CWST — Q2 2026 Financial Report Analysis

Acquisitions drove a 16.9% revenue jump, but interest and depreciation left almost nothing at the bottom line

Casella Waste Systems, a trash-collection, landfill and recycling company operating across the eastern US from Vermont to West Virginia, grew second-quarter 2026 revenue 16.9% to $543.7 million. About three-fifths of that increase came from businesses it bought, not from its existing operations. Prices on its existing routes and landfills rose a healthy 5.5%, but it collected slightly less waste on those routes. Higher depreciation on the acquired assets and a 34% rise in interest expense on the money borrowed to buy them meant net income fell to $3.8 million (6 cents a share) from $5.2 million (8 cents). The company raised its full-year revenue guidance and cut its full-year net income guidance in the same release.

At a glance

• $46.2 million of the $78.4 million revenue increase came from acquisitions. Growth from the existing business, mainly price, was much smaller, and collection volumes on existing routes slipped 1.4%.
• Adjusted EBITDA margin fell to 22.7% from 23.5%. Adjusted EBITDA is the company's preferred profit measure: earnings before interest, tax, depreciation and amortization, minus acquisition costs and a few other items. Management attributes 40 basis points (0.4 percentage points) of the decline to fuel. Its fuel surcharges recovered the higher diesel cost in dollars, but adding the same dollars to revenue and costs pulls the percentage down.
• Full-year net income guidance was cut to $0–6 million from $4–10 million, while revenue guidance was raised to $2.09–2.11 billion. Casella expects to grow larger in 2026 but earn almost nothing on a GAAP basis.

Key figures

Source: Casella Q2 2026 Form 10-Q and earnings release. Price and volume growth are year-over-year changes as a share of the related prior-year revenue.

Where the revenue growth came from

Casella breaks down the $78.4 million increase in its revenue bridge:

Price is holding. Collection prices rose 5.8% and disposal prices (landfills plus transfer stations) rose 4.7%. That is well above general inflation, and it is the main source of growth in the existing business. In waste, pricing is the main lever for organic growth (growth from the business a company already owns), because the industry is consolidated and landfill space is scarce and hard to permit.

Volume is mixed. Collection volumes fell 1.4%, or $4.2 million, so fewer pickups or lighter loads on existing routes. Landfill volumes rose 8.5% ($2.2 million), and the 10-Q links this to higher tonnage at a Western-region landfill. The CEO credited "both third party-sales and internalization efforts". Internalization means routing the company's own collected waste to its own landfills instead of paying someone else's tipping fee. Transfer station volume was roughly flat at +0.5%.

Surcharges are mostly a fuel pass-through. The $10.3 million in solid waste "surcharges and other fees" is largely Casella's energy and environmental (E&E) fee. This charge floats monthly with a diesel price index. Fuel cost rose to $25.3 million in the quarter (4.7% of revenue) from $15.3 million (3.3%). The 10-Q estimates that a 50-cent move in diesel changes both fuel cost and the E&E fee by about $9.0 million a year, so the fee roughly cancels fuel in dollars. It does not protect the margin percentage.

Segment picture: Mid-Atlantic is improving and recycling is the weak spot

• Western did best. Revenue rose $15.6 million and operating income rose $7.4 million, helped by 6.6% collection pricing (the highest of any region), lower acquisition expense and lower intangible amortization.
• Eastern revenue jumped 27.5%, mostly from the eastern Massachusetts/greater Boston and southern New Hampshire acquisition. Operating income was flat at $20.0 million because acquisition expense, integration costs and depreciation absorbed the gain. The prior-year quarter also carried legal penalties tied to leachate management at an Eastern landfill. Leachate is the contaminated liquid that drains through a landfill. Without those penalties in the comparison, the flat result would look weaker.
• Mid-Atlantic is the region Casella has built largely through recent acquisitions. Its operating loss narrowed to $3.9 million from $7.6 million. Management says systems integration there is finished and route optimization has started. The region is still losing money at the operating line.
• Resource Solutions (recycling processing and National Accounts, which manages waste services for multi-location customers) saw operating income fall 40% to $5.2 million. Recycling volumes dropped 14.2% ($4.3 million). The segment also carried costs from shutting a Maine composting facility after a state law banned land application of products made from biosolids. National Accounts was the bright spot, with volume up 6.4% from new business.

