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EU

Essential Utilities, Inc. (WTRG)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered material beats vs consensus: diluted EPS $1.03 vs S&P Global consensus $0.80* and revenue $783.6M vs $690.0M*, driven by regulatory recoveries, colder-weather gas volumes, and purchased gas pass-throughs. Guidance and long-term targets were reaffirmed. *
  • Management underscored disciplined cost control (flat O&M YoY), regulatory momentum (PA water rates effective Feb 22), and progress on PFAS mitigation and funding; capex was $270.5M in Q1 with full-year $1.4–$1.5B reiterated.
  • Financing remains proactive: ATM equity raised ~$210M YTD through April toward ~$315M in 2025; commercial paper program established to reduce short-term borrowing costs; weighted avg cost of fixed-rate long-term debt 4.02%.
  • Emerging optionality: discussions tied to potential AI/data-center on-site generation in the Pittsburgh region could represent up to 5 GW of needed power; not in guidance but a medium-term upside vector.

What Went Well and What Went Wrong

What Went Well

  • EPS and revenue beats with reaffirmed guidance: “We’re off to a great start to the year… Our investments in infrastructure have set the stage for achieving our expected growth in 2025 and beyond.” Q1 diluted EPS $1.03, revenue $783.6M; FY25 EPS guidance $2.07–$2.11 reaffirmed.
  • Cost discipline: O&M was flat YoY despite higher customer assistance surcharges and inflationary pressures; CFO emphasized revenue +28% and O&M flat, EPS +6.2% YoY.
  • PFAS execution and funding tailwinds: “Full speed ahead” to be compliant by 2028 with ~$450M cumulative capex; ~ $100M proceeds expected from polluter settlements; Aqua PA awarded $17.3M PENNVEST grants/loans for PFAS and lead line replacement.

What Went Wrong

  • Prior-year comp headwind: Q1 2024 included a $0.24 gain from the CHP sale; while EPS still grew 6% YoY, the comp masked even stronger underlying progress.
  • O&M mixed drivers: customer assistance rider O&M offsets and higher employee/production costs were partly offset by lower bad debt and outside services; normalized core O&M growth ~2.8% (ex one-time effects).
  • Answered why not raise guidance: management cited it’s “premature” four months into the year despite a strong start and tailwinds; potential headwinds ahead justify holding the range for now.

Financial Results

Consolidated P&L – Actuals (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($M)$435.3 $604.4 $783.6
Net Income ($M)—$184.8 $283.8
Diluted EPS ($)$0.25 $0.67 $1.03
Operating Income ($M)—$226.6 $338.9
Net Income Margin (%)—30.6% (calc from $184.8/$604.4) 36.2% (calc from $283.8/$783.6)

Note: Margins are calculated from the cited revenue and net income figures.

Estimates vs Actual (S&P Global; current + prior two quarters)

MetricQ3 2024 Cons.Q3 2024 ActualQ4 2024 Cons.Q4 2024 ActualQ1 2025 Cons.Q1 2025 Actual
Revenue ($M)424.4*435.3 643.2*604.4 690.0*783.6
Diluted EPS ($)0.244*0.25 0.666*0.67 0.798*1.03

Values marked with * retrieved from S&P Global.

Key beats/misses:

  • Q1 2025: Revenue beat by ~$93.6M; EPS beat by ~$0.23. Bold positive surprise on both. *
  • Q4 2024: EPS essentially in line/slight beat vs consensus; revenue below consensus. *
  • Q3 2024: Modest beats on revenue/EPS. *

Segment Revenue (Q1 2025 vs Q1 2024)

SegmentQ1 2024 ($M)Q1 2025 ($M)YoY
Regulated Water$279.9 $300.8 +7.5%
Regulated Natural Gas$324.3 $470.8 +45.2% (driven by purchased gas and colder weather volumes)

KPIs and Operating Items (Q1 2025)

  • O&M expense: $137.8M (flat YoY; mix effects described above).
  • Purchased gas: $184.6M (reflecting volume/commodity price mix).
  • Capex: $270.5M in Q1 (on track for $1.4–$1.5B in 2025).
  • Weighted avg cost of fixed-rate long-term debt: 4.02% (3/31/25).
  • Liquidity: $728M available on credit lines (3/31/25).
  • Equity financing: ~$63M via ATM in Q1 2025; ~$145M in April; total issued YTD ≈ $210M toward $315M FY25 plan.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Diluted EPSFY 2025$2.07–$2.11 (Feb 26, 2025) $2.07–$2.11 (May 12, 2025) Maintained
CapexFY 2025$1.4–$1.5B $1.4–$1.5B Maintained
Multi-year EPS CAGR2025–20275–7% from 2024 adj. EPS $1.97 5–7% from 2024 adj. EPS $1.97 Maintained
Rate Base CAGR (combined)Through 2029>8% >8% Maintained
Water Rate Base CAGRThrough 2029~6% ~6% Maintained
Gas Rate Base CAGRThrough 2029~11% ~11% Maintained
Equity Raise via ATMFY 2025≈$315M ≈$315M; ≈$210M issued YTD Maintained / Progressed
DividendQuarterly$0.3255 declared for June 2, 2025 payment $0.3255 payable June 2, 2025 Maintained

Note: Guidance excludes DELCORA; signed municipal deals included; expects continued periodic equity/debt issuance as needed.

