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This call is being recorded and will be available 24 hours a day beginning approximately 1 p.m. Eastern Time today until 5 p.m. Eastern Time on November 15. To hear a replay of the call over the Internet, access the Waste Management website, at www.wm.com. To hear a telephonic replay of the call, dial 855-859-2056 and enter reservation code 6079618. Time-sensitive information provided during today's call, which is occurring on October 25, 2018, may no longer be accurate at the time of the replay. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Waste Management is prohibited.

Now, I'll turn the call over to Waste Management's President and CEO, Jim Fish.

James C. Fish -- President, Chief Executive Officer & Director

Thanks, Ed. And thank you all for joining us this morning. The recurring theme for the first two quarters of 2018 was one of historically strong solid waste more than overcoming a weak recycling market. In the third quarter, we generated strong operating EBITDA growth and we expect that growth to continue and accelerate into the fourth quarter and into 2019.

We executed very well on our plans to refine our recycling pricing model and pass along the higher cost of contamination to customers, and we saw tangwitible benefits from the investments we're making in our employees. Our collection and disposal business generated strong organic revenue growth of 6.4% in the quarter with the exception of last year's fourth quarter, which had significant hurricane-related volumes this quarter was the strongest core price and volume quarter in our company's history.

And our commercial and industrial volumes continue to show steady growth trends which we view as clear indicators that the overall economy remains on solid footing. Our operating EBITDA margin was 29% for the third quarter and our collection and disposal operating margins improved by 40 basis points from the same quarter of prior year.

When you combine this with our disciplined cost control on the SG&A line, we delivered solid growth in our income from operations and operating EBITDA despite $22 million of continued recycling headwinds, about $17 million of unexpected third party transportation and spillover costs along with other inflationary cost pressures.

We fully expect to pass those cost increases through to our customers with price increases in late Q4 and early Q1. Our current quarter operating EBITDA growth of 3.4% outpaced our second quarter growth of 3.1%, leaving us confident that we will deliver full year operating EBITDA growth of approximately 5% in 2018.

Overall, in the third quarter, we generated EPS of $1.15. Given the outstanding performance in the solid waste business and a lower-than-anticipated tax rate, we are once again increasing our 2018 adjusted EPS guidance. Our new EPS range is $4.13 to $4.15. With respect to our full-year operating EBITDA guidance, we expect to meet or exceed analysts' current 2018 consensus of $4.204 billion and we are narrowing our range to $4.2 billion to $4.22 billion.

Similarly, we expect to meet or exceed analysts' current 2018. Free cash flow consensus of $1.95 billion as we narrow our free cash flow guidance to $1.95 billion to $2 billion for the year. In the first quarter, we talked a lot about investing a significant portion of our tax reform proceeds into our people. We know that our people are the key to our success and that's why we're focused on developing and retaining the best workforce in the industry.

We're investing heavily in our employees and identifying future leaders of the company through succession planning and leadership development. In 2018, we will have invested over $135 million of compensation benefits in our employees over and above our ordinary merit increase. That $135 million has come in the form of the $2,000 hourly bonus, which is unique in our industry. Market-driven wage adjustments and full absorption by the company of healthcare increases in 2018.

Additionally, we've spent significant dollars in training, equipment and facilities upgrades this year, all aimed at providing our employees a safe and effective work environment so that they can deliver top quality service to our customers. There are a number of benefits to our customers, communities, and shareholders from the investments we're making in our employees.

One measure, we used to assess the effectiveness of these efforts is employee turnover and I'm proud to say that in the third quarter, we saw this metric improved. This is an impressive results considering we're in essentially at full employment economy and would normally expect our turnover to increase in such a strong job market.

We also see the value of these investments in our quality of service efficiency metrics and the overall profitability of our business. There's not a single solution approach to improving retention and employee satisfaction, but we are committed to making investments in our employees and driving a people first culture at Waste Management.

This focus on investing in our employees will continue into Q4 in 2019 as we further upgrade our fleet, facilities and technology and as we look to build a world-class people organization. Lastly regarding succession planning, as you know, this is Jim Trevathan's final earnings call. And as recently announced, we've promoted John Morris from our Senior Vice President of Southern Tier operations to be Jim's successor in the Chief Operating Officer role.

John is a long-tenured Industry and Waste Management veteran with significant operating experience and most of you have met him during investor meetings. I have no doubt he will be successful in this role.

With Jeff Harris, our Northern Tier -- from our Northern Tier also retiring this year, we need to fill the operations, Senior Vice President positions for both tiers. We're pleased to announce the promotion of Tara Hemmer at the position of Senior Vice President of Southern Tier Operations and Steve Bachelor to Senior Vice President of Northern Tier Operations.

Tara and Steve both have extensive field operations experience and have both also led corporate operational functions. The success that they've demonstrated in our current roles gives us confidence in their ability to drive continued operating improvements in their respective tiers.

Also with Jim's retirement, we're losing an important role within our company as head of sales, marketing, and customer experience. Through our succession planning process, we've identified Mike Watson to be our Chief Customer Officer. Mike will be responsible for all sales marketing pricing and customer experience centers. Mike has both sales and operational experience and we're excited to have Mike leading the customer organization and continuing to drive exceptional customer service.

In summary, we feel good about our organic revenue growth and the earnings growth the business is generating. In 2018, we expect to deliver approximately 5% growth in our operating EBITDA in spite of the challenges we are overcoming in recycling, the investments we're making on our people and inflationary cost pressures, particularly in third party transportation.

As a result, we're optimistic when looking at 2019 as our internal indicators point toward sustained strength in the overall economy. We'll give our detailed guidance in February, but sufficing to say that our base case for operating EBITDA growth in the year ahead is a repeat of the strong 5% growth we've seen in 2018 with real potential for an acceleration of that growth in 2019.

I'm very enthusiastic about the direction of the company. We continue to deliver strong financial and operating performance and have promoted strong leaders to continue our high standard of operational excellence. With the hard work our employees have demonstrated so far, I'm confident that we can achieve our goals for the remainder of this year and set the stage for an even better 2019. I will now turn the call over one last time to Jim to cover our third quarter operating results in more detail.

James E. Trevathan -- Executive Vice President & Chief Operating Officer

Thanks, Jim and good morning. 2018 has been a great year. So in this case, we don't mind sounding like a broken record when we say that our traditional solid waste business is firing on all cylinders. For the sixth quarter in a row, revenue growth from both price and volume exceeded 2%. We continue to see strong organic revenue growth this quarter from the collection and disposal business, driving $200 million of incremental revenue or a 6.4% increase compared to the third quarter of 2017.

