8-K: American States Water Company Reports Mixed Second Quarter Results, Dividend Increased

American States Water Company (AWR) announced second quarter 2024 earnings of $0.85 per share, down from $1.04 per share in the same period last year, but increased its quarterly dividend by 8.3%.

Summary

• American States Water Company reported second quarter 2024 earnings of $0.85 per share, compared to $1.04 per share in the second quarter of 2023.
• Adjusted earnings for the second quarter of 2024 were also $0.85 per share, compared to $0.86 per share in the same period last year, after excluding a $0.18 per share impact from a prior revenue reversal.
• The water segment's earnings decreased to $0.67 per share from $0.91 per share year-over-year, while the contracted services segment saw an increase to $0.19 per share from $0.12 per share.
• The electric segment's earnings decreased slightly to $0.01 per share from $0.03 per share.
• AWR's water utility reached a settlement agreement for new water rates from 2025 to 2027, authorizing $573.1 million in capital investment.
• The company increased its quarterly dividend by 8.3% to $0.4655 per share, marking the 70th consecutive year of dividend increases.
• The contracted services segment commenced operations at two new military bases in April 2024, contributing to earnings.
• Year-to-date, the company's adjusted earnings per share increased slightly to $1.47 from $1.46.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the decrease in earnings, particularly in the water segment, offset by the positive dividend increase and contracted services growth. The pending electric rate case adds uncertainty.

Positives

• The company increased its quarterly dividend by 8.3%, marking the 70th consecutive year of dividend increases.
• The contracted services segment saw an increase in earnings due to new military base operations and increased construction activity.
• A settlement agreement was reached for new water rates from 2025 to 2027, authorizing $573.1 million in capital investment.
• The company has grown its quarterly dividend rate at a compound annual growth rate (CAGR) of 8.8% over the last five years since the third quarter of 2019 and is on pace to achieve an 8.0% CAGR in its calendar year dividend payments from 2014 2024.

Negatives

• Second quarter earnings decreased by $0.19 per share compared to the same period last year.
• The water segment experienced a significant decrease in earnings of $0.24 per share.
• The electric segment's earnings decreased by $0.02 per share.
• There was a decrease in earnings of approximately $0.01 per share due to the dilutive effects from the issuance of equity under AWRs at-the-market (ATM) offering program.

Risks

• The electric segment is awaiting a decision on its general rate case, which is impacting earnings.
• Increased operating expenses and interest costs are affecting the electric segment.
• The company is subject to regulatory decisions that can impact revenue and earnings.
• Financial market conditions impacted gains on investments held to fund one of the company's retirement plans.

Future Outlook

The contracted services segment is expected to contribute $0.50 to $0.54 per share for the full 2024 year. New electric rates are expected to be retroactive to January 1, 2023, once a decision is issued in the electric general rate case.

Management Comments

• Robert Sprowls, president and chief executive officer, and Eva Tang, senior vice president and chief financial officer, will host a conference call to discuss these results.
• The company uses earnings per share by business segment as an important measure in evaluating its operating results and believes this measure is a useful internal benchmark in evaluating the performance of its operating segments.

Industry Context

The company operates in the regulated utilities sector, where rate cases and regulatory decisions significantly impact financial performance. The settlement agreement for water rates and the pending decision for electric rates are typical of the industry. The expansion of contracted services into new military bases is a positive development for the company's growth.

Comparison to Industry Standards

• AWR's 70 consecutive years of dividend increases places it in an exclusive group of companies on the New York Stock Exchange, demonstrating a strong commitment to shareholder returns, which is a key metric for utility companies.
• The company's water utility segment is facing similar challenges to other water utilities in California, including increased supply costs and the need for capital investment in infrastructure.
• The contracted services segment's expansion into new military bases is a positive development, similar to other companies that provide utility services to government facilities.
• The pending electric rate case is a common issue for regulated electric utilities, and the retroactive nature of the new rates is standard practice in the industry.

Stakeholder Impact

• Shareholders will benefit from the increased dividend.
• Customers may see changes in water rates based on the settlement agreement.
• Employees may be impacted by changes in labor costs and operating expenses.
• The company's financial performance will impact its ability to invest in infrastructure and provide services.

Next Steps

• The company will hold a conference call on August 7, 2024, to discuss the results.
• The company will continue to operate under the settlement agreement for water rates from 2025 to 2027.
• The company is awaiting a decision on the electric general rate case.
• The company will continue to execute its ATM offering program.

Key Dates

Keywords

earnings, dividend, water utility, electric utility, contracted services, rate case, capital investment, military bases, operating expenses, interest rates