Casella Waste Systems, Inc. (CWST) Q2 2026 Earnings Report, Transcript and Summary

Hello, and welcome to the Casella Waste Systems, Inc. Second Quarter 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President of Investor Relations and Finance, [ Henry Baby ].

Good morning, and thank you for joining us on the call. Today, we'll be discussing our second quarter 2026 results, which were released yesterday afternoon. This morning, I'm joined by Ned Coletta, President and Chief Executive Officer of Casella Waste Systems; Brad Helgeson, our Chief Financial Officer; Damian Ribar, our Chief Operating Officer; and Jason Mead, our Senior Vice President of Finance and Treasurer. After a review of these results and an update on the company's activities and business environment, we'll be happy to take your questions. But first, please note that various remarks we may make about the company's future expectations, plans, and prospects constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Form 10-K, which is on file with the SEC. In addition, any forward-looking statements represent views only as of today and should not be relied upon as representing our views on any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to today, August 7, 2026. Also during this call, we may be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures to the extent they are available without unreasonable effort are included in our press release filed on Form 8-K with the SEC. And with that, I'll turn it over to Ned Coletta to begin today's discussion.

Good morning, and thank you for joining us. I would like to first welcome Damian Ribar, our new Executive Vice President and Chief Operating Officer. Damian is joining us on the call this morning. Damian brings over 30 years of solid waste industry operating and finance experience and is an excellent addition to our already strong senior management team. We are also joined by our new Vice President of Investor Relations and Finance, [ Henry Baby ]. Henry joins us after a 20-year career on the buy side, most recently as a small-cap generalist at William Blair. We are pleased with our performance in the second quarter. Our team executed well across the business, delivering solid financial performance while also advancing our key strategic initiatives. Our disciplined operating approach, strong pricing execution, higher landfill volumes, and continued acquisition activity drove positive results during the quarter. Our solid results in the quarter reflect the consistency of our operating model, the effectiveness of our dynamic fuel recovery fees, and the continued focus of our teams on safety, execution, and customer service. Revenue for the quarter was $543.7 million, up 16.9% year-over-year. Growth was driven by contributions from acquisition and the base business, with strong pricing across our collection and disposal lines, volume growth at the landfills, and continued growth in our Resource Solutions segment. Pricing continues to perform well and remains a core driver of our positive results. Solid waste pricing was up 5.5% overall, including 5.8% in the collection line of business and 4.7% in the disposal line of business. Equally as important, landfill tons were up 8.4% year-over-year in the quarter, reflecting the strength of our newly constituted post-collection sales team, internalization efforts, and our unique landfill asset positioning in the Northeast. From a volume perspective, the quarter played out largely as we expected, with higher disposal volumes mainly offsetting lower collection volumes as we continue to prioritize price and profitability in the collection line of business. Volume trends followed the normal seasonal uptick through July and into early August, and we are well positioned as we move through the back half of the year. On the cost side, our fuel recovery program worked effectively in the quarter, with floating fees fully offsetting the dollar increase in fuel costs across the business. This continues to be an important component of our ability to manage risk and produce stable and predictable operating results. As previously discussed, our fuel recovery program is designed to recover costs. And as such, we experienced roughly 40 basis points of margin headwind as recovery fees and fuel grossed up revenues and costs, respectively. As we have emphasized, our focus remains on disciplined execution at the operating level. Our teams continue to make progress