- Company affirms 2017 earnings
guidance range from continuing operations of $2.98 to $3.08 per
diluted share
- Second quarter 2017 diluted earnings
per share from continuing operations decreased 5.2 percent to 73
cents compared to the second quarter 2016
- The Regulated Businesses continued
to deliver solid results, increasing 3.7%, which was offset by
expected lower capital upgrades in the Military Services group and
a one-time cumulative tax adjustment
- Revenue increased 2.1 percent to
$844 million for the quarter
American Water Works Company, Inc. (NYSE: AWK) today reported
results for the quarter and six months ended June 30, 2017.
“American Water continued to provide clean, safe, reliable and
affordable water and water services to our customers,” said Susan
Story, president and CEO of American Water. “Our second quarter
2017 earnings per diluted share were down 5.2 percent compared to
last year, primarily due to quarter over quarter impacts from:
previously disclosed lower capital upgrades from the Military
Services Group; a one-time New York tax adjustment resulting from
changes in state income tax; warmer and drier weather in second
quarter 2016; and a favorable contract settlement also in the
second quarter of 2016.
“However, despite these challenges, we continue to execute on
growth, especially in our Regulated Businesses. During the quarter,
we invested approximately $376 million in infrastructure to better
serve our customers and added approximately 22,000 customers year
to date through closed acquisitions and organic growth.”
“The long term outlook of our industry and of American Water
continues to be strong and compelling. For 2017 we are affirming
earnings guidance of $2.98 to $3.08 as well as our long term
compound annual earnings growth outlook to be at the 7-10% range,”
added Story.
Consolidated Results
In the second quarter 2017, income from continuing operations
decreased $0.04 per diluted share compared to the prior year. Net
income from the Regulated Businesses increased 3.7 percent or $0.02
per diluted share, the Market-based Businesses decreased $0.02 per
diluted share and Parent decreased $0.04 per diluted share. The
decrease at Parent included a one-time cumulative tax adjustment
from a legislative change adopted in New York during the second
quarter that exempts water utilities from the manufacturers’ tax
deduction. This change negatively impacted the apportionment of
state income taxes to the Parent by $0.02 per diluted share.
For the six months ended June 30, 2017, income from continuing
operations increased $0.03 per diluted share compared to the prior
year. Net income from the Regulated Businesses increased 5.4
percent or $0.07 per diluted share from growth driven by capital
investments, acquisitions and organic growth. Net income from the
Market-based Businesses decreased $0.02 per diluted share. Finally,
Parent decreased $0.02 per diluted share primarily from the
one-time cumulative tax adjustment discussed above.
For the first six months of 2017, the company made capital
investments of approximately $618 million, including $576 million
of which the majority was to improve infrastructure in the
Regulated Businesses to provide safe, clean and reliable service to
its customers and $42 million for regulated acquisitions. American
Water plans to invest about $1.5 – $1.6 billion across its
footprint in 2017, with the majority of these investments to
improve its water and wastewater systems.
Regulated Businesses
In the second quarter 2017, net income in the Regulated
Businesses was $139.6 million, compared to $134.9 million for the
same period in 2016. Regulated revenue increased $29.7 million
through additional authorized revenue and surcharges to support
infrastructure investments, acquisitions, and organic growth;
slightly offset by lower demand in 2017 and warmer weather in the
second quarter of 2016. Partially offsetting the increases in
revenue was higher depreciation expense of $9.7 million, operating
and maintenance expense of $7.4 million and interest expense of
$3.1 million associated with infrastructure investment growth.
For the six months ended June 30, 2017, net income in the
Regulated Businesses was $233.8 million, compared to $222.1 million
for the same period in 2016. Regulated revenue increased $54.4
million through additional authorized revenue and surcharges to
support infrastructure investments, acquisitions, and organic
growth, slightly offset by lower demand in 2017 and warmer weather
in the second quarter of 2016. Partially offsetting the increases
in revenue was higher depreciation expense of $18.5 million and
interest expense of $5.4 million both associated with
infrastructure investment growth.
For the six months ended June 30, 2017, the company received
additional annualized revenues of approximately $43 million from
general rate cases and step increases and approximately $22 million
in additional annualized revenues from infrastructure surcharges.
The company is awaiting final orders or proposed settlements for
general rate cases in three states and filed infrastructure
surcharge in two, requesting approximately $234.9 million in total
additional annualized revenues. The extent to which requested rate
increases will be granted by the applicable regulatory agencies
will vary.
