Q3 2024 Summary
Published Feb 7, 2025, 7:58 PM UTCMetric | YoY Change | Reason |
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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. |
Metric | Period | Previous Guidance | Current Guidance | Change |
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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 |
Metric | Period | Guidance | Actual | Performance |
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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 |
Topic | Previous Mentions | Current Period | Trend |
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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 |
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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. -
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. -
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. -
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. -
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. -
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.