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American Water Works (AWK) Q2 Earnings & Sales Lag Estimates

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American Water Works Company’s (AWK - Free Report) second-quarter 2017 earnings per share of 73 cents were lagging the Zacks Consensus Estimate of 80 cents by 8.8%. Earnings were also down 5.2% from the year-ago quarter.

The bottom line was negatively impacted by lower earnings at the market-based business segment.

Total Revenue
 
Second-quarter total revenue of $844 million lagged the Zacks Consensus Estimate of $863 million by 2.2%. However, reported revenues were up 2.1% year over year.

American Water Works Price, Consensus and EPS Surprise

 

American Water Works Price, Consensus and EPS Surprise | American Water Works Quote

 

Highlights of the Release
 
Total operating expenses in the reported quarter were $536 million, up 1.5% from the year-ago quarter.

Operating income in the reported quarter was $308 million, up 3.0% year over year.
 
In the first half of 2017, capital expenditures related to upgrading and maintaining the existing infrastructure of the company amounted to $618 million.

Segment Details
 
Regulated businesses’ net income was $139.6 million, up 3.5% from $134.9 million reported in the year-ago period. The year-over-year increase was due to additional authorized revenues and surcharges to support its infrastructure investments, acquisitions and organic growth.
 
Market-based businesses’ net income was $8.8 million compared with $12.8 million a year ago. The decline in income was due to lower capital upgrades in the Military Services Group, including completion of a major project at Fort Polk in Louisiana in mid-2016 and a favorable contract settlement in second-quarter 2016.
 
Financial Highlights
 
Cash and cash equivalents were $64 million as of Jun 30, 2017, up from $75 million as of Dec 31, 2016.
 
Long-term debt was $5,650 million as of Jun 30, 2017, lower than $5,759 million as of Dec 31, 2016.

Guidance
 
American Water Works reaffirmed its 2017 earnings guidance from continuing operations to be in the range of $2.98–$3.08 per diluted share and its long-term compound annual earnings growth outlook between 7% and 10%.
 
Ageing infrastructure is a pressing problem for most water utilities. For 2017, American Water Works’ capital investment budget is in the range of $1.5–$1.6 billion. The five-year plan of the company is to invest $5.9 billion in infrastructure improvement.

Our View

An unimpressive performance in the market-based businesses has proved detrimental to the company’s second-quarter earnings.

American Water Works continues to add customers and expand its market reach through acquisitions and organic growth. Year to date, the water utility has added 22,000 customers through closed acquisitions and organic growth.

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

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

Peer Releases

American States Water Company (AWR - Free Report) reported second-quarter 2017 earnings of 62 cents per share, beating the Zacks Consensus Estimate of 45 cents by 37.8%.

California Water Service Group (CWT - Free Report) reported second-quarter 2017 earnings of 39 cents per share, beating the Zacks Consensus Estimate of 31 cents by 25.8%.

Aqua America Inc. (WTR - Free Report) reported second-quarter 2017 earnings of 34 cents per share, in line with the Zacks Consensus Estimate.

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