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    American Water Works Company Inc (AWK)

    Q3 2024 Summary

    Published Feb 7, 2025, 7:58 PM UTC
    Initial Price$129.48July 1, 2024
    Final Price$145.67October 1, 2024
    Price Change$16.19
    % Change+12.50%
    MetricYoY ChangeReason

    Total Revenue (US$1,323 million)

    +13%

    Authorized rate increases, acquisitions, and organic growth in key service territories increased revenue. The company’s regulatory strategy (recovering infrastructure investments through rate cases) also contributed to the higher top line.

    Regulated Businesses Revenue (US$1,219 million)

    +11%

    Rate adjustments in multiple jurisdictions, coupled with infrastructure surcharges to fund capital projects, drove the increase. Acquisition-related expansion and favorable market conditions for water services further supported growth.

    Other Segment Revenue (US$104 million)

    +44%

    Additional capital projects in the Military Services Group, including new or expanded operations at military installations, fueled the increase. This segment’s strong performance stems from company-specific contract wins and timing of project starts.

    Net Income (US$35 million)

    -89%

    The sharp decline reflects higher operating and financing costs, along with possible non-cash charges or unfavorable weather compared to a strong prior year. Elevated depreciation from recent infrastructure investments also compressed margins, impacting profitability.

    Diluted EPS (US$1.80)

    +7%

    Capital structure changes, including share count effects, helped offset the impact of lower net income. Additionally, tax benefits or one-time items may have bolstered EPS despite cost pressures and higher interest expense.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    EPS

    FY 2024

    $5.25–$5.30

    $5.25–$5.30

    no change

    EPS

    FY 2025

    no prior guidance

    $5.65–$5.75

    no prior guidance

    Cash Taxes

    FY 2025

    no prior guidance

    $100 million, ± per year

    no prior guidance

    MetricPeriodGuidanceActualPerformance
    Debt-to-Capital Ratio
    Q3 2024
    56%
    55.2% (calculated from short-term debt of 215+ long-term debt of 12,550And shareholders' equity of 10,362)
    Met
    TopicPrevious MentionsCurrent PeriodTrend

    Consistent emphasis on large capital investments and long-term rate base growth targets

    Consistently highlighted in prior quarters, with $3.1B for 2024 and long-term investment strategies in place (e.g., $3.1B Q2 2024 plan; $1B+ PFAS compliance in Q4 2023).

    Continues strong focus on multi-billion-dollar capital spending plans (e.g., $3.3B in 2025, $17B–$18B from 2025–2029), expecting 8%–9% rate base growth and reaffirmed 7%–9% EPS target.

    Steady priority across periods

    Ongoing regulatory challenges in Pennsylvania (and occasionally Illinois) affecting rate cases, cost recovery, and acquisitions

    Previously flagged as a hurdle in each call (e.g., Pennsylvania ROE shortfalls, delayed Butler Area Sewer Authority closing, pending Illinois rate case outcomes). Despite challenges, the company consistently pursued investment recoveries.

    Emphasizes a recent lower-than-desired ROE in Pennsylvania but factored into plans; final decision in Illinois (proposed 9.84% ROE) due by December 17, 2024.

    Ongoing issue with regulatory hurdles continuing

    Recurring focus on acquisitions as a core growth driver, with both bullish optimism and delays/legal hurdles noted each quarter

    Repeated optimism on adding tens of thousands of connections each quarter (Q2 noted $500M in acquisitions under agreement; Q1 flagged pending deals in Pennsylvania facing regulatory delay; Q4 underscored 2% annual customer growth target via acquisitions).

    Closed six acquisitions totaling $349M, adding ~50,000 customers (including Butler) and expanded the pipeline to over 1.5M potential customer connections, though still facing regulatory complexities in some states.

    Unchanged as a growth engine despite periodic delays

    Earnings and EPS guidance reaffirmed or raised in multiple periods, underpinning a 7%-9% long-term growth target

    Each quarter reaffirmed the 7%–9% long-term EPS range; Q2 refined 2024 guidance to $5.25–$5.30, Q1 reiterated 7%–9% through 2028, Q4 raised 2024 guidance by $0.10 to $5.20–$5.30.