Jim's earlier statement about the historic significance of this quarter as our company's best ever core price and volume result in a quarter without storm volume is worth repeating. Our laser focus on customer service is showing up in our results. Churn was 8.9% in the third quarter, a 110 basis point year-over-year improvement. Rollbacks improved 210 basis points to year-over-year and 410 basis points sequentially to 21.1%. Service increases exceeded service decreases for the 19th consecutive quarter and new business exceeded loss of business for the 14th consecutive quarter, reflecting both our continued focus on our customers and the strength of the economy.

Turning to internal revenue growth, our collection and disposal core price was 5.4% in the third quarter, a 70 basis point improvement from last year and yield was 2.5%, up 50 basis points. Traditional solid waste volumes grew 3.4% while total company volumes improved 4.4%. The strong growth was driven by our most profitable lines of business, commercial, industrial and landfill.

We also saw transfer station volumes increased 5.4% primarily due to the New York City disposal contract. Strong volume growth was achieved despite the additional volumes we received from Hurricane clean up at a competitor outage in the third quarter of 2017. As a reminder, our volume comparisons in the fourth quarter will be tougher due to the significant volume increases we saw from those two storms last year.

So let's walk through the results by line of business beginning with a tremendous growth in collection. Commercial core price was 6.7% for the quarter with volumes up 3%. Industrial core price was 10.7% with volumes up 3.3%. In the residential line of business, core price was 3.6% and volumes increased 0.7%. The combined price and volume increases led to collection income from operations growing $42 million or 6.8% and operating EBITDA growing $54 million or 7%.

In the landfill line of business, total volumes increased 5.1%. MSW volumes grew 2.2%, C&D volume grew 10.5% and combined special waste in revenue generating cover volumes grew 7.2%. We achieved core price of 2.9%. And in the third quarter, our landfill line of business grew income from operations by $7 million and operating EBITDA by $26 million.

In recycling, our field and corporate teams are working together to execute the initiatives we outlined to you earlier this year to improve the business model, including the contamination issues we face. While we are transitioning our contracts, as they renew to ensure that we always recover processing cost before paying any rebates, we are currently passing back the cost of excess contamination to customers.

In the quarter, we sell a larger year-over-year commodity price declines that we saw in the second quarter. Yet due to our efforts to address contamination, the EPS recycling impact improve $0.03 per share sequentially even with no improvement in commodity prices. To about a negative $0.04 per share. Year-to-date, the impact is a negative $0.18 per share. As we expect pricing comparisons to ease in the fourth quarter and continued success on our approach to address contamination, we expect that year-over-year EPS recycling headwind to remain in the negative $0.17 to $0.20 per share range that we laid out last quarter.

Total operating expenses, as a percentage of revenue, were 62% in the third quarter. Total operating expenses increased $79 million over the third quarter of 2017. The drivers of the $79 million increase or core solid waste volume growth, acquisitions, inflationary cost pressures and investment in our employees, one of the investments we made in our employees, the hourly employee bonus added about $16 million to our third quarter cost of operations.

With crushers own labor, you might expect to see an increase in turnover, but as Jim mentioned, we've actually seen an improvement in turnover. We have also seen a 14% increase in our subcontractor expenses, as our vendor space labor and fuel cost pressures. Generally, we are able to pass all these higher cost in our prices for third party volumes we received at our transfer station.

While the cost pressures are real and we are managing them we also are experiencing strong revenue growth to cover higher cost. We're working hard every day to make sure that our pricing programs are outpacing our cost and with improving technology and process changes, we are improving our collection efficiency. These positive results are reflected in the strong operating EBITDA growth that Jim discussed.

And after 39 years with our company, 19 years on the senior team and 25 quarters helping report our results as Chief Operating Officer. I'm pleased to end our quarter with such strong results. Waste Management has great assets, our greatest asset is our people. Including our front-line team members, they are local in area leadership teams and our corporate departments. We are better aligned on executing our strategy consistently across North America than at any time in my tenure. We have an excellent senior team, and it's been an honor and a privilege to be on this team with leaders who have vision and have proven that they can execute on that vision. And more importantly, they're just excellent people who I call friends.

I'm confident that when I retire as an employee at the end of the year and yet remain a shareholder, Waste Management will continue to be in excellent hands, working hard to create more value for all of us.

And I will now turn the call over to Devina for my last time to discuss our financial results.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

Thanks, Jim, and good morning, everyone. Our third quarter operating and financial results were solid, positioning us well to finish 2018 strong and start the new year with momentum for continued growth. As Jim mentioned, we are going into the fourth quarter confident that we will deliver on our 2018 guidance for EPS, operating EBITDA and free cash flow. As has been the case throughout 2018, our third quarter results were driven by strong organic revenue growth in our traditional solid waste business, as well as our focus on controlling costs through operating efficiencies and our efforts to manage discretionary spending in SG&A to respond to other cost pressures. Together, these things positioned us to deliver another quarter of increased cash from operations.

In the third quarter of 2018, cash from operations was $874 million, compared to $853 million in the same period last year. The growth in cash from operations was primarily driven by the strong operating EBITDA performance that Jim discussed. The current quarter growth was less significant than our operating EBITDA would imply due to some timing differences and cash taxes and the other components of our working capital. But we remain focused on improving working capital to provide even better cash flow conversion in the year ahead.

When you look at the year-to-date results, the combined benefits of our earnings growth and working capital discipline is clear. Year-to-date, our operating cash flow as a percentage of revenue is an impressive 24%, which is a 200 basis point improvement over full year 2017. When we think about allocating our cash from operations, a critical piece is capital investment in the core business to support the strong organic growth we are seeing.

This quarter, we spent $404 million on capital expenditures and our year-to-date capital investment is $1.24 billion, keeping us on pace to spend the high end of our full-year capital expenditure guidance of $1.6 billion to $1.7 billion.

We are seeing very strong organic growth in our highest return businesses and we expect that to continue. So we are making valuable investments in our fleet and landfills that position us well to continue to respond to growth. When we evaluate these investment opportunities, we're applying the same discipline and rigor that has made us the clear industry leader and return on invested capital.

We generated $480 million of free cash flow in the third quarter, bringing our year-to-date free cash flow to $1.52 billion, almost a 7% increase from the same period in 2017 and in line with our long-term growth expectations. We paid about $200 million in dividends and bought back to $200 million in shares in the third quarter. So far this year, we've paid $605 million in dividends and repurchased $750 million of our shares. We also completed another $79 million in core solid waste tuck-in acquisitions this quarter, bringing the year-to-date total of nearly $359 million.

