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Aqua America Inc. (WTR - Snapshot Report) reported third-quarter 2013 earnings per share of 36 cents, beating the Zacks Consensus Estimate of 35 cents by 2.9%. On a year-over-year basis, earnings increased 24.1% on the back of rate awards in some of the company’s service territories, cost-control initiatives and benefits from the execution of repair tax at the Pennsylvania unit.

Revenue

The company’s operating revenues were $204.3 million, missing the Zacks Consensus Estimate by 6.3%. Quarterly revenues also decreased 4.8% year over year due to a decline in water consumption resulting from higher-than-average rainfall in numerous service areas and a negative impact associated with the absence of a rate settlement in Pennsylvania.

Operational Update

In the quarter under review, Aqua America’s total costs and expenses were $117 million, up 2.6% year over year due to a rise in operations and maintenance expenses as well as depreciation expenses, and higher taxes (other than income taxes).

A decrease in revenues was more than offset by an increase in total costs and expenses. In the reported quarter, operating margin declined to 42.8% from 46.9% in the year-ago quarter.

Aqua America’s interest expenses totaled $19.4 million, down 1.3% year over year primarily due to a decline in long-term debt.

Financial Update

As of Sep 30, 2013, Aqua America’s current assets were $211.6 million versus $260.9 million as of Dec 31, 2012.

Long-term debt as of Sep 30, 2013 was $1,630.6 million compared with $1,669.4 million at the end of 2012.

In Sep 2013, the company increased the quarterly dividend rate by 8.6% to 15.2 cents per share. On an annualized basis, the dividend rate will be 60.8 cents.

Other Company Releases

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.

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%.

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

Aqua America continues to invest substantially in organic as well as inorganic growth projects. During the first nine months of 2013, the company spent $216.1 million, under its capital investment program, to upgrade infrastructure distribution networks and replace older pipes mainly in Pennsylvania. The timely completion of these ventures will help the company to supply clean water to its customers.

On the inorganic front, the company acquired nine water and wastewater utility systems to date. These initiatives will enable the company to add new customers, thereby improving the top line going forward.

To date, the company has received rate approvals and infrastructure surcharges in New Jersey, Texas, Illinois, Ohio, and Virginia, which will fetch additional annualized revenues of $12.3 million. This kind of government support will encourage Aqua America to invest more in the improvement of utility infrastructure, which in turn will improve reliability.

Aqua America currently has a Zacks Rank #3 (Hold).

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