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American Water (AWK) Q3 Earnings Top Estimates, 2020 View Up

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American Water Works Company (AWK - Free Report) posted third-quarter 2020 earnings of $1.46 per share, which beat the Zacks Consensus Estimate by 5.8%.

The bottom line also improved 9.8% year over year on the back of strong contributions from Regulated businesses. The encouraging quarterly earnings reflect favorable impact of weather and improved residential customer demand, attributable to more stay-at-home activities owing to the COVID-19 pandemic.

Total Revenues

Total revenues of $1,079 million beat the Zacks Consensus Estimate of $1,040 million by 3.8% and improved 6.5% from the year-ago figure of $1,013 million.

Highlights of the Release

Total operating expenses for the quarter were $646 million, up 6.4% from the year-ago period. The increase was due to higher operation and maintenance expenses.

Operating income was $433 million, 6.7% higher than the year-ago figure. New rates approved in the year added $127 million to annual revenues and the pending rate case, if approved without change, will further increase revenues by $212 million.

From the start of the year till Nov 2, the company added more than 47,000 customers to the existing customer base through closed acquisitions and organic means, out of which 36,200 customers were added via acquisitions. Its pending acquisitions, when completed, will add another 19,000 customers to the customer base.

For the 12 months period ended Sep 30, O&M efficiency improved to 34.2% from 34.8% in the year-ago period. The improvement was due to persistent focus on operating costs and an increase in operating revenues for Regulated businesses.

Interest expenses for the reported quarter totaled $99 million, up 2.1% from $97 million in the prior-year period.

Segment Details

Regulated businesses’ net income was $261 million compared with $236 million in the year-ago quarter. From the start of the year till Nov 2, this segment added 36,200 customers through 20 acquisitions in nine states.  Acquisitions, organic growth and additional authorized revenues to support infrastructure investments boosted income.

Market-Based businesses’ net income was $23 million, on par with the year-ago quarter. Military Services Group was awarded a contract for Joint-Base Lewis-McChord in September 2020.

Financial Highlights

Cash and cash equivalents amounted to $560 million as of Sep 30, 2020, up from $60 million on Dec 31, 2019.

Total long-term debt was $9,584 million as of Sep 30, 2020, higher than $8,644 million at 2019-end.

Cash flow from operating activities for the first nine months of 2020 was $988 million compared with $945 million in the comparable year-ago period. For the same period, capital expenditure of the company was $1,314 million compared with $1,115 million in the corresponding year-ago period.


American Water increased its guidance for 2020 earnings to the range of $3.87-$3.93 from $3.79-$3.89, taking into consideration favorable year-to-date impact of weather on demand, a 6-cent impact of depreciation not recorded as required by assets held for sale accounting and an estimated 3-6 cents per share unfavorable impact from the COVID-19 pandemic.

The company aims to invest $1.9 billion across its service territories in 2020. The company has plans to invest $20-$22 billion of capital over the next 10 years.

Subject to approval of the board of directors, dividend growth for the 2020-2024 period is expected at the high end of the 7-10% range. Its O&M efficiency target remains at 31.3% for 2024.

Zacks Rank

American Water currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Releases

Here are some other players from the water utility space that have reported third-quarter earnings:

While Middlesex Water Company’s (MSEX - Free Report) earnings beat the Zacks Consensus Estimate by 2.9%, Essential Utilities (WTRG - Free Report) and American States Water Company’s (AWR - Free Report) bottom line lagged expectations by 11.5% and 4%, respectively.

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