Our balanced allocation of free cash flow to shareholder returns and acquisitions in 2018 reflects our commitment to a disciplined and consistent capital allocation plan. While we do not formally review our long-term cash flow outlook until later in the fourth quarter, we are pleased with the growth that we are seeing on our cash conversion and baseline free cash flow. We're using almost all of the lower taxes from tax reforms on employee investments and increased capital expenditures in 2018 and we expect that these investments will continue to be valuable in the years ahead.

In spite of a more muted lift in free cash flow from tax reform, we are pleased with the increased profitability and cash flow conversion of the business, and expect that we will continue to provide a healthy increase in shareholder dividends as a result.

Turning now to SG&A, these costs were 9% of revenue in the third quarter, a 60 basis point improvement over last year. On a dollar basis, SG&A decreased $11 million from the same period last year to $345 million. As we seen upward pressure on our operating costs, we've worked hard to rationalize discretionary SG&A spending. For the first time, we expect to finish the year with SG&A as a percentage of revenue under 10%. Our effective tax rate for the third quarter of 2018 was 16.6% and on an as adjusted basis, it was 21.3%.

Our adjusted tax rate for the quarter was slightly lower than we expected due to favorable return to accrual adjustments that are typical of our third quarter. We now expect our adjusted full year tax rate to be about 23%.

Turning to our financial metrics, our debt-to-EBITDA ratio measured based on our bank covenants remained at 2.4 times at the end of the third quarter. About 17% of our total debt portfolio is at variable rate and our weighted average cost of debt for the quarter was about 4%. We are pleased with our results so far in 2018. And I know that as I speak, the waste municipal team of working diligently to deliver a strong finish to the year.

With that Amanda, let's open the lines for questions.

Questions and Answers:

Operator

Thank you, ladies and gentlemen, at this time. (Operator Instructions) And our first question comes from the line of Corey Greendale of First Analysis. Your line is open.

Corey Greendale -- First Analysis -- Analyst

Hey, good morning. And Jim Trevathan, congratulations, way to go out on top. So, just a couple of questions. In terms of the narrowing of the guidance and taking down the high end, I think you're saying primarily that's because of kind of labor cost pressures that you expect to recover with pricing going until 2019, but can you just elaborate on that?

James C. Fish -- President, Chief Executive Officer & Director

Yeah, I mean, look, I think. Here is the point Corey. And I want to make sure this is come across clearly. When we sat in this conference room a year ago and we're building our 2018 plan, that plan did not contemplate a $135 million that I mentioned, it didn't contemplate a $2,000 bonus that was $70 million, it didn't contemplate the labor cost increases and it did not contemplate a -- it certainly expected a downturn in recycling, but it was kind of in the $0.10 range, $0.08 to $0.12.

It did not expect recycling to be $60 million worse than that. So, all of that is kind of about $200 million in EBITDA. And I think that's the point that I really want to make which is, yeah, we're down kind of in the lower end of our original range. And so, call it, $4.210 billion, the original range would have had us at $4.225 billion, right? So, call it a $15 million difference between the original range and where we are today and consider that we've got an awful lot in there that solid waste has overcome. So, while, as Jim said, we sound like a broken record, I think that needs to be reiterated.

The solid waste market for the industry and specifically for WM and I say specifically for us because, we have the $70 million that nobody else has in our cost structure is incredibly good. It's making up for all of this other stuff that's touching us. We can talk a little bit about inflationary cost or whatever, but I just want to make sure that we understand it.

So yes, we are coming off a little bit from that very original guidance. But when we sat here a year ago, there was a bunch of stuff that did not get backed into that plan that is hitting us today. But most importantly, solid waste is overcoming all of it.

Corey Greendale -- First Analysis -- Analyst

Yes. Understood. And just trying to understand the moving pieces. So, since you're talking about 2019, without giving guidance, I'm assuming it's somewhat fair game. So I know you said you think you're positioned to accelerate bottom-line growth in 2019. So, two questions about that. Have you already thought about what -- and you're probably not going to announce anything now, but what you're going to do as far as like the bonus in 2018, are you going to do something like that in 2019, or how are you going to address that? And secondly, do you expect that, if you just look at the solid waste business, could bottom-line growth -- do you expect it would accelerate in 2019?

James C. Fish -- President, Chief Executive Officer & Director

Yeah. So a couple of things in 2019. First of all -- we haven't made a decision on the $2,000 at this point. I wouldn't expect to make this $2,000 recurring payment over a period of years. But we have not made us a specific decision around $2,000. I do think that when you look at the, when you look at solid waste and you look at the operating cost piece, that $135 million over and above our annual merit increase. We will look at that bucket and say how much of that are we going to spend, how much do we need to spend to remain competitive in the marketplace from a labor standpoint. Don't know the answer to that yet. And we'll or scrub that as we get closer to February when we actually give guidance. But what we think that there is a number of things that look like they maybe tailwinds for us. Of course, we've talked a lot about the fact that we think recycling is going to be a tailwind for us and that tailwind could be kind of somewhere in the $40 million to $50 million range and that assumes commodity prices hold flat where they are today. I tend to think they're kind of closer to the bottom than they are to the top. So if they show any improvements, then that that number could be better, but the 40 to 50 basically is the carryover effect of these fees that we put into place throughout the year, but more of those fees have been hitting us in Q3 and Q4 than in Q1 and Q2 last year.

So, so without saying where we think we're going to come in, because we just haven't scrubbed all those numbers yet, it's why I said in my prepared remarks that I think EBITDA growth can at least at a baseline be as good as this year, which is 5%, and there is a real possibility that we could exceed it in 2019.

Corey Greendale -- First Analysis -- Analyst

Yeah, understood. I'll turn it over. Thank you, Jim.

James C. Fish -- President, Chief Executive Officer & Director

Yeah, thanks.

Operator

Thank you. And our next question is from the line of Hamzah Mazari of Macquarie. Your line is open.

Hamzah Mazari -- Macquarie -- Analyst

Great, thank you. Good morning. The first question is just around the impact, potential impact of a US housing slowdown on your business. I know you're not seeing it right now, but maybe if you could talk about past cycles when housing has slowed how has your business reacted and maybe what you're seeing currently as it relates to business indirectly or directly impacted by US housing potentially continuing to slow?

James C. Fish -- President, Chief Executive Officer & Director

Yeah. Good morning, Hamzah. Good question. Look, let me say this about housing. First of all, our business is quite a bit different than it was in 2008, 2009. We had 10 years ago a lot more exposure to the residential housing market. Today, our exposure to the residential housing market we think is kind of in the $100 million to $150 million per year in revenue range. And so let's say, housing let's say dropped off the table and was down by 20%, which by the way it's still growing today, it's just growing at a slowing rate. So this certainly doesn't feel like an 2008, 2009. But let's say it was, let's say it dropped off by 20%, our exposure there, because we're a small participant in the residential housing market, is probably $20 million a year. So it's pretty small. We're much bigger when it comes to construction and demolition in the commercial and industrial sector. And I would tell you from that standpoint, and Jim can probably talk about our volume numbers specifically there, but those two segments look increasingly strong for us. So I would tell you that we're not really seeing this kind of -- the big macro number that's getting talked about a lot is housing start, and we're not really seeing it primarily because it's being overcome by bigger pieces of business for us and, secondarily, it's just much, much smaller than it was 10 years ago.

