American Water Works Company, Inc. (AWK)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 EPS was $1.05, up ~10.5% year over year, driven by authorized rate increases and acquisitions; the company affirmed 2025 EPS guidance of $5.65–$5.75 and long‑term 7–9% EPS and dividend CAGR targets .
• Revenue beat Street expectations, while EPS slightly missed: revenue of $1.142B vs consensus ~$1.069B*, EPS $1.05 vs consensus ~$1.066*; higher O&M, depreciation and financing costs supported the capital plan and weighed on EPS .
• Dividend raised 8.2% to $0.8275/share (payable June 3), and $800M of 5.250% senior notes (due 2035) were issued in February; net debt/cap ~58% remained within target and ratings/stable outlook were affirmed by S&P and Moody’s .
• Regulatory catalysts: Missouri rate settlement approved (+$63M annualized, effective May 31), Virginia order (+$15M annualized, 9.7% ROE), and WV filing for +$47.8M in two steps; legislative progress in MO (future test year), IN, VA supports earned returns and investment visibility .

What Went Well and What Went Wrong

What Went Well

• Authorized rate increases drove revenue growth; Regulated Businesses’ net income rose to $201M from $185M YoY as new rates and infrastructure surcharges took effect .
• Execution on capital program: $518M invested in Q1, on pace for ~$3.3B in 2025; visibility to 8–9% long‑term rate base growth maintained .
• Dividend increased 8.2% to $0.8275/share; long‑term guidance reaffirmed (“we are affirming our long-term targets for both earnings and dividend growth at 7 to 9 percent”) .

What Went Wrong

• Cost pressure as planned: O&M +$78M YoY, depreciation +$29M, interest expense +$17M to support investment growth, more than offset revenue upside on EPS .
• EPS slightly missed consensus (~$1.05 vs ~$1.066*) as higher financing and depreciation costs flowed through faster than revenue recognition .
• Continued expense headwinds from employee-related costs and general taxes tied to capital investment; management flagged these as expected components of the plan .

Financial Results

Revenue and EPS – sequential and YoY comparison

Q1 2025 actuals vs Wall Street consensus

Values retrieved from S&P Global.*

Profitability and margins

Segment snapshot

Key performance indicators (Q1 2025)

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• John Griffith: “We are affirming our long-term targets for both earnings and dividend growth at 7 to 9 percent… driven by our clear capital growth plan, and strong regulatory and operational execution” .
• David Bowler: “Revenues were higher… primarily due to authorized rate increases… O&M was higher… Depreciation increased… financing costs increased… all as expected in support of our investment growth” .
• Cheryl Norton: “Our capital program is off to a good start… investing $518 million in the first quarter… we don’t expect any significant tariff-related impacts as most of our key expenses… are primarily sourced domestically” .
• On California desalination: “We expect to break ground this year on desal… That’s a separate docket” .
• On ratings/liquidity: “S&P affirmed our A rating… Moody’s affirmed Baa1… FFO-to-debt ratios well within current rating thresholds” .

Q&A Highlights

• Equity issuance timing: No plans to pull forward 2026 equity; issue when financing is needed .
• Acquisition outlook under recession: Pipeline remains robust; fiscal pressure could increase seller interest; fundamentals favor consolidation .
• California proceedings: Next GRC filing; cost of capital stays at 10.2% through 2025, with filing in 2026 for 2027 start .
• Legislative impacts: MO future test year, IN DSIC enhancements, VA expanded infrastructure recovery expected to incrementally support earned returns .
• Desal schedule clarification: Groundbreaking expected in 2025; outside GRC docket .

Estimates Context

• Q1 2025: Revenue beat and EPS slight miss vs consensus: revenue $1.142B vs ~$1.069B*, EPS $1.05 vs ~$1.066* . Values retrieved from S&P Global.*
• Implications: Street may lift revenue trajectories modestly on stronger rate realization and acquisition contributions, while keeping EPS broadly within guidance given planned O&M/depreciation/financing cadence outlined by management .

Key Takeaways for Investors

• Earnings quality: Revenue upside is translating from constructive regulatory outcomes and acquisition growth, while EPS cadence reflects the planned expense profile of a scaling capex program; guidance intact .
• Regulatory momentum: Missouri settlement and supportive legislation in MO/IN/VA underpin improved earned return potential and lower regulatory lag in key jurisdictions .
• Capital plan visibility: $518M deployed in Q1 and ~$3.3B targeted for 2025 sustain 8–9% rate base growth and the 7–9% EPS/dividend CAGR framework .
• Balance sheet/risk: $800M LT debt at 5.25% executed; net debt/cap ~58% with affirmed ratings and stable outlook—ample capacity to finance near-term capex without 2025 equity .
• Corporate actions: Dividend raised 8.2% to $0.8275/share; continued acquisition pipeline (~37k connections) supports customer growth and affordability narrative .
• Event watchlist: California GRC filing and desal milestones; WV two‑step rate case; final MO order ROE/capital structure; tariff developments (low expected impact) .
• Trading lens: Near‑term catalysts include regulatory decisions and execution on capex/acquisitions; narrative skew is constructive (authorization momentum + dividend/pricing power), with EPS trajectory bounded by guided cost ramps and financing cadence .