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Essential Utilities, Inc. (WTRG)·Q3 2025 Earnings Summary

Executive Summary

  • Solid quarter: rate increases drove revenue and EPS growth; management reiterated full-year GAAP EPS expected above the prior $2.07–$2.11 guidance range due to non-recurring benefits, while reaffirming long-term targets .
  • Earnings beat Street: Q3 EPS and revenue were above S&P Global consensus; magnitude and drivers detailed below, with non-recurring tax favorability and rate actions highlighted by management . Values retrieved from S&P Global.
  • Strategic catalysts: announced all-stock merger with American Water (pro forma ~$40B market cap) and a $26M convertible-note investment tied to a 18 MGD data center water plant; neither is embedded in near-term EPS guidance, with the Greene County project expected operational mid-2029 .
  • Balance sheet/liquidity improved: weighted average fixed-rate debt cost rose modestly to 4.12%, credit line availability expanded to $1.138B; ~$300M issued via ATM year-to-date by 9/30 to support capex and strategic initiatives .
  • No Q&A this quarter due to merger announcement; management expects to resume normal Q&A with Q4 results .

What Went Well and What Went Wrong

What Went Well

  • Rate actions drove growth: Revenues up 9.6% YoY to $476.971M, with ~$34.2M QoQ increase attributable to rates/surcharges; EPS up 32% YoY to $0.33 .
  • Segment execution: Water revenues +8.8% YoY to $364.1M; Gas revenues +12.1% YoY to $108.5M; O&M in gas decreased YoY due to lower materials, legal, and outside services from capitalization .
  • Strategic vision reiterated: “This transaction represents a truly transformational opportunity… creating a combined entity… greater than the sum of its parts,” on the American Water merger . “Our aim is to generate reliable growth in both earnings and dividends,” reaffirming 5–7% multi-year EPS CAGR (normalized) .

What Went Wrong

  • Cost pressures: Company-level O&M rose 6% YoY (up ~$8.7M), driven by employee-related costs, bad debt normalization, and higher water production costs (power, chemicals, purchased water), partially offset by lower outside services/capitalization .
  • Interest expense: Higher interest expense (Q3 $82.269M vs $76.846M YoY) continued to weigh on earnings; depreciation and amortization also higher YoY .
  • Seasonal/wet weather headwinds: Management cited wet summer impacts on water consumption; sequential margins compressed vs Q2 as typical seasonal patterns and cost mix weighed on Q3 .

Financial Results

Sequential Performance (2025)

MetricQ1 2025Q2 2025Q3 2025
Operating Revenues ($USD)$783,626,000 $514,907,000 $476,971,000
Net Income ($USD)$283,789,000 $107,827,000 $92,077,000
Diluted EPS ($USD)$1.03 $0.38 $0.33
Operating Income ($USD)$338,905,000 $185,271,000 $169,771,000
O&M Expense ($USD)$137,824,000 $148,510,000 $153,088,000

Year-over-Year (Q3)

MetricQ3 2024Q3 2025
Operating Revenues ($USD)$435,255,000 $476,971,000
Net Income ($USD)$69,402,000 $92,077,000
Diluted EPS ($USD)$0.25 $0.33
O&M Expense ($USD)$144,368,000 $153,088,000

Actual vs S&P Global Consensus (Q3 2025)

MetricActualConsensusSurprise
Diluted EPS ($USD)$0.33 $0.285*Beat
Operating Revenues ($USD)$476,971,000 $472,400,000*Beat
EPS Estimates (#)—5*n/a
Revenue Estimates (#)—2*n/a

Values retrieved from S&P Global.

Margins (last 3 quarters)

MetricQ1 2025Q2 2025Q3 2025
EBIT Margin (%)42.50%*35.92%*35.53%*
Net Income Margin (%)36.21%*20.94%*19.30%*

Values retrieved from S&P Global.

Segment Revenues and O&M (Q3)

SegmentRevenue Q3 2024 ($USD)Revenue Q3 2025 ($USD)O&M Q3 2024 ($USD)O&M Q3 2025 ($USD)
Regulated Water$334,500,000 $364,100,000 $96,400,000 $105,700,000
Regulated Natural Gas$96,700,000 $108,500,000 $49,000,000 $47,500,000

Selected P&L Items (Q3 2025)

MetricQ3 2025 ($USD)
Purchased Gas$22,506,000
Depreciation$103,322,000
Amortization$3,744,000
Taxes other than Income$24,540,000
Interest Expense$82,269,000

Liquidity & Financing KPIs

MetricQ1 2025Q2 2025Q3 2025
Weighted Avg Cost of Fixed-Rate LT Debt4.02% 4.03% 4.12%
Credit Line Availability ($USD)$728,000,000 $802,000,000 $1,138,000,000
ATM Equity Raised to Date ($USD)$63,000,000 (Q1) + $145,000,000 (April) ~$210,000,000 ~$300,000,000
Infrastructure Investment YTD ($USD)~$271,000,000 $613,000,000 $983,000,000

