Water utility American Water Works Company’s (AWK Quick QuoteAWK - Free Report) third-quarter earnings per share of $1.05 beat the Zacks Consensus Estimate of $1.00 by 5%.

 

Reported earnings were also 9.4% higher than the year-ago figure of 96 cents. The increase was attributable to higher earnings at the Regulated business segment driven by infrastructure investment. In addition, the company benefited from its acquisitions and organic assets.

 

 

 

 

Third-quarter total revenue of $930 million lagged the Zacks Consensus Estimate of $937 million by 0.8%. Reported revenues were, however, up 3.8% year over year.

 

 

Total operating expenses in the reported quarter were up 14.2% to $611 million, primarily due to an 18.7% increase in operation and maintenance expenses. Interest expenses also grew 5.2% to $81 million from $77 million in the year-ago quarter.

 

In the first nine months of 2016, the company made capital investments of nearly $905 million, which included $24 million for regulated acquisitions. The remaining investments were directed toward strengthening its existing infrastructure.

 

 

 

Regulated businesses’ net income was $152 million, compared with $174 million for in year-ago period.

 

Market-based businesses’ net income was $7 million, compared with $12 million a year ago.

 

 

Cash and cash equivalents were $46 million as of Sep 30, 2016, up from $45 million as of Dec 31, 2015.

 

Long-term debt was $5,853 million as of Sep 30, 2016, lower than $5,874 million as of Dec 31, 2015.

 

 

American Water Works raised its 2016 earnings guidance from continuing operations to the range of $2.81 to $2.86 per diluted share from its prior expectation of $2.75 to $2.85.

 

Ageing infrastructure is a pressing problem for most water utilities. For 2016, American Water Works’ capital investment budget is $1.4–$1.5 billion, of which a major portion will be invested in improving the water and wastewater systems.

 

 

Aqua America Inc.’s third-quarter earnings of 41 cents per share were 5.1% higher than the Zacks Consensus Estimate of 39 cents.

 

California Water Service Group’s (CWT Quick QuoteCWT - Free Report) third-quarter 2016 operating earnings per share of 57 cents lagged the Zacks Consensus Estimate of 48 cents by 15.8%.

 

SJW Corp.’s (SJW Quick QuoteSJW - Free Report) third-quarter 2016 operating earnings per share of 92 cents surpassed the Zacks Consensus Estimate of 45 cents by 104.4%.

 

 

American Water Works’ third-quarter results were impressive, courtesy consistent investments in regulated operations and contribution from the acquired assets.

 

The company’s inorganic growth strategy has been helping it to expand its operations and market reach. Year to date, its completed acquisitions have added 10,700 customers to its existing base, while the objective of the company is to add  78,500 new customers through acqusitions in 2016.

 

We believe consolidation is the need of the hour in the fragmented U.S. water utility space. The old water utility infrastructure needs ample investments, which are easier for bigger players to make. Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large.

 

We expect the ongoing capital expenditure of the company to improve its water and wastewater systems, thereby allowing the company to provide efficient services to its expanding customer base.

 

American Water Works has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

 

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