For the 12-month period ended June 30, 2017, the adjusted
O&M efficiency ratio (a non-GAAP financial measure) improved to
34.5 percent, compared to 35.2 percent for the 12-month period
ended June 30, 2016. By reducing O&M expense as a proportion of
revenue, American Water is able to make investments in needed
capital improvements without significantly impacting customer
bills.
Market-based Businesses
In the second quarter of 2017, net income in the Market-based
Businesses was $8.8 million, compared to $12.8 million for the same
period in 2016. The decrease was primarily driven by 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.
For the six months ended June 30, 2017, net income in the
Market-based Businesses was $15.4 million, compared to $18.9
million for the same period in 2016. The decrease was driven by
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.
Dividends
On July 28, 2017, American Water’s board of directors declared a
quarterly cash dividend payment of $0.415 per share of common
stock, payable on September 1, 2017, to all stockholders of record
as of August 9, 2017.
2017 Earnings Guidance
American Water has affirmed that its 2017 earnings guidance from
continuing operations remains in the range of $2.98 - $3.08 per
diluted share. The company’s earnings forecasts are subject to
numerous risks and uncertainties, including, without limitation,
those described under “Forward-Looking Statements” below and under
“Risk Factors” in its annual and quarterly reports filed with the
Securities and Exchange Commission (“SEC”).
Non-GAAP Financial Measures
This press release includes a presentation of adjusted Regulated
O&M efficiency ratio, which excludes from its calculation
estimated purchased water revenues and purchased water expenses,
the impact of the binding global agreement in principle to settle
claims associated with the Freedom Industries, Inc. chemical spill
in West Virginia (the “Settlement”), and the allocable portion of
non-O&M support services costs, mainly depreciation and general
taxes. This item constitutes a “non-GAAP financial measure” under
SEC rules. This item is derived from American Water’s consolidated
financial information but is not presented in its financial
statements prepared in accordance with GAAP. This non-GAAP
financial measure supplements and should be read in conjunction
with the company’s GAAP disclosures and should not be considered an
alternative to any GAAP measure.
Management believes that the presentation of this measure is
useful to investors because it provides a means of evaluating the
company’s operating performance without giving effect to items that
are not reflective of management’s ability to increase efficiency
of the company’s regulated operations. In preparing operating
plans, budgets and forecasts, and in assessing historical
performance, management relies, in part, on trends in the company’s
historical results, exclusive of estimated revenues and expenses
related to purchased water, the Settlement and the allocable
portion of non-O&M support services costs. The company’s
definition of this metric may not be comparable to the same or
similar measures used by other companies, and, accordingly, this
non-GAAP financial measure may have significant limitations on its
use.
Set forth in this release is a table that reconciles each of the
components used to calculate adjusted O&M efficiency ratio to
most directly comparable GAAP financial measure.
Second Quarter 2017 Earnings Conference Call
The second quarter 2017 earnings conference call will take place
on Thursday, August 3, 2017, at 9 a.m. Eastern Daylight Time.
Interested parties may listen to the conference call over the
Internet by logging on to the Investor Relations page of the
company’s website at https://amwater.com. Presentation slides that
will be used in conjunction with the earnings conference call will
also be made available online. The company recognizes its website
as a key channel of distribution to reach public investors and as a
means of disclosing material non-public information to comply with
its obligations under SEC Regulation FD.
Following the earnings conference call, an audio archive of the
call will be available through August 10, 2017. U.S. callers may
access the audio archive toll-free by dialing 1-877-344-7529.
International callers may listen by dialing 1-412-317-0088. The
access code for replay is 10110707. The online webcast will be
available at American Water’s investor relations homepage at
http://ir.amwater.com through September 7, 2017. After that, the
archived webcast will be available for one year at
http://ir.amwater.com.
About American Water
With a history dating back to 1886, American Water is the
largest and most geographically diverse U.S. publicly-traded water
and wastewater utility company. The company employs more than 6,800
dedicated professionals who provide regulated and market-based
drinking water, wastewater and other related services to an
estimated 15 million people in 47 states and Ontario, Canada. More
information can be found by visiting amwater.com.
Cautionary Statement Concerning Forward-Looking
Statements
Certain statements in this press release including, without
limitation, 2017 earnings guidance, projected long-term earnings
growth, the outcome of pending acquisition activity and estimated
revenues from rate cases and other government agency
authorizations, are forward-looking statements within the meaning
of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and the Federal securities laws. In some cases,
these forward-looking statements can be identified by words with
prospective meanings such as “intend,” “plan,” “estimate,”
“believe,” “anticipate,” “expect,” “predict,” “project,” “assume,”
“forecast,” “outlook,” “future,” “pending,” “goal,” “objective,”
“potential,” “continue,” “seek to,” “may,” “can,” “will,” “should”
and “could” and or the negative of such terms or other variations
or similar expressions. These forward-looking statements are
predictions based on American Water’s current expectations and
assumptions regarding future events. They are not guarantees or
assurances of any outcomes, financial results of levels of
activity, performance or achievements, and readers are cautioned
not to place undue reliance upon them. The forward-looking
statements are subject to a number of estimates and assumptions,
and known and unknown risks, uncertainties and other factors.