with route optimization, fleet efficiency and automation, and we're seeing those efforts translate into results. Adjusted EBITDA of $123.2 million was up 12.5% year-over-year. Safety is our first core value at Casella, and we continue to invest in key initiatives across the business. These efforts have resulted in better safety performance with our key OSHA metric improving 34% year-over-year. A huge thank you to everyone on the team for their focus and discipline. We continue to deploy the Lytx in-cab AI technology across our fleet and it's helping to drive safer behavior through real-time coaching. Further, our expanded triage program continues to reduce workers' compensation costs and claims. In the Mid-Atlantic region, we made significant progress on our integration efforts during the second quarter. As guided, we are on track to cut $5 million of operating costs in 2026 and another $10 million over the next 2 years. We completed the migration of our customers to our new lead to cash system and integrated customer payment portal in early May. And our team quickly pivoted to driving operational synergies through route consolidations and automated truck conversions. With these early efforts, we have already eliminated 13 routes and the related trucks and labor from the business. From a technology and efficiency standpoint, we're making great progress. From a customer side, we continue to invest in key platforms to improve experience, including the launch of our new customer payment portal in April, the new Casella phone app in May, and the new casella.com website in July. Everyone should check out these in the iPhone store and online. These efforts are focused on improving customer experience through the development of robust e-commerce capabilities while also yielding cost efficiencies and enhancing our selling capabilities. We remain focused on reducing G&A costs, and we are on track with our previously identified $15 million in targeted savings over the next 3 years. We expect these savings will come in 3 phases. With the first phase yielded in the second half of 2026, as we roll out credit card convenience fees. The second phase will be yielded in 2027 as we eliminate the cost of redundant systems. And the last phase, as we further automate back-office functions. Across these initiatives, we are focusing on AI-enabled tools and investing in data infrastructure to support this capability. Over time, we expect these investments to generate additional leverage across our back office, yielding efficiency gains throughout the business. I would also like to provide an update on our Hakes Construction and Demolition Landfill in New York. We expect to receive a permit in the third quarter to expand our airspace at this site. With this permit expansion at our current run rates, we'll have roughly 20 years of valuable airspace at the site. In addition, we continue to make excellent progress on the expansion efforts at our Hyland, Juniper Ridge and Clinton landfills. Acquisitions remain an important component of our growth strategy, and we've had a strong start to the year. We have completed 5 acquisitions so far in 2026, representing approximately $165 million of annualized revenues. We closed on one acquisition in early January, 3 on April 1. And then one tuck-in, in Pennsylvania on July 1. These transactions continue to align well with our strategy of building density and adding key transfer stations and recycling facilities within our existing operating footprint. Our teams are making good progress on integration with an early focus on safety, onboarding our new team members, and executing integration plans. At the same time, our acquisition pipeline remains strong. And we have a number of tuck-in opportunities in later stages that fit well within our existing markets. Overall, we feel very good about our execution year-to-date and our outlook for the remainder of the year. We're executing well against our core priorities, including improving our safety profile, pricing in excess of cost inflation, operational efficiency programs, yielding acquisition synergies, and delivering on new acquisitions. At the same time, we're continuing to invest in the business in a disciplined way, particularly in technology and long-term efficiencies. I want to thank our employees for their continued focus on safety, service and customer execution. With that, I'll turn it over to Brad to walk through the financials in more detail.

