8-K: American Water Reports Strong Q3 2024 Results, Affirms Long-Term Targets and 2024 EPS Guidance, Announces 2025 EPS Guidance

American Water announced strong third-quarter 2024 results, affirmed its long-term targets and 2024 EPS guidance, and initiated 2025 EPS guidance reflecting 8% growth.

Summary

• American Water reported third-quarter 2024 earnings of $1.80 per share, up from $1.66 per share in the same quarter of 2023.
• Year-to-date earnings for 2024 reached $4.17 per share, compared to $4.03 per share in 2023.
• The company affirmed its 2024 weather-normalized earnings per share guidance range of $5.25 to $5.30, which includes $0.10 per share of incremental interest income from the amended Homeowner Services Group (HOS) seller note.
• Excluding the incremental interest income, the 2024 EPS guidance range is $5.15 to $5.20.
• American Water initiated 2025 earnings per share guidance range of $5.65 to $5.75, also including $0.10 per share of incremental interest income from the HOS note.
• The 2025 EPS guidance range excluding the incremental interest income is $5.55 to $5.65.
• The company reaffirmed its long-term targets, including a 7-9% compounded annual growth rate (CAGR) for both EPS and dividend per share.
• A capital investment plan of $17-$18 billion for 2025-2029 and $40-$42 billion for 2025-2034 was established.
• The company completed the acquisition of the Butler Area Sewer Authority's wastewater system in Pennsylvania for $230 million, adding approximately 15,000 customer connections.
• Since January 1, 2024, the company has been authorized additional annualized revenues of $346 million, with $256 million from general rate cases and $90 million from infrastructure surcharges.
• The company has general rate cases in progress in seven jurisdictions and has filed for infrastructure surcharges in three jurisdictions, reflecting a total annualized revenue request of $375 million.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook with strong financial results, reaffirmed guidance, and strategic growth plans. The company's focus on long-term targets and customer affordability is also encouraging. However, there are some risks and challenges mentioned, such as regulatory uncertainties and increasing costs, which prevent a perfect score.

Positives

• The company achieved strong third-quarter earnings growth compared to the previous year.
• American Water has reaffirmed its 2024 earnings guidance and set a positive outlook for 2025.
• The company is on track to meet its long-term growth targets.
• The acquisition of the Butler Area Sewer Authority expands the company's customer base.
• The company has secured significant additional annualized revenues through rate cases and surcharges.
• The company is making significant capital investments in infrastructure improvements and replacements.
• The company is focused on customer affordability and has expanded its assistance programs.

Negatives

• Operating expenses increased due to higher employee-related costs, taxes, and production costs.
• Interest expenses increased due to funding capital investments.
• The company's earnings are subject to numerous risks and uncertainties, including regulatory decisions and weather conditions.
• The company is facing increased costs related to compliance with new regulations, such as the EPA's Lead and Copper Rule Improvements.

Risks

• The company's earnings are subject to regulatory risks, including decisions on customer rates and capital structure.
• Changes in customer demand and water supply limitations could impact the company's performance.
• The company faces risks related to weather conditions, climate variability, and natural disasters.
• Cybersecurity incidents, such as the one reported on October 3, 2024, pose a risk to the company's operations and financial condition.
• The company is exposed to risks related to environmental laws and regulations, including those related to PFAS and lead.
• The company's ability to obtain permits and approvals for projects could impact its growth.
• The company faces risks related to supply chain constraints and the availability of materials.
• The company's ability to successfully integrate acquisitions and realize anticipated benefits is a risk.
• The company's ability to receive amounts due under the amended HOS seller note is a risk.

Future Outlook

The company anticipates continued growth in earnings per share, driven by investments in infrastructure and acquisitions. They are confident in their ability to deliver on near-term and long-term growth and capital plans. The company expects to maintain a strong balance sheet and credit profile while focusing on customer affordability.

Management Comments

• The company has delivered strong results to date in 2024, including key regulatory outcomes that set a good foundation going forward, said M. Susan Hardwick, CEO of American Water.
• We are also very pleased to have closed on the Butler Area Sewer Authority wastewater acquisition and look forward to serving those customers, said M. Susan Hardwick, CEO of American Water.
• Looking forward to 2025 and beyond, we have demonstrated consistently now that we execute on the plans we set, and we are fully confident in our ability to continue to deliver on our near-term and long-term growth and capital plans in this latest update, said M. Susan Hardwick, CEO of American Water.

Industry Context

This announcement reflects the ongoing trend of consolidation and investment in the regulated water and wastewater utility sector. The company's focus on infrastructure renewal, water quality, and customer affordability aligns with industry priorities. The company's growth strategy through acquisitions is also a common practice in the industry.

Comparison to Industry Standards

• American Water's long-term EPS growth target of 7-9% is comparable to other large-cap regulated utilities, such as Essential Utilities (WTRG) and Aqua America (WTR), which also aim for similar growth rates.
• The company's capital expenditure plans are significant, reflecting the industry's need for infrastructure upgrades and replacements, similar to what is seen in other large water utilities.
• The focus on customer affordability and assistance programs is a common theme among regulated utilities, as they operate under public service obligations.
• The company's acquisition strategy is consistent with the industry trend of consolidation, as smaller water systems are often acquired by larger players to achieve economies of scale.
• The company's efforts to address PFAS and lead service line issues are in line with the industry's response to increasing regulatory scrutiny and public health concerns.

Legal Proceedings

• American Water is a party to the Multi-District Litigation (MDL) lawsuit against several PFAS manufacturers.
• The company decided to remain a party to two settlements in the MDL lawsuit, which they believe is the best path for their customers.
• The MDL court approved settlements with DuPont and 3M, respectively; the amount of proceeds to be received from each settlement is pending.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance and dividend growth.
• Customers will benefit from the company's investments in infrastructure and water quality.
• Employees will benefit from the company's growth and stability.
• The company's focus on customer affordability will benefit low-income customers.
• The company's acquisitions will expand its service area and customer base.

Next Steps

• The company will continue to execute its capital investment plan.
• The company will continue to pursue rate cases and infrastructure surcharges.
• The company will continue to focus on customer affordability and assistance programs.
• The company will continue to evaluate and address the requirements of the EPA's Lead and Copper Rule Improvements.
• The company will continue to pursue strategic acquisitions.
• The company will host a conference call on October 31, 2024, to discuss the results.

Key Dates

Keywords

water utility, wastewater, earnings per share, EPS guidance, capital investment, rate base, acquisitions, regulated business, dividends, infrastructure, PFAS, lead service lines