Earnings Call Themes & Trends

TopicQ3 2024 (11/5)Q4 2024 (2/27)Q1 2025 (5/12)Trend
AI/Data centers & load growthIntroduced upside from data-center power needs; discussions ongoing; no guidance impact. 5 GW potential in Pittsburgh region reiterated; optionality framed; pricing advantages from Marcellus/Utica gas. Active discussions with developers for up to 5 GW; forms vary (throughput, line extensions, behind-the-meter); timing uncertain; not in guidance. Emerging optionality
PFAS mitigationReinforced ~$450M plan; no rollback expected; pursue grants/lawsuits. Patent-pending modular approach; net investment ~ $450M after offsets; target recovery via deferred accounting/riders. “Full speed ahead”; compliance by 2028; incremental funding progress (PENNVEST, grants/loans). Executing; funding tailwinds
Regulatory environmentPA gas case approved incl. WNA; PA water case settlement pending. PA water case approved; significant annualized increases across jurisdictions; additional multi-year filings planned. Q1 benefited from PA rate outcomes; additional cases pending in KY (gas) and NC (water/wastewater). Constructive/stable
O&M discipline/LeanYTD O&M up ~1% in Q3; focus on efficiency. O&M up ~2% FY; lean program rollout slated. Flat YoY O&M in Q1; normalized core run-rate ~2.8%; lean investments underway. Improving process discipline
Equity & balance sheetATM established ($1B); plan to raise $350M in ’24–’25. FY25 ATM ~$315M; ratings metrics expected to improve in 2025–26. ≈$210M issued YTD; CP program up to $1B to lower short-term funding costs. On plan

Management Commentary

  • “We’re off to a great start to the year… Our investments in infrastructure have set the stage for achieving our expected growth in 2025 and beyond.” – CEO Christopher Franklin.
  • “Our quarterly performance was strong with revenues up 28% and O&M flat and earnings per share up 6.2%.” – CFO Daniel Schuller.
  • “We have moved from the pilot stage to a full implementation plan to install [Intelis] new meters in all residential and small commercial properties… nearly 700,000 customer accounts in the coming years.” – Gas President Michael Huwar.
  • “We are in discussions with data center developers that represent up to 5 gigawatts of needed power generation in the Pittsburgh region.” – Gas President Michael Huwar.
  • PFAS: “Full speed ahead… we will be fully compliant with the 4 parts per trillion MCL by 2028.” – CEO.

Q&A Highlights

  • Equity issuance cadence: Focus on completing ~$315M in 2025; remaining ~$100M will be market-opportunistic; no intent to pull forward 2026 at this time.
  • Texas rate case: Filing targeted end of May; expect ask (revenue, equity layer, ROE) to be consistent with other states; first filing in ~20 years may entail learning curve.
  • Guidance: Strong start acknowledged; premature to raise with three quarters remaining; possible headwinds later in the year.
  • O&M outlook: Normalized core O&M growth ~2.5–3% (≈2.8%); lean program investment near-term, efficiencies later.
  • PFAS funding: Pennsylvania spend largely ahead; grants/loans ongoing and incremental to amounts received to date.
  • PA M&A adjudication tone (e.g., Beaver Falls): Expect commission-level decision as soon as June; management optimistic on constructive outcome.

Estimates Context

  • Q1 2025 beats: Reported diluted EPS $1.03 vs S&P consensus $0.80*; revenue $783.6M vs consensus $690.0M*. *
  • Prior quarters: Q4 2024 EPS $0.67 vs $0.666* (in-line/slight beat); revenue $604.4M vs $643.2M* (below). Q3 2024 EPS $0.25 vs $0.244* (beat); revenue $435.3M vs $424.4M* (beat). *
  • Implications: Estimate revisions should rise for FY25 given the magnitude of the Q1 beat, particularly on gas volumes/purchased gas pass-through and regulatory recoveries. Expense normalization (customer assistance rider offsets, lean ramp) and weather-normalization (WNA) reduce intra-year volatility.

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Strong quarter with broad-based drivers and material beats, while maintaining full-year EPS and capex guidance—supports confidence in 5–7% EPS CAGR through 2027.
  • Regulatory execution remains a core competitive advantage (PA water rates in effect; WNA in gas), moderating weather risk and underpinning cash flows.
  • PFAS program advancing on-time/on-budget with incremental grant/loan support—net investment anchored around ~$450M by 2028 with growing external funding offsets.
  • Balance sheet actions are proactive (ATM, CP program); ~two-thirds of 2025 equity needs already issued by April, reducing financing overhang.
  • Optionality from data-center-driven gas load could drive medium-term throughput and/or capital deployment; not in guidance but watch for deal announcements.
  • Near-term modeling: Expect softer seasonality in Q2/Q3, consistent with historical earnings cadence and WNA dampening volatility; maintain FY EPS range per management stance.
  • Risk checks: Monitor Kentucky gas and North Carolina water/wastewater rate cases, PFAS cost recovery mechanics by state, and any changes in PA administrative outcomes for pending M&A.