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American Water Works (AWK) Q3 Earnings In Line, Narrows View

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American Water Works Company’s (AWK - Free Report) third-quarter 2017 earnings per share of $1.08 were on par with the Zacks Consensus Estimate. Earnings improved 2.9% from the year-ago quarter.

The year-over-year rise was due to Regulated Businesses driven mainly by infrastructure investment, acquisitions and organic growth. However, earnings were marginally offset by lower demand due to colder summer weather compared to last year.

Total Revenues
 
Third-quarter total revenues of $936 million lagged the Zacks Consensus Estimate of $987 million by 5.2%. However, reported revenues were up 0.6% 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 $506 million, down 17.2% from the year-ago quarter. The drop in expenses was primarily due to lower operation & maintenance expenses compared to last year.

Operating income in the reported quarter was $430 million, up 34.8% year over year.
 
In the first nine months of 2017, capital expenditures related to upgrading and maintaining the existing infrastructure of the company amounted to $964 million compared with $928 million in the year-ago period.

During the quarter, the company received a contract for ownership, operation and maintenance of the water and wastewater systems at Wright-Patterson Air Force Base in Ohio. This contract is expected to generate revenues in excess of $490 million over the duration of the contract period of 50 years.

Segment Details
 
Regulated businesses’ net income was $199 million, up 4.2% from $191 million reported in the year-ago period. Increase in demand driven by acquisition and organic growth boosted earnings from this segment.
 
Market-based businesses’ net income was $14 million compared with $7 million a year ago. The year-over-year increase was primarily driven by growth in the Homeowner Services Group through customer growth and price increases for certain customers.

Financial Highlights
 
Cash and cash equivalents were $93 million as of Sep 30, 2017, up from $75 million as of Dec 31, 2016.
 
Long-term debt was $6,672 million as of Sep 30, 2017, higher than $5,759 million as of Dec 31, 2016.

Guidance
 
American Water Works narrowed its 2017 adjusted earnings guidance in the range of $3.00-$3.06 from the earlier range of $2.98-$3.08 per share.

Ageing infrastructure is a pressing problem for most water utilities. For 2017, American Water Works’ investment budget is $1.65 billion for capital expenditures and acquisition.

Our View

Despite less favorable weather conditions in the third quarter, American Water Works was able to meet Zacks Consensus Estimate, thanks to its customer base expansion and new water rates effective from Jan 1, 2017.

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 26,400 customers through closed acquisitions and organic growth and will add another 45,000 customers to its customer base when the pending acquisitions are completed.

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 #4 (Sell).
 
Upcoming Peer Releases

American States Water Company (AWR - Free Report) , a Zacks Rank #2 (Buy) stock, is expected to report third-quarter 2017 results on Nov 6. The Zacks Consensus Estimate for earnings is pegged at 58 cents. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Consolidated Water Company Ltd. (CWCO - Free Report) , a Zacks Rank #3 (Hold) stock, is expected to report third-quarter 2017 results on Nov 9. The Zacks Consensus Estimate for earnings is pegged at 14 cents.

Connecticut Water Services Inc. , a Zacks Rank #3 stock, is expected to report third-quarter 2017 results on Nov 14 The Zacks Consensus Estimate for earnings is pegged at 88 cents.

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