ASX stock Cleanaway Waste Management Ltd (ASX: CWY) is under pressure on Tuesday. The waste management giant dropped after warning investors of a hit to earnings, sending the stock closer to its 52-week low.
During afternoon trade, the share price fell by 2.2% to $2.28, just a fraction above the 52-week low of $2.23 recorded at the end of March.
So, what's behind the sell-off?
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A $20 million hit
It comes down to costs and geopolitics. The ASX stock revealed it expects a $20 million EBIT hit, driven by the ongoing conflict in the Middle East and elevated fuel, supplier, and logistics costs.
That has forced management to trim its FY26 earnings guidance, now forecasting EBIT between $460 million and $480 million, down from the previous $480 million to $500 million range.
That downgrade was enough to rattle investors.
Fuel levies, indexed picing
But the situation isn't as straightforward as it first appears. While costs are rising, Cleanaway isn't simply absorbing the hit. The company has built-in protections through contractual cost pass-through mechanisms, allowing the ASX stock to recover a significant portion of higher fuel expenses over time. Many of its customer agreements include fuel levies or indexed pricing, which adjust as input costs change.
There's just a catch — timing. Most of these pricing adjustments don't flow through immediately. Cleanaway expects the bulk of contract repricing to take effect by 1 July 2026, meaning there's a lag between when costs rise and when they are recovered.
That's why the current hit is being framed as largely temporary rather than structural.
No fuel supply issues
Importantly, the company also confirmed there are no fuel supply issues across its operations, despite the volatile global backdrop. It continues to benefit from a long-term strategic partnership with a major fuel supplier, helping secure access to competitively priced fuel during this period of disruption.
Still, uncertainty remains. The Middle East conflict isn't just pushing up costs. It's also weighing on activity levels in that region. Lower project activity has contributed to the earnings impact and could remain a headwind if conditions don't stabilise.
Looking ahead, management of the ASX stock is focused on navigating the volatility. That includes tightening operational efficiency, optimising its fleet, and leveraging procurement strategies to manage costs more effectively.
The expectation is that as fuel markets settle and contracts reset, margins should recover.
What next for the ASX stock?
For now, the market is focused on the near-term hit.
And that's been reflected in the share price performance. Over the past 12 months, Cleanaway shares are down almost 13%, lagging the S&P/ASX 200 Index (ASX: XJO), which has risen around 15% over the same period.
Cleanaway's earnings downgrade has spooked investors, pushing the ASX stock lower. But much of the pressure appears tied to timing and external factors rather than a breakdown in the business model.
If cost recovery flows through as expected, this could prove to be a short-term setback rather than a long-term shift. For now, though, the market isn't waiting around to find out.