James E. Trevathan -- Executive Vice President & Chief Operating Officer

Jim, to that point, the commercial business has always been a really good indicator of what's going on in that sector because as you build out houses in new neighborhoods, you get that commercial growth that surrounds those new neighborhoods. And, Hamzah, if you look back, I mean we were positive in commercial volume through every quarter of 2016. Since the first quarter of 2017, it's been over 2.5% and we're past 3% right now on the commercial line of business. This is our most profitable line of business from a margin view and from a return on invested capital view. This looks like a really strong economy. I mean I think the commercial line of business is an excellent indicator of that. It's hitting on all cylinders as we've talked about and it's supported by both our people. Our folks are doing an excellent job. We've added volume in the national account front in the commercial line of business. Our inside sales center had their best year. Our area teams have had their best year that I can find on the commercial side. Our operating guys are really focused on service and they've helped us reduce defection. It's a real success story from a commercial standpoint and I think that connects to your question about housing and just the general economy.

Hamzah Mazari -- Macquarie -- Analyst

Very helpful. And just second question. We talked about labor cost pressures, the subcontractor expense among some discretionary labor cost. Do you expect operating leverage on the gross margin line to improve in '19. Is that the takeaway that we should take, because you're going to essentially be able to pass on some of these labor inflationary cost. So, I'm specifically just talking about op leverage on the gross margin line, not EBITDA growth?

James C. Fish -- President, Chief Executive Officer & Director

Yeah. And it kind of goes to quarter's earlier question. I mean if you -- we really have some kind of inflationary pressures in, but they're limited to kind of three cost categories. We've talked about labor which is up 4%-ish and that excludes the $2,000. I mean, repairs and maintenance are up about 4.5% and the third party transportation is up 9.5%. I mentioned the third party transportation, we look to to pass that through, there really are two anecdotes to inflation, one is pricing and one is efficiency gains. So we'll use pricing to pass through the third-party transportation increase, it takes a little while to get to it, so it will be kind of in the Q4 and into Q1 of next year to offset the 9.5% increase that was pretty unexpected that hit us in Q3 this year.

Repairs and maintenance up 4.5%, but that should really start to come down considerably next year, because a lot of that's driven by an old fleet. And we have bought more trucks this year than at any year in our history and a lot of that was back-end loaded. So those back-end loaded fleet purchases in 2018 will start to positively impact repairs and maintenance as we get into 2019. So I wouldn't expect to see the 4.5% in repairs and maintenance going forward.

And then 4%, look, I think it's -- that one is where you use efficiency gains and 2019 -- as of 2018, we will spend a lot of time focused on on how do we become more efficient, so we're looking to roll out a routing optimization software that we think will really help us with operating efficiencies. So we think there's some real opportunity and it goes a bit to Corey's question about kind of that 5% EBITDA growth next year.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

And, Hamzah, I would just add on that the other two things that should provide lift to that gross margin you're speaking of in 2019, our disposal pricing focuses that Jim spoke about last quarter that we're going to continue to execute upon in the year ahead. And also, as we integrate these businesses and optimize them that we've acquired in 2018, we expect those to provide some lift for us in 2019.

James C. Fish -- President, Chief Executive Officer & Director

Jim, one specific that shows the margin opportunity, it's that we've all seen the investment in our fleet this year. And if you look at most of a big portion of those trucks were in the commercial line of business to support that volume growth. And if you compare September as well as Q3 maintenance cost for that line of business, it was roughly flat with prior year where maintenance cost for the other two lines of business that if not had a significant new truck influx were what created the operating cost increase. So as we move forward and in Q3 and Q4, we're seeing more trucks, new trucks on the industrial and the residential line. I expect the same maintenance cost margin opportunity as we get those trucks there routed and servicing customers better.

James E. Trevathan -- Executive Vice President & Chief Operating Officer

Yeah, good point.

Hamzah Mazari -- Macquarie -- Analyst

Great. Congrats Jim and enjoy spending time with your 10 grand kids. Thank you.

James E. Trevathan -- Executive Vice President & Chief Operating Officer

Thank you, Hamzah. Appreciate it. And you're welcome, Corey.

Operator

Thank you. And next question comes from the line of Noah Kaye of Oppenheimer. Your line is open.

Noah Duke Kaye -- Oppenheimer -- Analyst

Good morning. Thanks for taking the questions. You know, there seems to be very common theme already emerging from some of the questions, really around price and cost and in your comments as well. And I just want to make sure we're all thinking about this right. You are on track to deliver kind of two and two yield plus volume or frankly well above that and volume this year. But as you look at which talked about disposal pricing, getting better pricing, to account for rising third party cost. As we look to next year, are we headed toward something more like a three-in-one environment and what does that imply potentially about your ability to really make these core price increases stick at a higher level?

James E. Trevathan -- Executive Vice President & Chief Operating Officer

Hey, Noah. Let me jump in, and I know Jim will have something to add to this. But you heard it a lot, my previous boss talked a lot about 2% and 2%. We've done that now for six consecutive quarters. As that retiring employee of the company and a big shareholder, I really like the idea from my current boss talking about 3% and 3%. But 2% and 2% is good as well. So, not a forecast, that's a existing executive but a shareholder loving 3% and 3%.

James C. Fish -- President, Chief Executive Officer & Director

Well, so here's what I would add to that. Look, I think we're going to finish the year around a yield number of maybe not for the whole year but certainly in Q3, Q4 of around 2.5%. And so, Devina talked about disposal pricing and getting more aggressive with that. We've talked about taking some cost pass-through, price increases for things like third-party transportation. So, Jim, I don't think it's unrealistic to expect that we couldn't finish 2019 for the entire year at a 3% yield. You did say 3% and 1%, and --

James E. Trevathan -- Executive Vice President & Chief Operating Officer

I didn't.

James C. Fish -- President, Chief Executive Officer & Director

Well, no, you didn't but --

Noah Duke Kaye -- Oppenheimer -- Analyst

I did, yeah.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

Looks like the analyst said 3% and 1%. So I think you're a little pessimistic on the 1% there. Unless the economy does something different than what our internal indicators are portending, then I would tell you that that we're kind of more where Jim Trevathan is, 3% and 3%.

