housing market over time. I’m very pessimistic about it in the short to medium term. I think we’re going to need to get the 10-year down and the interest rate down to unlock both people to move and investment in new housing construction, which the country badly needs. It will have a nice steady positive tailwind to the industry and it will start large container temp because that will be the work we do. We’ll add then some residential units and then the knock-on effect is adding some small container units around that as you see business formation happen around households. So that’ll be a steady upswing. It’s not points and points of growth to the top line, but there will be certainly some basis points of tailwind, and those will be profitable units we’ll add to the system.
Brian Delgaccio (Chief Financial Officer)
Yeah. If you want to sensitize it, direct construction-related activity is about 6 to 7% of our total revenue base.
Tommy Zachariah (Analyst at JP Morgan)
Understood. That’s all from me. Thank you.
OPERATOR
Next question comes from Seth Weber from BNP Paribas. Please go ahead.
Seth Weber (Analyst at BNP Paribas)
Hey guys, good evening. A couple more on ES. The 9%, you know, excluding the emergency business—do you feel like that’s a catch-up of just stuff that has been delayed, or do you feel like you’re taking market share here?
John van der Ark (Chief Executive Officer)
Thank you. I think I would encourage you: do not over-interpret a given quarter. In this business there’s always puts and takes on event jobs. Where recycling and waste, given the predominantly recurring revenue nature of that business, is very repeatable, predictable, and you can start to spot trends easier in that business. I think we’re seeing a reignition of growth in the sector, and we’re certainly getting our fair share—and we feel probably more than our fair share right now. That could change over the quarter, but again, over the cycle we’ll look to get growth slightly ahead of market and certainly lead with price and then take volume behind that.
And I think we’re very encouraged by the efforts the team has made in that business. Okay, and then just as this business turns, would you expect outsized incremental margins in this business for, say, 2027? I think it depends a lot on mix and the nature of that work. In general, yes, you get leverage on your post-collection assets; you get leverage on your labor. So there’s some fixed-cost nature of that work on the field services as well. But the nature of that work and the mix of the work could determine it. But on balance, yes.
Seth Weber (Analyst at BNP Paribas)
I appreciate it.
OPERATOR
The next question comes from Shlomo Rosenbaum with Stifel. Please go ahead.
Shlomo Rosenbaum (Analyst at Stifel)
Hi, thank you. First question, just a little bit about operational landfill costs. I think you’re the first company reporting this quarter that has not mentioned that they’re going up. And I’m just wondering, are you noticing that happening recently, and is there a way to contextualize it if it is? And if not, why do you think you’re not seeing it versus some of the other ones that are talking about it?
John van der Ark (Chief Executive Officer)
Yeah, some of it depends on weather and rain and the mix of where your landfills are located. And again, in any given quarter or year, you might be slightly more elevated than others in that. Landfills are certainly getting more expensive to operate, but our team’s done a really good job of managing those costs, getting in front of it, and most importantly, protecting the health of those landfills across the cycle.
Shlomo Rosenbaum (Analyst at Stifel)
See anything regulatory-wise, particularly where your landfills are located, that’s making a bigger difference now versus some of the other ones?
John van der Ark (Chief Executive Officer)
We’re working every day across multiple state capitals shaping regulation, or sometimes working against regulation if we think it’s really bad for the customer—but most of the time shaping regulation to help improve the environment and manage those assets.
Shlomo Rosenbaum (Analyst at Stifel)
Great. Just to follow up, Brian, can you just talk about the price of diesel that’s expected in your 4Q26 numbers?
Brian Delgaccio (Chief Financial Officer)
Yeah, we’ve seen diesel modulate a little bit. The high point in September was approximately $6.50. As we sit here today, call it $6.35. We expect that to taper down a little bit and approach the $6 mark by the time we exit the year.
Shlomo Rosenbaum (Analyst at Stifel)
Thank you.
OPERATOR
The next question comes from Stephanie Moore with Jefferies. Please go ahead.
Stephanie Moore (Analyst at Jefferies)
Hi, good afternoon. Thank you. Okay, so maybe first question, I do want to touch a bit on M&A. Maybe if you could talk about how you’re just viewing the M&A environment today—where you’re seeing the most attractive opportunities across, obviously, MSW, ES, or anything else. And then, what should we expect maybe your focus to remain? Is it more so tuck-ins? Is there an appetite for maybe a larger, more strategic deal? Would love to hear your thoughts.
Thank you.
John van der Ark (Chief Executive Officer)
The balance of our pipeline is always going to be smaller tuck-ins. We’ll probably end up doing somewhere around 25 acquisitions this year, most of which will be small tuck-ins. It’ll be balanced across recycling and waste and ES. Most of it will be recycling and waste, just given the size and the nature of those opportunities. There were certainly some medium-sized deals this year and there’ll be some more next year. The pipeline remains very, very strong.
In terms of anything larger, we remain to take a perspective on everything, but I wouldn’t anticipate something in that size to happen to be in our wheelhouse here in the short to medium term.