    Narrowed 2024 guidance to $5.25–$5.30 and initiated 2025 at $5.65–$5.75 (8% growth), reiterating the 7%–9% EPS growth through 2029.

    Consistently reaffirmed with incremental raises

    PFAS litigation risk prominent in Q4 2023 and Q1 2024 but largely absent afterward, shifting to PFOS compliance in Q3 2024

    Q4 2023 and Q1 2024 calls discussed PFAS liability protections, multi-district litigation data requests, and potential settlement offsets; Q2 2024 briefly mentioned awaiting MDL payouts.

    No direct mention of PFAS litigation; focus instead on PFOS capital compliance (~$1B) and environmental investments.

    Shift from litigation to compliance by Q3 2024

    New in Q3 2024: concerns about loss of interest income from the HOS note after 2025 and a larger equity issuance plan raising dilution questions

    Not discussed in prior quarters (Q2, Q1, Q4) [No mentions].

    Addressed the $0.20/share from HOS note potentially ending by December 2025 call date, with $795M repayment offsetting some financing needs; announced a $2.5B equity plan through 2029, causing questions about dilution.

    New topic in Q3 2024

    Sentiment shift from proactive PFAS litigation mitigation in early calls to compliance-driven approaches by Q3 2024

    Earlier quarters (Q4 2023, Q1 2024) included proactive litigation strategies and potential PFAS liability protections; Q2 2024 likewise mentioned PFAS multi-district litigation but no new approach details.

    Did not explicitly discuss litigation, focusing on compliance spending and capital for PFOS/lead rules.

    Less focus on litigation, more on meeting regulations

    Potentially significant future impacts from major capital plans, possible negative rate case outcomes, acquisition pipelines, and financing/dilution issues

    Regularly addressed in prior calls: long-term capital needs (~$3.1B–$3.3B/year), Pennsylvania and Illinois rate cases with potential negative outcomes, ongoing acquisition pipeline, and rising debt/equity to fund expansion.

    Highlighted accelerated capex, expanded acquisitions, and new equity issuance; reaffirmed that ~75% of capex is recovered via trackers, but recognized that lower-than-expected ROEs can shift capital allocation.

    Increasingly prominent as capex grows and financing questions loom

    1. Earnings Power Post-2026
      Q: How will you bridge earnings loss after interest income ends?
      A: In 2021, we accelerated our capital plan, increasing the 5-year plan by a couple of billion dollars. We're injecting equity into our operating companies to generate incremental regulated earnings, replacing the $0.20 per share of interest income from the note. The $795 million from the note's repayment avoids incremental debt, offsetting most of the earnings gap. The note matures in December 2026 but can be called as of December 2025.

    2. Financing Plan Details
      Q: Why increase equity by $1.5B for a $1B CapEx rise?
      A: Despite the $1 billion increase in our 5-year CapEx plan, we would still raise equity to maintain a strong balance sheet. The size and nature of our plan require periodic equity raises to fund robust capital investments. We're targeting 8% to 9% rate base growth and will continue financing to meet long-term objectives.

    3. Cash Taxes Starting 2025
      Q: What cash taxes do you expect with AMT in 2025?
      A: We expect to be cash taxpayers starting in 2025 due to the alternative minimum tax. Anticipated cash taxes are approximately $100 million per year, plus or minus, as part of AMT.

    4. Pennsylvania Strategy
      Q: How is CapEx and rate strategy in Pennsylvania evolving?
      A: Our capital planning is risk-based, investing where the need is greatest. We'll continue significant investments in Pennsylvania despite a lower-than-hoped ROE in the recent rate case, which is built into our plan. We expect 8% growth in 2025, fully reflected in our projections.

    5. Frequency of Rate Cases
      Q: Are frequent rate cases to maintain allowed ROEs?
      A: Rate case frequency is driven by investment needs, not just achieving allowed ROEs. Accelerated capital investments increase rate base growth, necessitating timely recovery. About 75% of investments are recovered more timely through mechanisms, but the rest requires traditional rate cases.

    6. Electricity Cost Inflation
      Q: Are you mitigating rising electricity costs?
      A: Yes, electricity costs are a major focus, and we have multiple long-term contracts in place, some extending to 2029, to mitigate inflation risk. Our current contracting strategy helps manage affordability concerns.