Noah Duke Kaye -- Oppenheimer -- Analyst

I hope that's not where you'll be proven wrong.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

Yeah. Let's not go in tomorrows (inaudible) yet. I would tell you we're still looking at it. But to Jim's point, we are more optimistic than that 1% would imply.

Noah Duke Kaye -- Oppenheimer -- Analyst

I appreciate that. And then Devina, maybe one for you as well. The improvement in OCF conversion this year well noted. Obviously, there were some working capital drag in the quarter. Just want to talk about kind of your any -- first any kind of areas of concern within the customers in terms of accounts receivable build not being able to get that back. And then kind of more looking at '19, any reason why you can't get, say another 100 to 200 bps improvement in that conversion rate?

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

So, I'll start with the first question with respect to receivables. And I can tell you we did have a drag in the current quarter on the receivable trends. But I would attribute that more to business mix and revenue growth, both things are good for us. On the business mix side, as the revenue growth that we're seeing in the industrial line of business in particular, those customers tend to be a little slower pay and some of the national accounts business as well.

So we see pressure on the DSO line, but no pressure on bad debt expense or collectibility that causes us any pause. And as a result, that the revenue growth side of the equation is really what we focus on there and it's OK to us that we see a small drag on DSO, because for us, it's the long-term EBITDA growth that we're going to focus on. And I really think that, that leads to your second question and really circles back to what we talked about already with regard to the leverage that we see any operating expense line in the year ahead to provide incremental growth in cash flow conversion for 2019.

It's difficult to say it will get incremental cash flow conversion at the level that we saw in 2018, because a piece of that is tax reform related and you have the one-year left that will come from tax reform and some of the proactive tax planning that we did at the end of 2017 that left us and then over paid position at the end of the year and allowed us to capture some of that benefit in 2018.

Noah Duke Kaye -- Oppenheimer -- Analyst

That's extremely helpful. Thank you, so much.

Operator

Thank you. And our next question is from the line of Tyler Brown of Raymond James. Your line is open.

Patrick Tyler Brown -- Raymond James & Associates -- Analyst

Hey, good morning.

James C. Fish -- President, Chief Executive Officer & Director

Good morning, Tyler.

James E. Trevathan -- Executive Vice President & Chief Operating Officer

Good morning.

Patrick Tyler Brown -- Raymond James & Associates, Inc. -- Analyst

Hey, Devina, back to that point. So, can you update us on where cash tax as a percent of the book taxes will end up this year. Obviously I am assuming its less than 100% again given some of those tax planning strategies, but how should we think about that, maybe in '19 and '20, will it move up?

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

So, in 2018, we think that's going to be around 65%, that we're still scrubbing that number. Because as you saw in the current quarter release, we had some tax benefits from return to accrual and that will impact that relationship. And I haven't quite gotten through that impact yet because we finalized the tax return so late in the quarter. So I'll get you more color on that as we get it. But with regard to how we think about it looking long-term, we expect it to tick up to more like a 75% to 80% ratio on a long-term basis.

Patrick Tyler Brown -- Raymond James & Associates, Inc. -- Analyst

Okay, perfect. And --

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

I think, Tyler, the big question about 2019 is with respect to cash from operations and then ultimately free cash flow. And the taxes are going to be what they're going to be. I mean, we're managing them a little bit, as Devina said. I mean, we had related to tax reform some prepayments and then recapture of that. But the big question is going to be around working capital management, which was asked of her, and then also around CapEx. And I would tell you, and that may be your follow on question, so I'll go ahead and pre-empt you.

But I think CapEx, when we've talked in years past about it being kind of 10%-ish of overall revenue, and this year is a much bigger number than that, some of it just is kind of recovering some of the old fleet and replacing some of that old fleet. But as we think about 2019, 2020 and beyond, it's really a matter of looking at kind of growth capital versus replacement capital. And as you have heard from Trevathan, there's a fair amount of growth in the system. So we've invested fairly heavily in growth capital this year.

But I think scrubbing that CapEx number to come up with a number that's acceptable to us, acceptable to shareholders, is going to be an important aspect of our free cash guidance that we give in February.

Patrick Tyler Brown -- Raymond James & Associates, Inc. -- Analyst

Right. Yeah, no, that was definitely what I was looking for. But to wrap it up, so you're on track for let's call it around 2 billion this year, maybe you're hot on CapEx, maybe you're a little cool on cash taxes. But you -- and you presumably have I think a $70 million cash bonus payment, but also recycling prices are close to decade low. I know you really haven't talked about baseline free cash flow recently. But does it really, is there any reason to believe that this two billion is not a very good jumping-off point when you kind of think about the next couple of years forward.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

Like, Tim said, we'll definitely scrub some of the details particularly on the capital side of the equation as we get closer to providing guidance for 2019. I think the most important piece in the baseline free cash flow assumption comes down to EBITDA growth and the long-term EBITDA growth rate that Jim mentioned of 5% and being confident in that. We're going to peg our expectations for long-term free cash flow growth at that level. And so, if we look at 2018 guidance of $1.95 billion to $2.00 billion, our expectation at this point would be that the EBITDA growth will translate into free cash flow growth.

Patrick Tyler Brown -- Raymond James & Associates, Inc. -- Analyst

Right, right. And maybe just one quick last one for Jim Trevathan, and this kind of goes back to Hamzah's question. But I know you mentioned that industrial volumes were up 3.3, can you bifurcate that between temporary and permanent pools, do you have that data.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

Yeah. No, I don't have it here, Tyler. We can get you the (inaudible). But it was -- I mean, I think it's roughly the same and I don't think you're going to see a wide disparity between that temporal outgrowth and our base business that the permanent customers is -- the economy is sound and doing very well and that's where you see the permanent business is doing exceptionally well. And we focus more there because we can expect that to continue long-term.

Patrick Tyler Brown -- Raymond James & Associates, Inc. -- Analyst

Okay, thank you. Appreciate it.

Operator

(Operator Instruction) Thank you. Our next question is from the line of Jeff Silber of BMO Capital Markets. Your line is open.

Jeff Silber -- BMO Capital Markets -- Analyst

Thank you so much. Started to circle back to recycling. I know it was issue in prior quarters, we've got a less of an issue now. But can you just give us a little bit more color in terms of how the restructuring of your contracts are going so far?

James C. Fish -- President, Chief Executive Officer & Director

Yes, I would tell you, I know there's kind of a question of short-term receptivity of these fees and long-term. Short-term receptivity as I think been pretty good. And we've got two different types of fees here, so we're talking about a recycle materials offset fee which is really more driven by commodity prices, and then we have a contamination fee that's really not driven by commodity prices, it's driven by the amount of contamination that comes in the front door, which we've talked about the past has increased a fair amount over the last five to ten years so. So we're charging both, as we broke it out. I think last quarter into phases and I won't go into that level of detail but, we are -- it's still getting customers onto those fee. So that continues and that will continue into 2019, we really had very few customers on those fees in the first quarter of 2018.

