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American Water Works Company, Inc. (AWK - Snapshot Report) reported third-quarter 2013 earnings from continuing operations of 84 cents per share, missing the Zacks Consensus Estimate by a penny. Quarterly earnings were 2.3% lower than the year-ago figure.

The disappointing performance was primarily due to lower-than-normal weather conditions, and an increase in depreciation expenses as well as general taxes.


The company’s operating revenues were $829.2 million, missing the Zacks Consensus Estimate by $33.8 million. On a year-over-year basis, revenues edged down 0.3% from $831.8 million.

Quarterly revenues decreased primarily due to a 1.0% decline in Regulated Businesses segment’s sales as customer demand remained low in a much cooler summer. The negatives were partially offset by a 5.5% year-over-year jump in sales at the Market-Based Operations segment on the back of increasing contracts at Homeowner Services.

Operational Update

In the quarter under review, American Water Works Company’s total operating expenses edged up 0.2% year over year to $505.3 million due to higher depreciation expenses and a rise in general taxes.
The company’s operating margin decreased marginally by 30 basis points from the year-ago level to 39.1%.

Net interest expenses inched up 1% year over year to $77.4 million due to a rise in the commercial paper outstanding.

Financial Update

As of Sep 30, 2013, American Water Works Company’s cash and cash equivalents were $32.5 million versus $24.4 million as of Dec 31, 2012.

Long-term debt as of Sep 30, 2013 was $389.4 million compared with $270 million as of Dec 31, 2012.

During the first nine months of 2013, the company’s net cash flows provided by operations were $688.7 million versus $735 million in the prior-year comparable period.

American Water Works Company invested $665.3 million in capital expenditure during the first nine months of 2013.

Dividend Update

The board of directors announced that the company will distribute a quarterly cash dividend of 28 cents per common share on Dec 2, 2013, to shareholders of record as of Nov 15, 2013.


Less favorable weather conditions propelled the company to narrow its full-year 2013 adjusted earnings guidance to $2.17 - $2.22 per share from the earlier projection of $2.15 - $2.25 per share.

In 2013, American Water Works Company intends to invest roughly $950 million in construction activities.

Other Company Releases

American States Water Company (AWR - Snapshot Report) reported third-quarter 2013 pro forma earnings of 53 cents per share, beating the Zacks Consensus Estimate of 47 cents by 12.8%.

SJW Corp.’s (SJW - Snapshot Report) third quarter 2013 operating earnings per share of 44 cents missed the Zacks Consensus Estimate by 8 cents.

California Water Service Group (CWT - Snapshot Report) announced third-quarter 2013 operating earnings of 61 cents per share, surpassing the Zacks Consensus Estimate by 9 cents.

Our View

Despite missing both the estimates, we appreciate the company’s efforts to control costs and other measures taken to improve its operation.

American Water Works Company is currently expanding its operations through an inorganic growth strategy besides improving its existing infrastructure. To date, the company has completed acquisitions of eight water and four wastewater systems. Recently, the company's Homeowner Services business expanded its service offerings into Florida and Washington, D.C. These initiatives will enable the company to serve more number of customers.

During the quarter, the company received new rate approvals in West Virginia and Kentucky, which will fetch additional annualized revenues of $8.5 million and $6.9 million, respectively. This kind of government support will encourage the company to invest more in the improvement of utility infrastructure, which in turn will subsequently improve reliability.

American Water Works Company currently has a Zacks Rank #3 (Hold).

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