Thanks, Ned. Good morning, everyone. Revenues in the second quarter were $543.7 million, up $78.4 million or 16.9% year-over-year, with $46.2 million from acquisitions, including rollover, and $32.2 million from same-store growth or 6.9%. Solid waste revenues were up 18.4% year-over-year, with price up 5.5% and volume down 0.6%. Within solid waste, price in the collection line of business was up 5.8% in the quarter, led by 7% price in roll-off and 7% price in frontload commercial and volume was down 1.4%. Price in the disposal line of business was up 4.7%, including 4% third-party price at landfills and 5.1% at transfer stations. Landfill volumes overall were up 86,000 tons or 8.4% in the quarter, with internalized volume up 24,000 tons and third-party volume up 62,000 tons. Landfill activity was strong this spring, and we expect this to continue through the second half. In 2026, we anticipate improved year-over-year third-party landfill pricing of 4% to 5% consistent with our guidance expectation for 5% price growth overall in the solid waste business. Resource Solutions revenues were up 10.7% year-over-year, with recycling and other processing revenues up 5.5%, and national accounts up 17.1%, including 4.3% price and 6.4% volume growth. Overall, we generated $11.6 million in additional revenue in the quarter from higher cost recovery fees, including those tied to fuel prices. As Ned mentioned, we successfully offset all of the dollar increase in fuel costs in the quarter with higher related fees. Adjusted EBITDA was $123.2 million in the quarter, up $13.7 million or 12.5% year-over-year, with $7.5 million of contribution from acquisitions, including rollover and 5.7% organic growth. Adjusted EBITDA margin was 22.7% in the quarter, down 80 basis points year-over-year. Bridging the year-over-year change in adjusted EBITDA margin, fuel represented a 40 basis point negative impact as higher fee revenue offsetting higher fuel expense dilutive margins. And Resource Solutions with a 70 basis point headwind year-over-year against a strong EBITDA comparable in Q2 2025. With higher recycling volumes last year from a competitor undergoing a facility retrofit, the previously announced closure of the organic facility in Maine in Q3, and lower margins in national accounts. Excluding fuel and Resource Solutions, the business expanded margins by 30 basis points, driven by the benefits of higher landfill volumes and positive price cost spread across the collection business. In the Mid-Atlantic, we've completed our systems integrations and are well into route consolidations, as Ned discussed. We expect to begin to see the benefit of these cost reductions in margins in the second half of this year as the mid-Atlantic transitions to a long-term margin tailwind as we execute on our strategy with this increasingly integrated business. Cost of operations were $364.9 million in the quarter, up $56.9 million year-over-year, with $34.1 million of the increase from acquisitions and $22.8 million in the base business, including higher fuel costs, which we covered with our fuel recovery program. General and administrative costs were $63.2 million in the quarter, up $8.6 million year-over-year, but down 10 basis points as a percentage of revenue. Depreciation and amortization costs were up $11.5 million year-over-year, with $9.9 million resulting from acquisition activity in the past 12 months, including the amortization of acquired intangibles. Adjusted net income was $25.3 million in the quarter, or $0.40 per diluted share, up $1.1 million and $0.02 per share. GAAP net income was lower by $1.4 million in the quarter on higher depreciation and amortization, interest, and the organics facility closure costs. Net cash provided by operating activities was $161 million in the first 6 months of the year, up $21.4 million year-over-year, or 15.3%, driven by EBITDA growth. Adjusted free cash flow was $78.1 million for the first 6 months of the year, up 10.3%. Capital expenditures were $122.3 million, with $20.6 million of upfront investment in recent acquisitions. Overall, capital expenditures were relatively flat year-over-year, but with a higher mix of recurring spend, which is reflected in adjusted free cash flow and less for acquisitions. As of June 30, we had $1.35 billion of debt and $25 million of cash, with our consolidated net leverage ratio for purposes of our bank covenants at 2.7x. We have approximately $500 million in available liquidity, which will enable us to be opportunistic in continuing to execute on our growth strategy and robust acquisition pipeline. As announced in our press release yesterday, we raised our revenue guidance to a range of $2.09 billion to $2.11 billion, an increase of $30 million, reflecting our acquisition activity to date and higher expected fuel recovery fees associated with elevated fuel costs. This updated revenue assumes that fuel remains elevated around current levels for the balance of the year. We reaffirmed our adjusted EBITDA guidance range of $473 million to $483 million, our adjusted free cash flow range of $200 million to $210 million, and our net cash provided by operating activities range of $370 million to $380 million, as the business is performing in line with our expectations, and we remain well positioned relative to our internal plan for the year. From an EBITDA margin standpoint, the impact of higher fuel recovery fees and costs, as well as a modest dilutive impact from the acquisitions closed to date, weighed on margins by approximately 40 to 50 basis points, implying flat to 40 basis points of margin improvement across the rest of the business, consistent with our outlook at the beginning of the year. We lowered our GAAP net income guidance to a range of $0 million to $6 million, reflecting higher forecasted amortization expense and income tax provision. If you recall, we currently do not pay federal cash taxes. And with advantaged tax structuring of our acquisition activity and benefits of the new tax law, we do not expect to be a cash taxpayer for several years into the future. With that, operator, would you please open the line for Q&A?

