James C. Fish
President and Chief Executive Officer at Waste Management
Thanks, Ed, and thank you all for joining us. Our third quarter performance highlighted the exceptional cash generation capability of our business model as we generated nearly $1.2 billion of cash from operations. Our solid results put us on track to meet the higher full year financial outlook we provided last quarter, even as we faced some of the highest inflation that we've seen in years, along with the labor and supply chain constraints. Virtually no segment of the economy, including government and the private sector, has been unaffected by these historically acute inflationary and supply chain challenges. This burst of inflation accelerated through the third quarter, and during the quarter, we saw roughly $60 million of labor inflation and about $100 million of inflation in other operating cost categories.
Overall, our underlying labor inflation for the third quarter was 8.7%. So that's the tough news. The good news is that the business continues to perform well as demonstrated by the fact that we still expect to finish the year within our previously adjusted operating EBIT raise, adjusted operating EBITDA and free cash flow guidance ranges. And we will be above our prior revenue range due to strong price execution and strengthening volumes. John, Devina and I will discuss what we're doing about these labor and inflationary pressures in the short term and the medium term. Not surprisingly, our disciplined price programs are the primary lever to combat cost inflation. Our pricing programs delivered core price of 4.6% and collection and disposal yield of 3.5% in the third quarter. Standout performance continues to be the residential line of business with a yield of 5%, while MSW yield improved to 3.5%.
But keep in mind, the price escalations on about 40% of our revenue are tied to an index, often based on a look-back over the prior year, so there's a timing lag in adjusting index pricing when costs step up as quickly as they have. And it's important to understand that a portion of the remaining 60% of our business won't get the full 7% to 10% price increases we believe we need to cover rising costs until their next price increase cycle. A customer who has increased 4% in May won't get the full cost recovery price increase until next May. That said, we're seeing a favorable price environment across our open market businesses, evidenced by our lowest level of rollbacks in more than a decade. We're very focused on directly addressing the labor challenges. John will discuss the quarterly impact and how we're working to address this immediately.
Strategically, we're looking at this acute challenge as an opportunity to expedite the automation of certain jobs. We said previously that we view the automation of certain high turnover positions as both a competitive advantage and a derisking mechanism in today's labor market where certain jobs simply don't attract the interest they previously did. The most recent examples of that are the customer setup role, which we just finished fully automating and the 35-plus percent reduction in labor we've seen where we've upgraded and rebuilt our single-stream recycling plants. Given the success of these rebuilds and the labor inflation challenges of late, we've accelerated the retooling of the remaining single-stream plants and expect to address 90% of single-stream volume by the 2023-2024 time frame. In the quarter, we saw some of the positive impacts of those new single-stream plants in our outstanding performance in our recycling business.
Earnings contribution and margins for recycling were at their highest level ever, driven by strong demand for recycled material and great operating performance from the new state-of-the-art MRFs. We were equally pleased with results in our renewable energy business in the quarter, where robust growth continued, driven by more RINs sales and higher prices. With our long-standing expertise, continued growth in sustainability solutions and unrivaled asset network, WM is uniquely situated to support our current and prospective customers in their evolving sustainability needs. Our customers are increasingly seeking circular solutions for their materials, which is causing growing demand for recycled content. Of note, our focus on unlocking more plastic from the waste stream drove a 25% increase in plastics we recycle since 2019.
Recycling and renewable energy are two of our key growth areas, highlighted in our Annual Sustainability Report published earlier this month. The report outlines the progress WM has made against our sustainability goals and details investments we've made to advance our sustainability journey. In particular, this year's report focuses on the people behind the progress WM has made in the past year and how they are doing their part to take care of our customers, neighbors and the environment and communities across North America. The bottom line for the quarter is this: we generated higher-than-expected volume and revenue growth in the third quarter, which positions us well for 2022.
At the same time, we faced an unexpectedly acute and fast-moving challenge from the inflation, supply chain and labor shortage headwinds, and we managed our way through it well and still expect to achieve results within our 2021 guidance ranges. And this challenge presents an opportunity for us to move more decisively in those strategic areas of automation, sustainability and workforce planning to further separate ourselves in this industry. In conclusion, I'd like to thank the nearly 50,000 people behind WM's success. They continue to deliver, driving another quarter of double-digit growth in revenue, operating EBITDA and free cash flow.
I'll now turn the call over to John to discuss our operational results for the quarter.