Stephanie Moore (Analyst at Jefferies)
Understood. And just a quick follow-up on the volume piece. Can you just remind us where you are in the residential shedding journey, when we should expect to see maybe that optimal mix, and then also any color you can give in terms of what this has implied from just a margin standpoint as well? Thanks, guys. Appreciate it.
John van der Ark (Chief Executive Officer)
Well, I think there’s always going to be some underlying shedding because as we acquire companies we know part of their portfolio are municipal contracts that will either upgrade or exit; they just don’t meet our returns threshold. And so again, across 25 deals, we don’t pay for that portion of the deal when we buy those contracts and we retain some of them, but we know some of them would be unlikely to retain. And then going forward, we don’t aspire to shrink that business. We would like to grow that business over time, but we’re going to make sure that we get attractive returns on the hard work that our people do. And so we’re going to continue to look for customers that are willing to pay for a differentiated offering and that market will move over time. But when forced to choose, we’re going to take price over volume.
And the margin implications of that, to your question, is if you’re shedding lower profitable work within the residential business but gaining on the more profitable small and large container work, then you’re going to mix up from a margin perspective.
OPERATOR
The next question comes from Toby Sommer with Truist. Please go ahead, Toby. Your line may be muted. We will take the next question from Kevin Chiang with CIBC. Please go ahead.
Kevin Chiang (Analyst at CIBC Capital Markets)
Hi. Thanks for taking my question this afternoon. Maybe just on environmental services, again, good results in the quarter. I appreciate as you called out, mix can play a role here and maybe just the underlying cyclicality of the business. But I guess when I look further out it feels like your incremental margins in this business can be kind of like 30 to 50%, I guess depending on mix as that revenue comes through. Is that kind of the right ballpark to think about how that incremental revenue flows through to the bottom line?
And then mix is maybe a 20 point variance around that goalpost.
Brian Delgaccio (Chief Financial Officer)
Yeah. To John’s earlier point, it depends on the type of work that you’re getting. So certainly if you’re getting it through your post-collection infrastructure, the TSDFs, the landfills, the E&P work, certainly it can be those levels. Field and industrial services, it’s going to be accretive to those lines of business, but not to that level. So certainly what we saw in this period, given the large emergency response jobs as well as increases in both the hazardous waste landfills and E&P, that’s why you saw the incrementals that we produced this quarter.
Kevin Chiang (Analyst at CIBC Capital Markets)
That’s helpful. And just my follow up question, if I look back the last five years or so, I don’t think we’ve seen a quarter where small container, large container and special waste all put up positive volume. I guess the last time we saw it was coming out of the pandemic, I guess. Does this foretell how volume trends in 2027? The intentional shedding? Could you have, say, positive volumes next year, ex some of the purposeful shedding you’re pursuing in your resi book?
John van der Ark (Chief Executive Officer)
Yeah, I think the market is starting to expand again. The market’s not taking off. I don’t want to oversell it, but the market is absolutely trending up and trending to a positive period. The one caveat in all that is there’s a lot of things going on geopolitically and with AI and big investment cycles and other things. So the macro would have to be supportive of that. But if the macro hangs in there, we would absolutely expect to see positive volume next year.
Kevin Chiang (Analyst at CIBC Capital Markets)
Thank you.
OPERATOR
The next question comes from Toby Sommer with Truist. Please go ahead.
Toby Sommer (Analyst at Truist)
Sorry about that. Trick or treating came earlier this year. I wanted to ask a question about—if you look over the horizon, sort of around the corner, we’ve had a couple of two, three years where landfill natural gas provided a little bit of kind of new opportunity and spice for profit and revenue and cash flow growth. What do you see over the next three, seven, eight years that might provide another spicy period with a minor but interesting catalyst to spur those growth rates a little higher?
John van der Ark (Chief Executive Officer)
Certainly looking at everything that goes into a landfill and challenging all those tons—landfills, while they’re profitable, they’re also a cost, right? You’ve already collected the money from somebody and they’re a cost to us. So is there something else we could do with that material? And some of that we get a little bit of diversion out of that with our sustainability investments around advanced recycling. Most of that is upcycling, but there is some opportunity of taking things and diverting them out of the landfill.
The biggest opportunity we’re pursuing right now is organic material, which is 20 to 25% of what shows up in a landfill. And we have a lot of those projects today. Are there more different things that we can do with those over time? That’s not a kind of near-term, one to two year opportunity, but over three to five years, I think that could start to be an interesting and meaningful revenue stream.
Toby Sommer (Analyst at Truist)
Thank you.
OPERATOR
At this time there appears to be no further questions. Mr. van der Ark, I’ll turn the call back over to you for closing remarks.
John van der Ark (Chief Executive Officer)
Thank you, Chloe. I want to thank the entire Republic Servs team for their continued great work and dedication to exceeding our customers’ expectations. We’ve accomplished a lot already this year and I’m confident we will carry this momentum through the end of the year and into 2027 as we continue creating long-term value for our customers, employees and shareholders. I would also like to say congratulations to Jim Fish on a terrific career at WM and wish him the best in retirement.
Have a good evening and be safe.
OPERATOR
Ladies and gentlemen, this concludes the conference call. Thank you for attending. You may now disconnect.
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