Takeaway: Casella's existing landfills and routes are pricing well: 5.5% solid waste price growth and landfill volumes up 8.5%. But the company is buying growth faster than it is earning on it. Most of the extra revenue came from acquisitions, and the extra depreciation, amortization and interest that came with them cut GAAP profit to under 1% of revenue. Rising adjusted EBITDA alongside a lowered net income forecast shows how much the story depends on which profit line you read.

What the headline numbers hide

• The GAAP-to-adjusted gap is large and mostly amortization. Adjusted EPS was $0.40 against GAAP EPS of $0.06. Of the $0.34 difference, $0.35 is amortization of acquired intangibles, mostly customer relationships recorded at purchase, $0.10 is acquisition-related expense and $0.01 is the Maine organics facility closure, offset by $0.12 of tax effect. Amortization is a real non-cash charge that reflects the price paid for acquired businesses. For a company that buys businesses every year, "expense from acquisition activities" ($6.1 million this quarter, $12.6 million in the first half, about $20 million guided for the year) has also become a recurring cost.
• Cash conversion is healthy if measured against EBITDA rather than net income. First-half operating cash flow was $161.0 million against a net loss of $1.8 million. Net income is not a useful yardstick for a business with $166.5 million of half-year depreciation and amortization. Against first-half adjusted EBITDA of $220.3 million, operating cash flow converted at about 73%. Adjusted free cash flow (operating cash minus routine capital spending, with acquisition-related spending added back) was $78.1 million, up 10.3%.
• The tax line helped this quarter. Pre-tax income halved to $3.4 million from $6.9 million, but a $0.4 million tax benefit, compared with a $1.7 million charge a year earlier, kept net income from falling as far. Without that swing the decline would have been much steeper than 27.6%.
• Interest is the main reason operating gains did not reach net income. Net interest expense rose $4.4 million, or 34%, to $17.4 million. The 10-Q gives two causes: less interest income because cash fell (cash plus restricted cash dropped from $216.9 million to $25.5 million over the half), and new borrowing on the revolving credit facility. Casella spent $400.8 million on acquisitions in the first half and borrowed $249.0 million. Long-term debt rose to $1.33 billion from $1.13 billion at year-end. The covenant net leverage ratio (debt minus cash, divided by the past year's EBITDA) is 2.70x against a 4.00x maximum, so the balance sheet is not stretched.
• Receivables grew faster than sales. Accounts receivable rose 23.8% to $220.4 million from December's $178.1 million, against 16.9% revenue growth. Acquired customer books and summer seasonality (December is a low-volume month in the Northeast) probably explain most of it, and G&A cites "a higher provision for expected credit losses attributable to revenues growth". This is worth checking in Q3 but is not a warning sign yet.
• No buyback effect. Diluted shares edged up to 63.7 million from 63.6 million, so share count did not affect per-share results in either direction.
• Guidance moved in opposite directions. Revenue guidance went up by $30 million at both ends, reflecting the acquisitions and higher fuel-fee revenue. Net income guidance went down by $4 million at both ends. Adjusted EBITDA ($473–483 million), operating cash flow ($370–380 million) and adjusted free cash flow ($200–210 million) were all left unchanged.

Outlook

Management says the business "is performing in line with plan" and that the full-year outlook "has not materially changed". The reaffirmed adjusted EBITDA range implies $253–263 million in the second half, compared with $220.3 million in the first. That is a large step up, but Casella's revenue is seasonal: construction and demolition waste in the Northeast peaks from late spring to early fall. The guidance also includes a partial year from the five acquisitions closed so far in 2026, which together carry about $165 million of annualized revenue. It excludes any deal not yet closed.

Our read: the core pricing engine is working, and the turnaround in Mid-Atlantic, from a $7.6 million to a $3.9 million quarterly loss, is real progress. Shareholders get little at the GAAP line, though, because each acquisition adds amortization and interest before integration savings show up. In the Q3 report, watch three things:

1. Whether Mid-Atlantic reaches breakeven now that route optimization has started.
2. Whether collection volume declines, -1.4% this quarter and -1.7% year to date, stabilize.
3. Whether net income lands inside the lowered $0–6 million range, given that first-half net income was already a $1.8 million loss.

A second cut to net income guidance would suggest acquisition costs are running ahead of the integration plan.

The company's Q3 2026 results had not been filed at the time of writing. This analysis uses the Q2 2026 Form 10-Q and the accompanying earnings release (Exhibit 99.1, filed August 6, 2026).