[Operator Instructions] Our first question comes from the line of Adam Bubes with Goldman Sachs.

Brad, I think you said underlying margins were 30 basis points in the business, excluding fuel and the national accounts headwind. Does that include M&A dilution? I think you normally target 50 basis points of underlying margin expansion just from price cost or just trying to get all the moving pieces on the underlying piece.

Yes, it does include acquisitions netted within that. So if you pull that out, I mean, acquisitions were a bit of a dilutive impact as well. The base business performed well in excess of 50 basis points of margin expansion.

Great. I appreciate the clarification there. And now that systems integration is complete in the Mid-Atlantic, can you just update us on how that business is performing on key metrics like volumes, price, margins? And how do you expect the Mid-Atlantic margin cadence to trend over the remainder of the year?

Yes. Margins in the segment, and you'll see this in the 10-Q that we filed later, were relatively flat in the quarter year-over-year, we're up slightly year-over-year. We really do expect, though, for the margins to start to move in the positive direction in Q3, Q4, and then especially into next year. Pricing was actually pretty good in the Mid-Atlantic. We were just from the top of my head, a little over 4% price. So a touch below the rest of the business, but we are getting some price. I think an important achievement in the quarter was us getting our floating fuel fees in place to cover our fuel costs. Sometimes there's a little bit of a delay of us getting those fees in place for acquired customers, but we did a good job making sure that at least we are covered from that standpoint.

Yes. And price looking at the quarter, Brad, is up 4.7% in the Mid-Atlantic. But one of the important things to note is the timing. So we got through our systems integration work in the second week of May, and a lot of training, a lot of work with our teams down there to really get everyone comfortable in the new system, ensuring that our trucks were routed, dispatched, we're giving the right level of service to our customers. And then, kind of in late June and coming into July, that's when we started to put routes together businesses together. And this is going to be a 5-plus month process. It doesn't all happen at once. There's a lot of people impacted, from our dispatchers, our drivers, our ops people, to our customers, our customer care reps. So there's a lot going on there and all the building blocks are there. We're just ticking through one market by market. So there's not a lot of that tailwind in the quarter, but it really is starting to show in July as we're getting those trucks off the road, as I talked about earlier. So a really exciting time down in that market. Another thing that you mentioned, and it is important, now that we're on the unified platform that has all of our legacy profitability tools and pricing tools, we really get a lot more visibility of our book of business, and we're starting a thoughtful approach to understand customer by customer, the profitability, and if any adjustments need to be made over time.

Great. Appreciate the color. And last one for me. Just on landfill volumes. I mean, you touched on it briefly, but can you just expand on what's driving the performance there? Because really sharp acceleration, I think, 8% volumes. What are you seeing on that line item? And how should we think about it going forward?

Yes. I mean we're seeing healthy volumes in the market generally, indicating a relatively healthy economy. And kind of taking a step back, I mean, the dynamic in the Northeast is that landfill capacity is coming out of the market, and you have more and more tons looking for less and less landfill capacity.

Waste-to-energy capacity. I mean one of the most key facilities in the New York market, it has announced its closure at the end of 2026, the Hudson Falls Incinerator, owned by WIN. And it sits right in the middle of our market area, and part of the market where there are already some pretty tight constraints, just north of Albany. Albany has announced plans to close their landfill. They're starting to build out a transfer station, which will be another leg of tightening in that marketplace. So that blip, we'll call it a flip over the last couple of years with the 1 construction demo landfill closing on Long Island. We've had such great trends since that point in time. I mean our construction demo tons were up close to 17% in the quarter as we're getting flows back into mainly Hakes, but some of our other sites as well. But we had strong trends across MSW and special waste as well. And I really attribute both of those to two different things. One, our work -- our hard work by our team over the last 1.5 years to get internalization increased, to get the right transportation lanes in place, the right assets and waste flowing. But also the reconstitution of our landfill sales team. Liza Casella has done a great job. We've got Chris Rains now on the team as our Chief Revenue Officer. The 2 of them have partnered up and really rebuilt that effort from the ground up and are doing a great job. It's very organized. We're coming to market in an efficient way and really getting the flows back to sites.

And our next question comes from the line of James Schumm with TD Cowen.

So you guys aren't getting really much credit for your growth these days via the stock price. And just sort of wondering, does it give you pause? Or do you sort of reconsider the growth versus margin debate at this point? I recognize that fuel fees are diluted to margins and so the EBITDA margin guidance steps down a little bit. But just curious, if you guys contemplate if we're not going to get credit for all this growth, do we back off on M&A a little bit and try to get the margins up? Or how are you guys thinking about that?

Yes. I think you can look at it through an even different lens than that. We've gone through a transition period in the last, let's say, 2 years from a regional company to an enterprise. And we need to have scalable functions in this business that allow us to take on the growth while getting margin accretion, because these truly are accretive acquisitions that add density, add integration and vertical integration into the business. But as we've added revenues over the last couple of years, $1 revenue adds more people. And it really needs to be scalable systems, scalable process that allow us to get that leverage. And we've done just such great jobs behind the scenes, from our tech team to our business teams to our finance, across the board to really get the foundation in place. And we're on the cusp of unlocking a lot of that from automated processes, from sales to customer care to finance with our new systems processes. We've brought in some really talented leaders who have deep experience in larger organizations that understand the power of scale. So I think we look at it through that lens, like we don't need to tap the brakes, but we do need to unlock synergy value and scale from acquisitions faster. And that's our goal as a management team over the coming quarters, coming years.