A few more in second quarter and that really started to ramp up into third quarter and fourth quarter. So that's why we think we, we have kind of a assuming commodity prices are flat, a $40 million to $50 million tailwind potentially in 2019. The other side of that is kind of the long-term receptivity and that one is hard to gauge. I don't know how receptive customers will be over the long term, which means that we have to take a more strategic view of recycling. And what I would tell you is that we're looking to fundamentally change our processing plants, where we're actually looking at building a recycle plant of the future and that would, that recycle plant of the future which could open as soon as kind of Q4 of '19 would would fundamentally change our processing cost, it would fundamentally change the quality of the recycled product coming out of the back end of the plant.

And that's more of the long-term solution in our minds, that means by the way that we would stop charging fees. It's just, we've got to change the way we process materials.

James E. Trevathan -- Executive Vice President & Chief Operating Officer

Jim, I might add that those two first two phases that you mentioned that are more temporary or the initial phase are going very well. Every month, every weak, yesterday's report showed an improvement versus the prior week. So we're moving those two categories forward much quicker, that third is that long term residential contract change. And that -- although we have some contracts that we've gotten agreement from cities to change in the middle of the contract, most of them are going to go the end. So every month, every quarter as they expire, we are changing the fee. And that receptivity is different than the first two, but still positive.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay, that's helpful. And then just circling back to some of the, I guess, unexpected third party costs that you had mentioned. Is there anything that you can do different fundamentally in your business to reduce that from happening in future quarters?

James E. Trevathan -- Executive Vice President & Chief Operating Officer

Look, most of that third party. I mean I would tell you that, that third party costs increase that hit us in the third quarter was largely from our transportation providers seeing the same type of labor, inflation and fuel cost increases. And then also some DoT hour limitations recently imposed. So I think that's what's -- that's what is the cause of that. And so is there a way to mitigate that. You know, I think the best answer to that is through price increase of our customers. I mean we can always go back and we do go back to our procurement group and try to make sure that we have fair rates with our providers and we think we do. So when they pass through their own cost increases, we just have to make sure that we turn around and pass it back through our customers as well.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay, that's helpful. Thank you so much.

Operator

(Operator Instructions) Thank you. Our next question is from the line of Michael Feniger of Bank of America Merrill Lynch. Your line is open.

Michael Feniger -- Bank of America Merrill Lynch -- Analyst

Hey guys, thanks for taking my questions.

James C. Fish -- President, Chief Executive Officer & Director

Hey, Mike.

Michael Feniger -- Bank of America Merrill Lynch -- Analyst

I just -- hey, guys. I'm just trying to square something, what I mean, you're seeing the momentum on your business, you sound optimistic, message is clear. Like how should I square that away with your balance sheet? I think your leverage is just the lowest we've seen in a decade. We're talking about closer to a 3% and 3% type scenario rather than a 3% and 1%. So how should I square that away with kind of where your leverage is now and how you're thinking about that?

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

You're right. Our balance sheet in the best shape that it's been not just in the decade, but really probably in our history. And from our perspective, we are going to focus on long term return of value to the shareholders and a combination of dividends, share repurchases and then strategic M&A. And what -- I think the balance sheet tells you is that we believe that we're really well positioned for future strategic M&A decisions that we could make at a different point in the cycle.

I think if you look at where we are, we all talk about the fact that the economy is probably at a peak, and there's definitely some room to go from here. But we've talked about the length of growth in this economy and the expectation that it could turn from here. We like the fact that we're as well positioned today as we are to be able to act in a different economic environment should opportunities present themselves.

We have also proactively done tuck in M&A in this environment. And so when you look at 2018 free cash flow, we expect to allocate more than 100% of free cash flow through a combination of those shareholder returns and M&A in 2018. And so we won't see a tick down and leverage from here, because the health of the balance sheet gives us that strategic flexibility that we think is important. From this point forward.

Michael Feniger -- Bank of America Merrill Lynch -- Analyst

That makes -- thank you. And just -- and my follow-up. You guys invested in growth CapEx, the market is strong, I totally get that. I'm just wondering if you may comment on the industry. So we know the demand is strong. I'm just trying to gauge supply side of that. Are you seeing the smaller and medium-sized companies also really reinvesting in their fleet or adding a lot of trucks to their route as well.

James C. Fish -- President, Chief Executive Officer & Director

I don't know, I don't know. I mean, obviously, the big integrated guys are, just like we are. I don't know about the smaller guys. I guess I don't follow them closely enough. I can tell you the guy that picks up mine hasn't reinvested in its fleet (inaudible) recently. So I don't know. I would tell you one last thing and then Devina had some. I think a lot of our CapEx in 2018, I mentioned fleet, but a lot of it has transitioned to CNG and automation. So it's not just replacing older trucks. It's transitioning to natural gas and automation.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

And the one piece of color on the smaller provider that I think is important is they're going to have a different capital structure than we are and they're going to be very sensitive to rising interest rate environment. And so that actually should speak well to the larger providers who are going to be able to continue to fund their capital with free cash flow in this rising interest rate climate.

Michael Feniger -- Bank of America Merrill Lynch -- Analyst

Thanks for that. Thanks for that, Devina. And if I can just squeeze one in. When you were talking about the capital allocation, like, can you just remind us how you think about with what you were commenting before about the baseline free cash flow, how do we think about that in terms of your dividend policy?

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

So, over the long-term, we just look to increase the dividend annually in a way that's consistent with our long-term growth expectations in free cash flow. We're currently at about 45% of free cash flow on the dividends. Because of the nice healthy growth in free cash flow over the last several years, we expect that you'll see another healthy increase in the 2019 dividend in the year ahead.

Last year, it was about 9.5% of an increase on a year-over-year basis. I would expect that we're going to be in a position to consider an increase that's along those same lines, although it's too early for us to say. And we'll be reviewing that more specifically as we review that baseline free cash flow assumption that we talked about.

Michael Feniger -- Bank of America Merrill Lynch -- Analyst

Thank you.

James C. Fish -- President, Chief Executive Officer & Director

Thanks.

Operator

Thank you. Our next question comes from the line of Brian Maguire of Goldman Sachs. Your line is open.

Derrick Laton -- Goldman Sachs -- Analyst

Hey. Good morning. This is Derrick Laton sitting in Brian. Thanks for taking my question.

James C. Fish -- President, Chief Executive Officer & Director

Good morning.

