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    American Water Works Company Inc (AWK)

    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) .

    1. Regulated Businesses - Provides water and wastewater services to residential, commercial, industrial, public authority, fire service, and sale for resale customers across 14 states.
    2. 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.

    Q2 2024 Summary

    Initial Price$122.44April 1, 2024
    Final Price$127.76July 1, 2024
    Price Change$5.32
    % Change+4.34%

    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

    1. 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.

    2. 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 .

    3. 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.

    4. 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.

    5. 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.

    6. 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.

    7. 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 .

    8. 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.

    9. 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

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Regulated Businesses8601,0051,095963,9209281,0571,219
    - Water Services7749041,0058673,5508329521,106
    -- Residential54575859228596062
    -- Commercial1416161662161620
    -- Fire Service3939404158414141
    -- Industrial22228234
    -- Public and Other6788298911
    - Wastewater Services76828485327858897
    - Other Revenues101961853111716
    -- Miscellaneous Charges1099735-1016
    -- Alternative Revenue98(5)-10-5-
    -- Lease Revenue22228-2-
    Market-Based Businesses and Other--------
    Other789272723148392104
    Total Revenue9381,0971,1671,0324,2341,0111,1491,323
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Regulated Businesses----3,920---
    - Pennsylvania----965---
    - New Jersey----965---
    - Missouri----450---
    - Illinois----427---
    - California----304---
    - Other States----809---
    Total Revenue938-1,167-3,9201,011-1,323
    KPIs - Metric / PeriodFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Capital Investment in Regulated Businesses ($ Million)5321,1501,770--6341,3001,900
    New Customers Added Through Acquisitions (Number)1,4007,1007,900--26,00033,40033,400
    RPOs for U.S. Government Contracts ($ Billion)7.17.07.07.2-7.27.27.4
    RPOs for Municipal and Commercial Contracts ($ Million)576578554612-666638631
    Infrastructure Surcharge Authorizations ($ Million)506786--559090

    Executive Team

    NamePositionStart DateShort Bio
    M. Susan HardwickPresident and Chief Executive OfficerFebruary 2, 2022M. Susan Hardwick has been serving as the President and CEO since February 2, 2022. She joined AWK in June 2019 as Executive Vice President—Finance and served as CFO from July 2019 until May 16, 2022. She is a CPA and serves on the Board of Directors of New Jersey Resources Corporation .
    James H. GallegosExecutive Vice President and General CounselApril 1, 2022James H. Gallegos joined AWK on April 1, 2022, as Executive Vice President and General Counsel. Previously, he was EVP, General Counsel, and Corporate Secretary of Alliant Energy Corporation .
    John C. GriffithExecutive Vice President and Chief Financial OfficerMay 16, 2022John C. Griffith joined AWK on May 16, 2022, as EVP and CFO. Before AWK, he was Managing Director, Mergers and Acquisitions, for Bank of America Securities’ Global Regulated Utilities and Renewable Energy practice .
    Melanie M. KennedyExecutive Vice President, Chief Human Resources OfficerDecember 2021Melanie M. Kennedy has been EVP and Chief Human Resources Officer since December 2021. She joined AWK in 2007 and has held various HR roles. Before AWK, she practiced law for nine years .
    Cheryl NortonExecutive Vice President and Chief Operating OfficerMarch 2021Cheryl Norton has been EVP and COO since March 2021. She has over 30 years with AWK, holding roles in operational leadership, environmental stewardship, and more. She is also on the Board of Directors of the Water Research Foundation .
    Stacy A. MitchellExecutive Vice President and General CounselJune 5, 2024Stacy A. Mitchell assumed the role of EVP and General Counsel on June 5, 2024, replacing James H. Gallegos. She was previously Senior Vice President and Deputy General Counsel at AWK .
    David M. BowlerExecutive Vice President and Chief Financial OfficerAugust 1, 2024David M. Bowler was named EVP and CFO on August 1, 2024. He has nearly 20 years of utility industry experience and has been with AWK since 2022, previously serving as Deputy CFO and Treasurer .
    Nicholas FuriaVice President and TreasurerAugust 1, 2024Nicholas Furia became Vice President and Treasurer on August 1, 2024. He has 10 years with AWK and served as Assistant Treasurer since 2021, overseeing treasury functions. He has nearly 20 years of experience in accounting and finance roles .

    Questions to Ask Management

    1. 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?
    2. 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?
    3. 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?
    4. 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?
    5. 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?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateFebruary 2015
    End Date/DurationUnrestricted
    Total additional amount10 million shares
    Remaining authorization5,140,000 shares
    DetailsAnti-dilutive program to mitigate dilution from dividend reinvestment, stock purchase plans, and executive compensation. Conducted under Rule 10b-18 and involves Rule 10b5-1 plans.

    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:
      1. 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 .
      2. Long-term EPS and Dividend Growth Targets: 7% to 9% over the next five years .
      3. Capital Investment: Approximately $3.1 billion for 2024 .
      4. Acquisitions: Nearly $500 million in acquisitions under agreement, adding approximately 33,400 new customers .
      5. 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:
      1. Earnings Per Share (EPS) Growth: 7% to 9% per year .
      2. Dividend Growth: 7% to 9% per year on average .
      3. Capital Investment: Approximately $3.1 billion in 2024 .
      4. Debt and Financing: Long-term debt issuance of $1.4 billion; debt-to-capital ratio target of less than 60% .
      5. Customer Growth from Acquisitions: 2% annual customer growth .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Earnings Per Share (EPS) Guidance for 2024: $5.20 to $5.30 per share .
      2. Long-term EPS and Dividend Growth: 7% to 9% .
      3. Customer Growth from Acquisitions: 2% annual customer growth .
      4. Capital Investment Plan: $1 billion for PFAS and $500 million for lead service line replacements .
      5. Regulatory and Rate Base Growth: 8% to 9% .