Okay. That makes sense. And then just if you could help me with some of the third quarter margin considerations, I think you said fuel was a 40 basis point headwind in the second quarter. How should we be thinking about that? I think Brad said maybe ex all the items, it would be 50 basis points underlying improvement in the second quarter. So could we think about something similar in the third quarter and then back out a similar 40 basis points for fuel? So I guess that's part one of the question. And then the other consideration that you guys mentioned was Resource Solutions sort of had that benefit last year, with the closure of, I guess, a MRF. So what was the benefit last year in 3 quarters? So what do you think the headwind is going to be from that this year?

So a couple of questions in there. So I think the year-over-year comparison, taking Resource Solutions first should be easier in the third quarter. The volume that we benefited from last year won't be quite that comparable headwind in the third quarter that it was in the second quarter. We do -- we will still see the impact of having closed the organics processing facility in Maine in the third quarter last year. So that's going to be a year-over-year impact extending into the third quarter. And that was something we talked about at the beginning of the year with our overall guidance expectation. I think fuel, as we said -- I mean, fuel, we're assuming that the prices remain elevated. I mean who knows what it does? We don't have a crystal ball, but we thought it'd be as simple to assume that prices remain certainly where they are, and we haven't really seen any evidence that they're moving lower materially. So that will remain a headwind based on our guidance for the rest of the year. Overall, for the year, fuel is probably a 30 basis point headwind, '26 over '25. So you can kind of factor that into your model. In terms of the quarters, as you know, we don't get into specific quarterly guidance, but usually, the sequential trends historically can be a good starting point, a good guide. So I would look to the second to the third quarter last year, we've kind of a step down relative to the impact of fuel, but sequentially, a consistent improvement, plus or minus, this year compared to last year.

And just on that resource solutions benefit last year, did that like persist? Did that go into the fourth quarter? Or how did that sort of -- how long was that?

No. That competitor facility that was shut down in 1 of our markets came back online in the third quarter.

Our next question comes from the line of Tami Zakaria with JPMorgan. .

I wanted to get clarity on the updated revenue guidance, you're raising it by $30 million. Could you parse out how much of that $30 million raise is fuel versus M&A versus price versus volume? .

Sure. Yes. It's majority fuel, actually. So the acquisition that we closed on July 1, that Ned mentioned, that's about $15 million of annual revenue. So half of that, less than $10 million. The balance is fuel. We're assuming, again, that fuel does not decline over the course of the year, it just sort of stays relatively where it is. So based on that, and assuming our fuel fees continue to cover the higher fuel costs, that's a little over $20 million of the $30 million. We haven't really updated our guidance for anything else in the underlying base business. I mean, frankly, the business is performing pretty close to how we expect it going into the year. So not a lot of material changes that would move us out of our guidance range, at least year-to-date.

Understood. And then a similar question, but on the EBITDA margin. The full year EBITDA margin guidance is now, I think, 30 bps lower than before. How much of that is M&A versus fuel? .

Most of it is fuel. A little bit of it is M&A. That's majority fuel.

And our next question comes from the line of Trevor Romeo with William Blair.

I had a couple maybe to start on M&A. So maybe one, it looked like you made one more tuck-in in the last quarter, about $15 million of revenue. Anything you'd call out on that business that you bought? And then just thinking about your integrations that are ongoing for Star Waste and Mountain Waste, it's still probably early days there, but are you kind of realizing results from all of the platform unification and efficiency efforts you put in place? Just maybe update on how those processes are going for those two deals.

Yes. Thanks for the question. So early days on both of them, we've hit all the important marks from a safety, culture, training, people side, that's the early step. But frankly, we're probably a beat behind on integration because we've been so focused on putting Mid-Atlantic back together. It's just such a key initiative that unlocks so much value. So our tech team, our ops teams, are just in that marketplace working to get those pieces put back together, and then we'll kind of shift to both Mountain State Waste and Star. They're both well-run businesses, there was no urgency to change anything immediately. It's more of, what are the next steps to get those synergies out of the business? And when we looked at our business plan and our road map and frankly, our team, we're focused in the Mid-Atlantic right now, and then on to that. But we're happy, early days. All the important stuff's working right, and we're in a good position to add more value in the coming quarters.