Derrick Laton -- Goldman Sachs -- Analyst

Just if we could circle back to M&A for a second, I appreciate you guys aren't looking to maybe do any large strategic acquisition given at this point in the cycle. But maybe if you could comment a little bit on -- the environment for tuck-in acquisitions. You guys -- I think you mentioned you already spent about 350 million so far this year on those. Just kind of the -- the pipeline that you have for acquisitions and then the opportunities as you look ahead to 2019?

James C. Fish -- President, Chief Executive Officer & Director

Yeah. So, look, I always tell you that there's still some good companies out there with reasonable expectations, as evidenced by the -- by our increase in M&A in 2018. It also feels a little bit like there's some elevated expectations. I think that was kind of Devina's point with the economy being hot right now. There are some companies that have pretty elevated expectations. And we have said since the beginning of time that we're going to be disciplined about how we look at acquisitions from a pre-synergy multiple standpoint, and I have -- we're just not interested in paying 13 times or whatever for some of these folks. I -- so but to reiterate the first point, there are some good companies out there with very reasonable expectations that are very attractive to us.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

And I would add to that, if you look at the third quarter, we spent $79 million. And so I think that's a good indication of the fact that we still have a healthy pipeline and we're going to continue to execute deals where we can integrate them well into our existing business and get good operating leverage in the years ahead. The revenue that we've acquired in 2018 is around $215 million. And so, while that might get muted on our internal revenue growth pace that you guys look at because, we had some offsets from divestitures. The acquisition piece is healthier from an EBITDA contribution perspective and we're really optimistic that you'll see a nice lift in 2019 from that M&A activity.

Got it. That's helpful. Thank you. I'll turn it over.

Operator

Thank you. Our next question is from the line of Michael Hoffman of Stifel. Your line is open.

Michael Hoffman -- Stifel -- Analyst

Thank you very much. And Jim Trevathan, it's been a pleasure.

James E. Trevathan -- Executive Vice President & Chief Operating Officer

I agree, Michael. Good to hear from you.

Michael Hoffman -- Stifel -- Analyst

Yeah. So, Devina, I can't help but ask you about working capital specifically around payables. You -- and I have talked about this, six days in your hand and I'm curious what it takes to pay your bills slower to get some help there.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

Yeah. So what I would say is that, if you look at our days payable over time, we're really satisfied with the work that we've been doing and that we continue to do to move this metric in the right direction. In 2017, we got a two-day lift. In 2018, it's been more like a half a day over the course of the year, so certainly a slowdown. But I would attribute that to the fact that when you implement continuous improvement-type initiatives, you're focused on the biggest levers first and that's what you see of -- in these results.

When you look at the benefits that we've gotten so far, it's in the spend categories where we had spend concentrated with few vendors. As we continue to move this initiative forward, it's harder to move the needle, because you're looking at spend in the hands of many, many more vendors. So, that takes time to roll out. We, though, are not taking our foot off that pedal, we continue to move it in the right direction. The headwind that we saw in the current quarter really was on the DSO side of the equation. And as you know, DSO has a far greater impact on the dollar impact to the cash from operations than the DPO part of the equation does. So when you see that kind of impact to the DSO calc, you end up with a headwind even though you're making progress on the other side.

Michael Hoffman -- Stifel -- Analyst

Okay. But do you still think if I looked out three to four years, you're going to get that six days out?

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

It's certainly an aspirational goal. I kind of would equate it to the aspirational goal that we had in SG&A to get SG&A as a percentage of revenue below 10%. And I can tell you we had that goal when I started with the company 16 years ago and we're getting there for the first time this year. So I can't tell you how quickly we'll get those six days. When I look at working capital, I do think that there is about $300 million of lifetime enterprise value to free cash flow. But I would remind everyone that when you get that lift, it's a one-time lift, it's not something that you then see in recurring free cash flow going forward.

James C. Fish -- President, Chief Executive Officer & Director

But it's not going to take us 16 years.

Michael Hoffman -- Stifel -- Analyst

Yeah. And you were asked about the baseline, it resets the baseline and that's where I was really getting is I think there is more baseline upside than $2 billion. But shifting gears to --

James C. Fish -- President, Chief Executive Officer & Director

So, Michael, I think --

Michael Hoffman -- Stifel -- Analyst

Go ahead. Sorry.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

I would just like to clarify that working capital really can't reset the baseline, because similar to -- if we went back and looked at 2017, and as I mentioned, we got a two-day lift in DPO and the aggregate working capital benefit at us about $100 million last year. We have to get that same kind of lift in 2018 in order to just replicate that in the baseline. And so we actually are behind the curve, because we're not getting the same year-over-year lift and that shows up is a decrease on a year-over-year basis. So it's not lifting the baseline when we get this free cash flow contribution from DPO extension.

Michael Hoffman -- Stifel -- Analyst

Okay. We -- maybe you are talking about that philosophically differently, but I'll push that to a different time. Given the commentary, humorous or not, about a 3% and 3%, let's temper it and just say it's still a 2% and 2%, but you don't have the headwind from recycling. In fact, we have to sort of ask where does the process fee show up now as a revenue number, is it a price issue? You are probably going into next year with a 4% or 5% starting number, if not better, which means 5% in EBITDA is flat margins and yet I would assume you're expecting to improve margins in 2019.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

Yeah. And that's why -- I mean, look, when I say 5%, that's why we're not giving guidance, we're still in the middle of our planning process for next year. But just more of an indication of our view of the overall economy and our view of our business less specifically. I would tell you that I think that that 2% and 2% is assuming the economy stays strong, the 2% and 2% is probably conservative. I think we can do better than 2% and 2%. There is a bear case out there for volumes with any industry. We are much closer to the bull case and it's not just kind of an aspiration. When we look at the bull case and we look at the impact of tax reform that is still being felt, we look at reduced government regulation beginning to positively impact the special waste market, we look at the construction business continuing to grow, cranes in just about every city and even housing starts, which I mentioned earlier, doesn't have as big an impact on us. But housing starts potentially kind of bottoming, all of that is kind of a bullish case that would tell you that volumes have more upside than downside in this type of economy. And look, I don't want to be blindly optimistic here, but it sure feels like when I look at some of our advanced indicators that we're closer to the bull case and the bear case, which kind of leads me to believe that 2.5% is more doable than 2%.

Michael Hoffman -- Stifel -- Analyst

Okay.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

And, I would certainly say that there is an expectation from margin expansion in the year ahead. So the revenue side of the equation, we're very optimistic about, but we also, as we mentioned earlier, have a great deal of optimism on the cost and efficiency side.

Michael Hoffman -- Stifel -- Analyst

Okay. And then to that end, if we stripped away the recycling headwind this quarter and the rev rec headwind, can you in fact articulate margin expansion in solid waste?

