8-K: American Water Reports Solid Second Quarter Results, Narrows 2024 EPS Guidance

American Water announced solid second quarter 2024 results, narrowing its full-year EPS guidance to the top half of its range and affirming long-term targets, while also announcing leadership changes.

Summary

• American Water reported second quarter 2024 earnings of $1.42 per share, slightly down from $1.44 per share in the same quarter of 2023.
• Year-to-date earnings per share remained flat at $2.37 compared to the same period last year.
• The company narrowed its 2024 earnings per share guidance to $5.25 to $5.30, from a previous range of $5.20 to $5.30, on a weather-normalized basis.
• This guidance includes an estimated $0.10 per share of increased interest income.
• The company affirmed its long-term financial targets, including a 7-9% EPS and dividend growth rate.
• American Water invested $1.4 billion in the first six months of 2024, with $1.3 billion allocated to infrastructure improvements and replacements.
• Approximately 43,000 customer connections were added through acquisitions and organic growth.
• The company has been authorized additional annualized revenues of $176 million from general rate cases and $90 million from infrastructure surcharges since January 1, 2024.
• Operating revenues increased by $52 million and $120 million for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023.
• The company's capital investment plan for 2024 is on track with a total planned investment of $3.1 billion.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the solid results, narrowed guidance, and affirmed long-term targets, but tempered by the slight decrease in quarterly earnings and increased expenses.

Positives

• The company's 2024 capital investment plan of $3.1 billion is on track.
• The company has added approximately 43,000 customer connections through acquisitions and organic growth.
• New rates have been approved in multiple states, leading to increased revenues.
• The company has affirmed its long-term financial targets, including a 7-9% EPS and dividend growth rate.
• The leadership team changes are part of a robust succession process, indicating strong internal talent development.

Negatives

• Second quarter earnings per share decreased slightly from $1.44 in 2023 to $1.42 in 2024.
• The company experienced a net unfavorable weather impact of an estimated $0.04 per share.
• Operating expenses increased due to higher production and employee-related costs, as well as increased financing costs.
• Interest expense was higher by $12 million and $22 million for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023.

Risks

• The company's earnings forecasts are subject to numerous risks and uncertainties, including regulatory decisions and weather conditions.
• Changes in customer demand and water supply limitations could impact results.
• The company faces risks related to its aging infrastructure and potential cyber attacks.
• The company is exposed to liabilities related to environmental laws and regulations.
• The company's ability to obtain and deliver adequate and cost-effective supplies is a risk.

Future Outlook

The company expects its 2024 earnings per share to be in the range of $5.25 to $5.30, and affirms its long-term financial targets, including a 7-9% EPS and dividend growth rate.

Management Comments

• M. Susan Hardwick stated that the company delivered solid results for the first half of the year and that the results are relatively flat year over year, which was expected.
• Hardwick also mentioned that the company invested $1.4 billion in the first six months of 2024, with the majority dedicated to infrastructure improvements.
• Hardwick expressed excitement about the leadership changes, highlighting the strength of the company's talent and teams.
• Karl F. Kurz, Board Chair, emphasized the Board's commitment to the company's long-term success and the execution of its succession planning.

Industry Context

This announcement reflects the ongoing need for infrastructure investment in the water utility sector and the importance of regulatory approvals for revenue growth. The leadership changes also highlight the focus on succession planning within the industry.

Comparison to Industry Standards

• American Water's performance is consistent with other large, regulated water utilities, such as Essential Utilities (WTRG) and Aqua America (WTR), which also focus on infrastructure investments and rate case approvals.
• The company's long-term EPS growth target of 7-9% is in line with industry averages for regulated utilities.
• The capital investment plan of $3.1 billion is significant and reflects the ongoing need for infrastructure upgrades in the water sector, similar to other large players in the industry.
• The addition of 43,000 customer connections is a positive sign of growth, comparable to the expansion efforts of other major water utilities.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the affirmed long-term growth targets and dividend payments.
• Customers will benefit from the ongoing infrastructure investments and improved services.
• Employees will experience leadership changes and potential career growth opportunities.
• The company's suppliers and creditors will be impacted by the company's capital investment plans and financial performance.

Next Steps

• The company will hold a conference call on August 1, 2024, to discuss the second quarter earnings and guidance.
• The leadership changes will be effective August 1, 2024.
• The company will continue to execute its $3.1 billion capital investment plan for 2024.
• The company will continue to pursue rate cases in seven jurisdictions and infrastructure surcharges in one jurisdiction.

Key Dates

Keywords

water utility, regulated business, earnings per share, capital investment, rate cases, infrastructure, acquisitions, financial results, leadership changes, dividends