Okay. I mean just, I guess, along those lines, if you're kind of more focused on the Mid-Atlantic at the moment, what does that kind of say about your maybe second half M&A pipeline? It sounds like, generally, you still have a lot of opportunities out there. But are you maybe going to -- yes, go ahead.

Yes. What you'll see from us second half into early next year, a lot focus on very small tuck-ins that either overlay existing businesses or have a strategic asset like a transfer station that allows us to move waste and create more value. Nothing large coming. It's more of that typical kind of $10 million revenue type of $20 million revenue type of company that tucks in quite easily. As an example, the company we bought on July 1, we had it day 1 onto our systems and our processes. So getting to that point where we're doing additions, getting them into our system, our data, our processes, day 1 -- up to day 30, will start to yield synergy value much, much faster. So we'll get to that point, and that's really to my point earlier that we're talking about of how do we create more value? It's getting that scalability, getting those efficiencies faster. So we're doing that with these small deals day 1, and we're really focused there from an acquisition standpoint now through the end of the year.

Okay. That's helpful. And if I could maybe sneak 1 more quick one. kind of a big picture question on leadership. And I guess, welcome Damian to the call, first of all. But I think, Ned, you've made several key hires lately across the company, I think. And kind of feels like you've been very intentional about who you're hiring and where they're coming from and the kind of experience they have. So maybe you could talk a little more about how you're thinking about the leadership team and kind of what you and they are focused on for evolving the company going forward?

Yes. Thank you for the question. This has been a period of change for Casella, where we've got some really talented team members, but we're growing very rapidly. And as we've moved from, say, $1 billion of revenues to $2 billion of revenues, we realized pretty quickly that a lot of the old ways of doing business internally didn't scale as effectively as they should or need to allow us to be successful into the future. So we've been looking to fill roles with both internal candidates and some really talented external candidates that have been in scale enterprises, but also bring with them a mindset where they're amazing cultural fits. They believe in our value system as a company, but also have been in a role where they've helped to scale businesses and put in process discipline technology help move to the next level. So we're really blessed as a team. We've got great balance right now. Our team is working well together. We're gelling around key initiatives. We've got great objectives in front of us. So it's an exciting time for us. We're -- energy is very, very good. And we came out of a Board meeting where we're able to showcase some of our great new team members and strategies coming from this year to next year.

And our next question comes from the line of Shlomo Rosenbaum with Stifel.

Ned, could you talk a little bit about what you've seen with the reconstituted landfill sales team. The progress they've made over there, what looks different right now than it did 18 months ago? And is there a potential for them to move the pricing beyond kind of the 4% to 5% targeted range for a third party? Or how are you thinking about that?

Yes. Right now, the team has come together. We've got great leadership from the team. As I mentioned earlier, it's slipped under Liza Casella, who's been our VP of Sales for years, and that responsibility is tucked under her. We've put a new director post collection sales in place. We've moved in a really talented sales lead from our hauling side of business. And we've just started from the bottom up from a process discipline standpoint, following best practice from a sales standpoint, building out pipelines, working the market for both price and volumes, and building out a pipeline that stretches out several years. Some of these jobs, they take a long time to get through permitting and execution, especially on the special waste contaminated soil side. So we're starting to fill back off that blank spot that existed in our pipeline, and we're working jobs. Now, from our vantage point, it's a balance, right? So we love to maximize price at the landfills. But many of these sites, the last ton in at the end of the day might have a 60% to 70% margin. So we're also balancing that as well with the special waste pipeline, where many of our landfills have needs for soils. And if you don't have to go dig that soil out of the ground, but you can get paid for it, that's a much better place to be. So getting that balance of meeting our needs while pushing price in the market, you'll continue to see us doing that. We're around 4% this quarter. Working that up a bit to 5-plus percent, would I think be a pretty comfortable spot for us in 1 of our goals.

And then does the $5 million savings in the Mid-Atlantic that you're looking for this year, does that include the better targeted pricing that you're hoping to get? Or would the targeted pricing be incremental to that?