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

Yes. We had 40 basis points of margin expansion in solid waste in the quarter. And then your comments about rev rec, rev rec and the hourly bonus that Jim mentioned actually offset one another. And so, when we look at the recycling line of business, that was a 20-basis-point headwind. So, that gets you to the 20 basis points of EBITDA margin that we saw in the quarter.

Michael Hoffman -- Stifel -- Analyst

Okay. And then, if you took -- the things you've done this year in recycling, if you hadn't done them, what would the $0.17 to $0.20 been, maybe that's another way for us to understand the power of this going into 2019?

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

So, in the current quarter, we think it was about $0.03 of benefit and you can see that most easily if you look at the first and second quarter impact for a total of $0.15 and in Q4, we only had a $0.04 impact. So, if you take the --

James E. Trevathan -- Executive Vice President & Chief Operating Officer

With the lower prices, with lower commodity prices.

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

Absolutely. And so, that shows you the value of those fee programs that we've put in place. There's more work that we can do on the cost part of the recycling line of business, and Jim mentioned the automation and recycling spend of the future. But we are also optimistic that as we really start to see contamination efforts take hold, we can do a better job of managing the gross operating expense of the plant going forward.

James E. Trevathan -- Executive Vice President & Chief Operating Officer

And Michael, we've seen about 3% improvement in the operating cost sequentially as we've tackled this since the Q1 high number. But we're better in Q2 and Q3 sequentially, on the operating side. But just without the fee impact, just the operating cost side. So we are making those of improvements.

James C. Fish -- President, Chief Executive Officer & Director

I think, Michael, actually the answer to your question might be that $40 million to $50 million number that I gave you for next year because the assumption there is that we hold flat on commodity prices. So, if you hold flat on commodity prices from this year, that $40 million to $50 million is really the effect of those fees on a year-over-year basis.

Michael Hoffman -- Stifel -- Analyst

In both revs and EBITDA?

James C. Fish -- President, Chief Executive Officer & Director

Yeah. So that's EBITDA, so call it's -- yeah, so call it's -- let's call it $0.07.

Michael Hoffman -- Stifel -- Analyst

Okay. That helps. And then you all have talked in the past about $1.5 billion of direct-to-labor cost and you think you could take that down by 10%, where are we in that in the context of helping manage some of this inflation that's going on?

James C. Fish -- President, Chief Executive Officer & Director

Well, so I think that's an important question because, as we think about 2019, we've talked a lot internally about the fact that this 2019, there's really going to be a focus on operating costs in 2019. John Morris is sitting here at the table, so I'm looking right at him. But I think -- seriously, I think 2019 we have a real opportunity with some of the technology that we're looking to roll out and the continuation of improving that middle of the route that we've talked about. We've gotten really good at managing the ends of the route being pre-trip and post-trip. The middle of the route is an area where we think we still have a real opportunity.

So I think you'll see, specific to labor, improvement in 2019. And then as we think about other things like repairs and maintenance, we talked about that and of course there's been an operating cost headwind for us this year, and we expect that not only with new trucks, but also with process improvement we can begin to whittle away at that.

Michael Hoffman -- Stifel -- Analyst

So, 10% is still realistic and maybe you keep most of it, not all of it, because of inflation?

James C. Fish -- President, Chief Executive Officer & Director

Yeah. I don't know -- it kind of goes to Devina's comment about working capital. 10% I think is realistic. I'm not sure I can give you a timeframe on that.

Michael Hoffman -- Stifel -- Analyst

Great. All right. Thank you, very much for taking the questions.

James C. Fish -- President, Chief Executive Officer & Director

You bet.

Operator

Thank you. And with that, this does conclude our Q&A session for today. I'd like to turn the conference over to, Mr. Jim Fish for the closing remarks.

James C. Fish -- President, Chief Executive Officer & Director

Well, thank you, everyone. Lastly today I'd like to say a few words about Jim Trevathan and Jeff Harris.

As Jim said, he's been on the senior leadership team for almost 20 years and has been with Waste Management for almost 40 years. And I've spent every quarter preparing for these calls since I took the CFO role and he took the COO role in 2012. And I have to tell you, there's many times that I've looked across the table in amazement at Jim and how well thought out his answers were, how well articulated his answers were to difficult questions.

Jim's been a confidant, a strategic partner, a voice of reason and most importantly, a friend to me for many years. And now I look forward to spending some time with Jim outside of the office at their cabin and steamboats and on a golf course somewhere. Jeff Harris, our Senior Vice President of Northern Tier Operations, as we said, he's also retiring at the end of the year and he's dedicated almost 25 years of his distinguished career to Waste Management. He's been a very important sounding board for me as a senior leader and Jeff's leadership in the Northern Tier is going to be a tough act to follow.

I think Jeff's probably going to spend some of his retirement making more trips to Columbus to see his Buckeyes, although after last weekend he might just watch them on TV. But, look, I really want to express my sincere thanks to Jim and Jeff for their many years of valuable service to Waste Management and for their invaluable contribution to our continued success.

We wish you both the very best in your coming retirement. So we expect to see you guys at our Phoenix Open in February.

James E. Trevathan -- Executive Vice President & Chief Operating Officer

On behalf of Jeff and myself, Jim, it's been a pleasure and a privilege. Thank you.

James C. Fish -- President, Chief Executive Officer & Director

Well, thanks very much. We'll sign-off with that. Thanks for joining us today. We'll talk to you next quarter.

Operator

Ladies and gentlemen, this conference will be available for replay after 1 p.m. Eastern Time today through November 8, 2018 at 11:59 p.m. Eastern Time. You may access the replay at any time by dialing 855-859-2056, and entering the access code 6079618. Again, the phone number is 855-859-2056, and the access code is 6079618.

This does conclude your conference call for today. Thank you for your participation in the conference. You may now disconnect. Have a great day.

Duration: 70 minutes

Call participants:

Edward A. Egl -- Director of Investor Relations

James C. Fish -- President, Chief Executive Officer & Director

James E. Trevathan -- Executive Vice President & Chief Operating Officer

Devina A. Rankin -- Senior Vice President & Chief Financial Officer

Corey Greendale -- First Analysis -- Analyst

Hamzah Mazari -- Macquarie -- Analyst

Noah Duke Kaye -- Oppenheimer -- Analyst

Patrick Tyler Brown -- Raymond James & Associates -- Analyst

Patrick Tyler Brown -- Raymond James & Associates, Inc. -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Michael Feniger -- Bank of America Merrill Lynch -- Analyst

Derrick Laton -- Goldman Sachs -- Analyst

Michael Hoffman -- Stifel -- Analyst

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