Business Description
American Water Works Company, Inc. (AWK) is the largest and most geographically diverse publicly traded water and wastewater utility company in the United States. The company primarily owns regulated utilities that provide water and wastewater services to a variety of customers, including residential, commercial, industrial, public authority, fire service, and sale for resale customers, collectively known as the "Regulated Businesses" . These services are offered across 14 states, with the Regulated Businesses segment being the largest part of the company's operations . Additionally, American Water operates businesses that provide water and wastewater services to the U.S. government on military installations and municipalities, which are not regulated by state public utility commissions (PUCs) .
- Regulated Businesses - Provides water and wastewater services to residential, commercial, industrial, public authority, fire service, and sale for resale customers across 14 states.
- Unregulated Operations - Offers water and wastewater services to the U.S. government on military installations and municipalities, operating outside the economic regulation of state public utility commissions.
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Q2 2024 Summary
What went well
- American Water Works has raised its 2024 EPS guidance to $5.25 to $5.30, achieving 8.5% EPS growth at the new midpoint .
- Lower-than-expected declines in customer usage have significantly contributed to the increased earnings guidance .
- The company continues strong growth through acquisitions, with 59,000 customer connections and $483 million under agreement , and remains confident in its acquisition pipeline across multiple states, including Pennsylvania .
What went wrong
- Potential regulatory challenges in Pennsylvania may impact American Water Works' capital investments and M&A growth plans in the state. The company acknowledges that there are legislative changes and multiple parties with differing opinions, which could affect how transactions play out before the commission.
- Delay and uncertainty surrounding the legal challenge to the Butler Area Sewer Authority (BASA) acquisition could hinder growth. The company is awaiting a decision from the Pennsylvania Commonwealth Court with no clear timeline on when it will be resolved.
- Uncertainty regarding the timing and amount of PFAS litigation settlements may impact financial outcomes. The company has submitted all required data but does not know when the payout calculations will be completed or when the proceeds will be received.
Q&A Summary
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Impact of Low ROE in Pennsylvania
Q: How does the low ROE in Pennsylvania affect your capital plans?
A: Despite the low ROE result in Pennsylvania, we don't expect our total capital plans to change at all. We'll evaluate how we allocate capital to Pennsylvania relative to other states, balancing shareholder expectations and investment returns. The need for infrastructure investment and resiliency improvements remains across our entire territory. -
M&A Strategy in Pennsylvania
Q: Will the low ROE impact your M&A activity in Pennsylvania?
A: Our approach to acquisitions in Pennsylvania remains unchanged. We have a strong pipeline and continue to identify opportunities without slowing our pace. While the environment is challenging due to fair market value considerations and commission processes, we believe the new guidelines are helpful . -
EPS Growth Outlook
Q: Does the low ROE affect your 7–9% EPS growth target?
A: We maintain our 7–9% long-term EPS growth expectation. The low ROE in Pennsylvania doesn't impact this target, and we've reaffirmed our long-term growth. We're making significant investments across all states, with other states gaining ground in rate base size. -
Customer Usage Trends
Q: How did customer usage affect your guidance?
A: We've observed less decline in customer usage than anticipated, which contributed to improved results. This is a significant driver for narrowing our guidance range and increasing the lower end . The impact amounts to a few cents in EPS. -
Pending Legal Challenge on Butler
Q: What's the status of the legal challenge related to Butler?
A: The legal challenge is in court, and we're waiting for the Commonwealth Court's decision. We don't have a definitive timeline, as there's no precedent to predict timing. -
Towamencin Deal Update
Q: What's the latest on the Towamencin acquisition?
A: We're moving forward with the approval process and plan to file with the PUC. The deal does not need to be recut despite fair market value revisions. -
Financing Impact on Guidance
Q: How does financing affect your guidance?
A: The financing impact relates to the timing of financings we've completed, including the convertible issued last June and straight debt this year. The delayed closing of the BASA acquisition also contributes slightly . -
MSG and Other Headwinds
Q: What causes the MSG and other headwinds in 2024?
A: The headwinds are due to a collection of smaller, one-off items and are not ongoing issues with MSG. -
PFAS Litigation Proceeds
Q: Any updates on PFAS litigation proceeds?
A: We've submitted all required data to determine the payout. We're waiting for calculations to be completed, but the timing is uncertain.