No, that's primarily a cost reduction. That's sort of the -- I hesitate to say low-hanging fruit because there's a lot of work, as Ned was describing. But that's the immediate opportunity for us taking cost out of the business by running the business with fewer routes after the integration. Pricing, I think, is a longer-term opportunity, the way we look at it. With the data that we now have in place, the analytical tools that we have in place going into the back half, we're looking to drive price in that market. But we haven't put a specific dollar number on that opportunity, and that will play out, I think, over a period of a couple of years.

Okay. So the pricing is something that hasn't been quantified, and it's really incremental to anything that you're talking about right now? I just want to get that clear.

Correct. Yes, that's right.

Okay. And then just again, the pricing in the Mid-Atlantic, I think you said it was 4.7% in the quarter. Is that inclusive or exclusive of any fuel recovery fees?

So that does not include fuel recovery fees runs through a line you'd see in our -- it's down below that in our tables in the press release. I think we'd call it Jason, what's the exact language we use? Fuel surcharge and other fees, maybe?

Our next question comes from the line of Tyler Brown with Raymond James.

This is Ethan Rollins, on for Tyler. So I just wanted to ask, so the Northeastern market is clearly a longer haul market with a lot of transfer. Curious what you are seeing in the transportation markets, not only from a fuel, but for like core rate increases, given that market is very tight. How should we think about inflation in the context of the guide?

Yes. So each of -- so we have a balance between our own trucks that are running long-haul and third-party trucks are running long haul. So we have both within our business model today. With our third-party contractors who haul for us, there are fuel surcharge formulas within those contracts, and they kick in above set fuel levels. So every one of those has kicked in with this 50% increase in fuel over the last 4, 5 months here. When we look at our fuel recovery program as a business, we are focused on recovering that cost of fuel to move our waste or recycling from transfer stations to end disposal sites. So that's included in what we're trying to accomplish within the cost offset. However, as we've mentioned, our fuel recovery fees do not recover margin, so they have a headwind there. But we've done a great job of offsetting any of that inflation. To your second question of are we seeing inflationary pressures outside of fuel and long-haul trucking? Yes, a bit, but it's not outside of any other inflation in our book of business today. I mean, we've been through a multiyear cycle right now on inflationary pressures across all industries. And as you know, we're in a pretty unique spot. I mean as much as 70% of our collection line of business we can price at will, and we can really try to get inflation back to our customer base. I think like all companies this spring, we're laser focused on trying to make sure fuel got back to our customers, and that was job number one. As far as any other kind of price increases, we'll get that back to the market if we see anything outsized.

And our next question comes from the line of Stephanie Moore with Jefferies. .

I was hoping you could give us an update on McKean. I think it's always helpful to get a sense of how that's ramping and then how I think long term, you're thinking about leveraging McKean in your portfolio just as the supply shortage dynamics in the Northeast continue to progress.

Thank you. So things at McKean are going well. As we've talked about over time, we haven't gone out and just made a big push from a third-party standpoint to ramp in significantly through the site. But the second quarter was actually kind of an exciting time into early July for McKean, where our new transfer station came online at McKean. So now we have capabilities to offload open gondolas on-site, whether they're filled with construction demo debris, contaminated soils, or even MSW that has Posi-Shell or Atmos on top of it to seal in the waste. Our first Casella railcars were delivered a couple of weeks ago. So if you see some blue railcars on the track with CWXX on them, those are ours. So they're traveling around the Northeast now. So that's an exciting moment for us as well. We started moving intercompany waste in July from Massachusetts to McKean. So great movement there. It's still a little bit slow, but this is long-term positioning for us. We'll start to see more and more waste flow from our facilities to McKean over time. We're also working on some specialty streams that we think could have some long-term value at the site. Much of the biosolids or sludges that were going through composting projects to land application now need to be placed in landfills and we're looking at strategies to get more of that to McKean over time, Stephanie.

All right. Thank you. I'm showing no further questions. So with that, I would like to hand the call back over to President and CEO, Ned Coletta, for any closing remarks.

Thank you, everyone, for joining us today. We appreciate the great questions on the call. And we look forward to speaking with everyone in early November to discuss our third quarter 2026 results. I hope everyone has a wonderful end to the summer, and thank you. Have a nice day.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.