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
FY GAAP EPS2025Range $2.07–$2.11 affirmed (May) Expect GAAP EPS above $2.07–$2.11 due to non-recurring benefits (Jul/Nov) Raised vs affirmed
EPS CAGR (normalized base)Through 20275–7% off 2024 adjusted EPS $1.97 5–7% off 2024 adjusted EPS $1.97 reaffirmed Maintained
Regulated Infra Investment2025$1.4–$1.5B $1.4–$1.5B reaffirmed Maintained
Total Regulated Capex2025–2029~$7.8B ~$7.8B reaffirmed Maintained
Rate Base Growth (Water)Through 2029~6% CAGR (excl. DELCORA) ~6% CAGR reaffirmed Maintained
Rate Base Growth (Gas)Through 2029~11% CAGR ~11% CAGR reaffirmed Maintained
Combined Rate Base GrowthThrough 2029>8% CAGR >8% CAGR reaffirmed Maintained
ATM Equity Raise2025~$315M planned (May/Jul) ~$350M planned; ~$300M raised YTD; +$25M tied to data center Raised
DividendQ2/Q3 2025Increased 5.25% (to $0.3426) Declared $0.3426 payable Dec 1, 2025 Maintained rate
Tax Rate Commentary2025–2026n/a2025: low single-digit benefit; 2026: low single-digit expense New color

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Merger strategyn/a in Q1; standard M&A pipeline American Water all-stock merger announced; “preeminent… combined entity” New, major positive catalyst
Data center initiativeActive discussions up to 5 GW demand (Pittsburgh region) $26M convertible-note investment; 18 MGD plant; targeted ROE above regulated; operational mid-2029 Advancing execution
PFAS remediation$450M capex plan; full speed ahead to meet EPA timelines Reaffirmed multiyear plan; >300 projects; leadership positioning Steady execution
O&M disciplineFlat YoY in Q1; ~4% YoY in Q2; lean program investments beginning Q3 up ~6% YoY; normalized ~3% when adjusting for items Mixed; near-term elevated, long-term targeted lower
Regulatory activityPA rate order; NC multi-year filing; KY gas base rate increase Pending cases: NC, OH, TX, VA; surcharges KY; requested +$96.5M water/wastewater; +$2.9M gas Continued
Tax linen/a2025 benefit, 2026 expense framing New modeling clarity
Technology (gas meters)Intelis pilot, full rollout plan 93,000 installed; 2025 goals met Execution progress

Management Commentary

  • Merger narrative: “This transaction represents a truly transformational opportunity… creating a combined entity that is demonstrably greater than the sum of its parts,” positioning for 7–9% EPS and dividend growth targets at the combined company .
  • Earnings drivers: “Revenues up 9.6%… rate increases… EPS up 32% YoY… partially offset by higher depreciation, interest, and O&M; tax expense decreased,” summarizing Q3 P&L dynamics .
  • Data center strategy: “Our $26 million initial investment is structured as a convertible note… expected rate of return… higher than typical regulated returns… 18 MGD water plant costing $125–$175M… operational in 2029” .
  • Execution & capital: “We expect to achieve GAAP EPS above our guidance range of $2.07–$2.11 due to non-recurring benefits… reaffirming ~$1.4B infrastructure investments for 2025” .
  • Q&A pause: “In light of the pending merger… we will not host an associated question and answer session this quarter” .

Q&A Highlights

  • No Q&A held in Q3 due to merger announcement; management expects to resume with Q4 results .
  • Context from Q2/Q1 Q&A:
    • EPS drivers and outlook: GAAP EPS expected above guidance driven by gas usage, tax items, insurance proceeds; seasonal/wet weather headwinds acknowledged .
    • Cash flow and PFAS settlements: targeted FFO metric to satisfy ratings thresholds; ~$45–46M PFAS proceeds expected in 2025; $7.1M received by early August .
    • Regulatory environment (PA): constructive engagement with consumer advocates; FMV pricing discipline relative to reasonable review ratio .
    • Tax modeling: 2025 low single-digit benefit, 2026 low single-digit expense .
    • Data center opportunity timeline and structures (behind-the-meter, unregulated options) .

Estimates Context

  • Q3 outcome vs Street: EPS $0.33 vs $0.285 consensus (Beat); revenue $476.971M vs $472.400M consensus (Beat). Values retrieved from S&P Global.
  • Implications: Street models should reflect rate-driven revenue uplift and lower tax expense in Q3; management reiterated GAAP EPS above the full-year range due to non-recurring items, and advised continuing to use the normalized $2.07–$2.11 range midpoint ($2.09) as the base for the 5–7% CAGR through 2027 .
  • Estimate breadth: 5 EPS estimates and 2 revenue estimates for Q3, indicating moderate coverage. Values retrieved from S&P Global.

Key Takeaways for Investors

  • Regulatory execution remains the core driver (rates/surcharges) with steady multi-year capex and rate base growth; near-term EPS above the GAAP guidance range is aided by non-recurring items .
  • The American Water merger is a structural catalyst to re-rate the equity toward larger-cap regulated utility growth/defensiveness; approval timeline and integration plans are key watch items .
  • The Greene County data center water project introduces an attractive quasi-infrastructure return profile outside regulated earnings, with optionality via the convertible note and longer-dated operational start (2029) .
  • Cost mix and financing headwinds (interest expense, higher depreciation) and seasonal dynamics will pressure near-term margins; management is investing in lean programs to bend O&M growth toward ~2–3% over time .
  • Liquidity improved with larger credit line headroom and ATM proceeds; 2025 ATM target increased to ~$350M to preserve credit metrics and fund strategic projects .
  • PFAS execution and funding (settlements and grants/loans) remain a differentiator and support acquisition-led growth as municipalities face compliance complexity .
  • Near-term trading: focus on merger-related filings, Q4 call resumption of Q&A, and regulatory case outcomes (NC multi-year, TX, OH, VA) as catalysts for estimate revisions and sentiment .

Values retrieved from S&P Global.