Key Metrics
Revenue by Segment - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Regulated Businesses | 860 | 1,005 | 1,095 | 96 | 3,920 | 928 | 1,057 | 1,219 | ||||||||||||||||||||||||||||||||||||||||||||||
- Water Services | 774 | 904 | 1,005 | 867 | 3,550 | 832 | 952 | 1,106 | ||||||||||||||||||||||||||||||||||||||||||||||
-- Residential | 54 | 57 | 58 | 59 | 228 | 59 | 60 | 62 | ||||||||||||||||||||||||||||||||||||||||||||||
-- Commercial | 14 | 16 | 16 | 16 | 62 | 16 | 16 | 20 | ||||||||||||||||||||||||||||||||||||||||||||||
-- Fire Service | 39 | 39 | 40 | 4 | 158 | 41 | 41 | 41 | ||||||||||||||||||||||||||||||||||||||||||||||
-- Industrial | 2 | 2 | 2 | 2 | 8 | 2 | 3 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||
-- Public and Other | 6 | 7 | 8 | 8 | 29 | 8 | 9 | 11 | ||||||||||||||||||||||||||||||||||||||||||||||
- Wastewater Services | 76 | 82 | 84 | 85 | 327 | 85 | 88 | 97 | ||||||||||||||||||||||||||||||||||||||||||||||
- Other Revenues | 10 | 19 | 6 | 18 | 53 | 11 | 17 | 16 | ||||||||||||||||||||||||||||||||||||||||||||||
-- Miscellaneous Charges | 10 | 9 | 9 | 7 | 35 | - | 10 | 16 | ||||||||||||||||||||||||||||||||||||||||||||||
-- Alternative Revenue | 9 | 8 | (5) | - | 10 | - | 5 | - | ||||||||||||||||||||||||||||||||||||||||||||||
-- Lease Revenue | 2 | 2 | 2 | 2 | 8 | - | 2 | - | ||||||||||||||||||||||||||||||||||||||||||||||
Market-Based Businesses and Other | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Other | 78 | 92 | 72 | 72 | 314 | 83 | 92 | 104 | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 938 | 1,097 | 1,167 | 1,032 | 4,234 | 1,011 | 1,149 | 1,323 | ||||||||||||||||||||||||||||||||||||||||||||||
Revenue by Geography - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
Regulated Businesses | - | - | - | - | 3,920 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Pennsylvania | - | - | - | - | 965 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- New Jersey | - | - | - | - | 965 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Missouri | - | - | - | - | 450 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Illinois | - | - | - | - | 427 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- California | - | - | - | - | 304 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Other States | - | - | - | - | 809 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 938 | - | 1,167 | - | 3,920 | 1,011 | - | 1,323 | ||||||||||||||||||||||||||||||||||||||||||||||
KPIs - Metric / Period | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
Capital Investment in Regulated Businesses ($ Million) | 532 | 1,150 | 1,770 | - | - | 634 | 1,300 | 1,900 | ||||||||||||||||||||||||||||||||||||||||||||||
New Customers Added Through Acquisitions (Number) | 1,400 | 7,100 | 7,900 | - | - | 26,000 | 33,400 | 33,400 | ||||||||||||||||||||||||||||||||||||||||||||||
RPOs for U.S. Government Contracts ($ Billion) | 7.1 | 7.0 | 7.0 | 7.2 | - | 7.2 | 7.2 | 7.4 | ||||||||||||||||||||||||||||||||||||||||||||||
RPOs for Municipal and Commercial Contracts ($ Million) | 576 | 578 | 554 | 612 | - | 666 | 638 | 631 | ||||||||||||||||||||||||||||||||||||||||||||||
Infrastructure Surcharge Authorizations ($ Million) | 50 | 67 | 86 | - | - | 55 | 90 | 90 |
Executive Team
Questions to Ask Management
- Does the commentary about potentially shifting capital expenditures around also apply to your interest in mergers and acquisitions in Pennsylvania, given the long and arduous road with legislative changes at the commission?
- With the Pennsylvania PUC's unprecedented ROE finding of 9.45% being significantly lower than your requested 10.95%, how will this impact your future capital investments and allocation of capital among your various states?
- Regarding the Butler Area Sewer Authority acquisition, which is approved but under appeal, how is the delay affecting your growth strategy in Pennsylvania, and what contingency plans do you have if the court decision is unfavorable?
- Can you elaborate on the water quality issues raised by the Pennsylvania commission and how you are addressing customer concerns about aesthetic disturbances associated with system improvements in the Northeast service area?
- In the Kentucky rate case, you've mentioned a significant mathematical error affecting your authorized revenues; could you provide more details on this error and its potential impact on your financial results once corrected?
Past Guidance
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: N/A
- Guidance: The documents do not provide specific guidance from the Q3 2024 earnings call for American Water Works (AWK). However, guidance from the Q2 2024 earnings call is available.
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Earnings Per Share (EPS) Guidance: EPS expected to be between $5.25 and $5.30 per share, with an 8.5% EPS growth at the new midpoint .
- Long-term EPS and Dividend Growth Targets: 7% to 9% over the next five years .
- Capital Investment: Approximately $3.1 billion for 2024 .
- Acquisitions: Nearly $500 million in acquisitions under agreement, adding approximately 33,400 new customers .
- Debt-to-Capital Ratio: 56%, within the long-term target of less than 60% .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- Earnings Per Share (EPS) Growth: 7% to 9% per year .
- Dividend Growth: 7% to 9% per year on average .
- Capital Investment: Approximately $3.1 billion in 2024 .
- Debt and Financing: Long-term debt issuance of $1.4 billion; debt-to-capital ratio target of less than 60% .
- Customer Growth from Acquisitions: 2% annual customer growth .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Earnings Per Share (EPS) Guidance for 2024: $5.20 to $5.30 per share .
- Long-term EPS and Dividend Growth: 7% to 9% .
- Customer Growth from Acquisitions: 2% annual customer growth .
- Capital Investment Plan: $1 billion for PFAS and $500 million for lead service line replacements .
- Regulatory and Rate Base Growth: 8% to 9% .