Q4 2024 Summary
Published Feb 20, 2025, 5:59 PM UTC- The company is excited about growth opportunities in its Military Services Group, which aligns well with its regulated businesses, and is ready to bid on future utility privatization projects at military bases.
- American Water has secured a contract with Calgon Carbon to ensure the procurement of necessary supplies for its PFOS remediation projects, demonstrating robust supply chain management that supports its significant capital investment plans.
- The company is proactively seeking to reinstate full decoupling mechanisms in California by filing a motion for rehearing, which could enhance future revenues and earnings stability if successful.
- Regulatory uncertainty in California due to partial decoupling mechanism: The California commission adopted a partial decoupling mechanism instead of the full decoupling the company sought. American Water has filed a motion for rehearing, but the outcome is uncertain and may negatively impact revenues in California.
- Potential equity dilution due to planned equity financing: Management confirmed the need for equity financing but is not considering hybrids, even though the water sector has sharply derated. This could lead to more dilution than anticipated.
- Uncertainty in non-regulated business growth, particularly the Military Services Group: Management did not disclose detailed financial results for the nonutility business and acknowledged uncertainty regarding future projects and timing in the Military Services Group.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Increased approximately 16% (from $1,032M to $1,201M) | Q4 2024 revenue growth was driven by strong performance in its regulated businesses – notably water services contributed $993M towards the $1,092M of regulated revenue – supported by authorized rate increases and ongoing infrastructure investments that built on prior period improvements. |
Operating Income (EBIT) | Plunged over 99% (from $543M in Q3 2024 to $4M in Q4 2024) | Despite higher revenues, EBIT fell dramatically mainly due to extraordinary non‐operating adjustments; the surge in depreciation & amortization expense sharply reduced operating income, marking a stark contrast from Q3 2024 performance where strong organic and acquisition‐driven revenue growth boosted EBIT. |
Depreciation & Amortization | Increased from $2M in Q3 2024 to $405M in Q4 2024 | The sharp rise in D&A expense reflects significant non‐operating adjustments, largely attributable to additional utility plants placed in service from capital infrastructure investments and likely timing/reclassification adjustments, which contrast starkly with the minimal D&A recorded in Q3 2024. |
Net Income | Rebounded strongly (from $35M in Q3 2024 to $554M in Q4 2024) | Net income’s dramatic recovery stems from the impact of a lower cash expense basis as the non‐cash D&A adjustments affected EBIT substantially, while other operating gains, lower effective tax/interest expense dynamics, and revenue strength helped drive bottom‐line performance back upward, overcoming the interim operating income anomaly observed in Q3 2024. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EPS Guidance | FY 2025 | $5.65 to $5.75 per share | $5.65 to $5.75 per share | no change |
EPS Growth | FY 2025 | 7% to 9% EPS growth | 7% to 9% EPS growth | no change |
Dividend Growth | FY 2025 | 7% to 9% compound annual (EPS & dividend) growth | 7% to 9% annual dividend growth | no change |
Rate Base Growth | FY 2025 | 8% to 9% rate base growth | 8% to 9% rate base growth | no change |
Equity Financing Plan | FY 2025 | no prior guidance | $2.5 billion total planned external equity issuances, with $1B in 2026 and $1.5B in 2029 | no prior guidance |
Debt Financing for 2025 | FY 2025 | no prior guidance | $1.5 billion to $2 billion in long-term debt financing | no prior guidance |
Capital Investment Plan | FY 2025 | no prior guidance | Expected to invest over $3 billion annually, including $300 million to $400 million per year in acquisitions | no prior guidance |
Customer Growth Through Acquisitions | FY 2025 | no prior guidance | Targeted 2% compounded annual growth rate | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
EPS | FY 2024 | $5.25-$5.30 | $5.39 (0.95+ 1.42+ 1.80+ 1.22) | Beat |
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EPS Growth Guidance
Q: Should we exclude the $0.10 from the base for 7%-9% EPS growth?
A: Management confirmed that the $0.10 from the remarketing of loans should be excluded when modeling the 7%-9% EPS growth rate. This amount is considered a one-time earnings item and should be separated out. , -
PFOS/PFAS Capital Plans
Q: Any changes to PFOS/PFAS strategy amid new executive orders?
A: The company has made no changes to its plans for addressing PFOS/PFAS. Despite recent developments in D.C., they still intend to invest the planned $1 billion in capital to meet regulatory requirements and maintain clean, safe water standards. -
Acquisition Strategy Expansion
Q: Can you elaborate on added business development capabilities?
A: The company has expanded its business development team, adding staff to enhance origination work across multiple states. They've ramped up corporate support to drive consistency in integration and due diligence processes, leading to growth across their entire footprint. , -
Financing Plans
Q: Consider using hybrids instead of equity due to sector derating?
A: Management has evaluated all financing options but finds hybrids not cost-effective and more dilutive than straight equity based on current trading levels. They plan to issue equity when needed to maintain a strong balance sheet, timing it appropriately with funding needs. , -
Missouri Regulatory Environment
Q: Update on Missouri rate case and legislative efforts?
A: The company expects to reach a settlement in the Missouri rate case before hearings commence. They are working to improve the regulatory environment by advocating for future test years to reduce regulatory lag, collaborating with other utilities and the commission. , -
Supply Chain and Capital Projects
Q: Any disruptions in procurement for capital projects?
A: There have been no supply chain disruptions affecting capital projects, including pipe replacement and PFOS work. Their robust supply chain organization has secured necessary materials, including a contract with Calgon Carbon for long-term needs. -
Customer Usage Trends
Q: Are there changes in usage per customer?
A: Usage per customer continues to decline slightly due to efficient fixtures and conservation awareness, but this trend is plateauing. The company is not concerned, as they have ample capacity and see no troubling declines. -
Economic Development Impact
Q: Is manufacturing growth affecting customer demand?
A: Economic development like AI and data centers is beginning to trickle in, but these are more power-hungry than water-intensive. Significant increases in water demand are not expected, though some infrastructure build-out may occur. -
California Decoupling
Q: Are you challenging the commission's decision on decoupling?
A: The company has filed a motion for rehearing to retain the previous full decoupling mechanism in California, seeking to address the commission's decision through legal avenues. -
Non-Utility Business Outlook
Q: What are the results and plans for the non-utility business?
A: While detailed results aren't publicly disclosed, the company is excited about its Military Services Group, which aligns with the regulated business. They aim to encourage military utility privatization and are prepared to bid on future projects as opportunities arise.