Devina A. Rankin
Executive Vice President, Chief Financial Officer at Waste Management
Thanks, John, and good morning. The first half of 2023 and our revised outlook for the full year is best framed as a story with two primary themes. One of executing well on our top priorities to profitably grow our business; and the other, a pressure from market factors beyond our control that we are working to ensure we navigate from a position of strength.
Our team's diligent efforts delivered two particularly strong outcomes in the second quarter: first, revenue growth from price and our focus on cost optimization translated into an increase in collection and disposal operating EBITDA of $95 million or 6.2% in the quarter; and second, SG&A costs as a percentage of revenue improved by 30 basis points to 9.1%, and this is the best result in our company's history.
Our commitment to managing discretionary spending and investing in automation to reduce our cost to serve is paying off. We're seeing strong outcomes from our investment in a customer experience model that leverages technology to communicate with customers in their channel of choice. Customer feedback has been strong, giving us confidence that with these investments we permanently reduced our SG&A cost structure and we will continue to drive improved customer satisfaction that will only bolster our customer lifetime value from here.
Organic growth in the collection and disposal business and our focus on SG&A optimization delivered 50 basis points of operating EBITDA margin expansion in the quarter. Operating EBITDA margin improved 60 basis points overall. So, you can see that these two things delivered almost all of these strong results. This is what gives us confidence in our ability to continue to grow margin in the back half of the year and into 2024. Year-to-date, cash flow from operations was about $2.1 billion. As expected, higher cash interest, taxes and incentive compensation payments more than offset the benefit of operating EBITDA growth in the first half of the year. We expect to see those impacts lessen in the second half of 2023.
Capital spending in the first six months of the year totaled almost $1.2 billion with $963 million related to normal course capital to support our business, and $217 million of spending on sustainability growth projects. As Jim mentioned, we're pleased with the continued progress on our sustainability growth program with three new projects coming online so far this year. However, customary construction and permitting delays for certain recycling and renewable energy projects will push about $200 million of our planned 2023 sustainability growth capital into future years.
Free cash flow through the first half of the year was $940 million, and free cash flow before sustainability growth investments was $1.157 billion. Year-to-date, we've returned $572 million to shareholders through dividends and we've repurchased $620 million of our stock. Dividends will total a little more than $1.1 billion this year, and we expect to repurchase about $1.25 billion of our shares over the course of the year. Our leverage ratio at the end of the quarter was 2.8 times, which is well within our targeted ratio of between 2.5 times and 3 times, about 21% of our total debt portfolio is at variable rates and our pre-tax weighted-average cost of debt for the quarter was about 3.8%. Our balance sheet is strong and we remain well positioned to fund growth.
Turning to our updated 2023 guidance. We now expect revenue growth of between 3.25% and 4.25%. The revision from our initial expectations is entirely related to commodity prices in our recycling and renewable energy businesses and the pace of contributions relative to plans for our recycling acquisitions. The key takeaway here is that core price, yield and volume outlook in our collection and disposal business are intact, and even performing slightly ahead of our initial expectations. We now expect adjusted operating EBITDA to be in the range of $5.775 billion to $5.875 billion, which is a $75 million decrease at the midpoint. About $50 million of the revised outlook relates to our performance in the first half of the year relative to our plan, and $20 million relates to a slower recovery in recycled commodity prices in the back half of the year relative to our expectations.
The operating EBITDA shortfall in the first half of the year primarily relates to three things: inflationary cost pressure that has taken longer to abate in 2023 than we expected; a softening in event-driven volumes at our landfills; and lower-than-expected commodity prices in our renewable energy business. These are market-driven pressures, giving us confidence that our collective performance on the company's top priorities over the first half of the year delivered the intended outcomes.
With the strength of our collection and disposal operations and the success from our SG&A optimization efforts, in 2023, we will again deliver on our target of growing operating EBITDA by 5% to 7% annually. In addition, we expect to expand our operating EBITDA margin 40 to 60 basis points for the year. Both measures demonstrate the resilience of solid waste and the benefits of pricing discipline, focused differentiation and cost optimization to drive long-term growth. In closing, the WM team is delivering well to safely and reliably serve our customers and to optimize our costs. We will deliver another year of strong financial growth in 2023, and position ourselves for continued success on the road ahead. I can't thank our hard-working team members enough for all of their contributions to our success.
With that, Michelle, let's open the line for questions.