Actual results may differ materially from those discussed in the
forward-looking statements included in this press release as a
result of the factors discussed in the Company’s Annual Report on
Form 10-K for the year ended Dec. 31, 2016, and subsequent filings
with the SEC, and because of factors such as: the decisions of
governmental and regulatory bodies, including decisions to raise or
lower rates; the timeliness and outcome of regulatory commissions’
actions concerning rates, capital structure, authorized return on
equity, capital investment, permitting, and other decisions;
changes in laws, governmental regulations and policies, including
environmental, health and safety, water quality, and public utility
and tax regulations and policies, and impacts resulting from U.S.,
state and local elections; potential costs and liabilities of
American Water for environmental laws and similar matters resulting
from, among other things, water and wastewater service provided to
customers, including, for example, water management solutions
focused on customers in the natural gas exploration and production
market; the outcome of litigation and similar government actions,
including matters related to the Freedom Industries chemical spill
in West Virginia, and the Settlement; weather conditions, patterns
or events or natural disasters, including drought or abnormally
high rainfall, strong winds, coastal and intercoastal flooding,
earthquakes, landslides, hurricanes, tornadoes, electrical storms
and solar flares; changes in customer demand for, and patterns of
use of, water, such as may result from conservation efforts; its
ability to appropriately maintain current infrastructure, including
its operational and information technology (“IT”) systems, and
manage the expansion of its business; its ability to obtain permits
and other approvals for projects; changes in its capital
requirements; its ability to control operating expenses and to
achieve efficiencies in its operations; the intentional or
unintentional acts of a third party, including contamination of its
water supplies or water provided to its customers; exposure or
infiltration of its critical infrastructure, operational technology
and IT systems through physical or cyber-attacks or other
disruptions; its ability to obtain adequate and cost-effective
supplies of chemicals, electricity, fuel, water and other raw
materials that are needed for its operations; its ability to
successfully meet growth projections and capitalize on growth
opportunities, including its ability to, among other things,
acquire and integrate water and wastewater systems into its
regulated operations and enter into contracts and other agreements
with, or otherwise obtain, new customers in its Market-based
Businesses; cost overruns relating to improvements in or the
expansion of its operations; its ability to maintain safe work
sites; risks and uncertainties associated with contracting with the
U.S. government, including ongoing compliance with applicable
government procurement and security regulations; changes in general
economic, political, business and financial market conditions;
access to sufficient capital on satisfactory terms and when and as
needed to support operations and capital expenditures; fluctuations
in interest rates; restrictive covenants in or changes to the
credit ratings on its current or future debt that could increase
its financing costs or funding requirements or affect its ability
to borrow, make payments on debt or pay dividends; fluctuations in
the value of benefit plan assets and liabilities that could
increase its financing costs and funding requirements; changes in
Federal or state income, general and other tax laws, including tax
reform, the availability of tax credits and tax abatement programs,
and the ability to utilize its U.S. and state net operating loss
carryforwards; migration of customers into or out of its service
territories; the use by municipalities of the power of eminent
domain or other authority to condemn its systems; difficulty in
obtaining, or the inability to obtain, insurance at acceptable
rates and on acceptable terms and conditions; its ability to retain
and attract qualified employees; labor actions including work
stoppages and strikes; the incurrence of impairment charges related
to American Water’s goodwill or other assets; civil disturbances,
terrorist threats or acts, or public apprehension about future
disturbances or terrorist threats or acts; and the impact of new
accounting standards or changes to existing standards.
These forward-looking statements are qualified by, and should be
read together with, the risks and uncertainties set forth above and
the risk factors included in the company’s annual and quarterly SEC
filings, and readers should refer to such risks, uncertainties and
risk factors in evaluating such forward-looking statements. Any
forward-looking statements speak only as of the date of this press
release. The company does not have or undertake any obligation or
intention to update or revise any forward-looking statement,
whether as a result of new information, future events, changed
circumstances or otherwise, except as otherwise required by the
Federal securities laws. Furthermore, it may not be possible to
assess the impact of any such factor on the company’s businesses,
either viewed independently or together, or the extent to which any
factor, or combination of factors, may cause results to differ
materially from those contained in any forward-looking statement.
The foregoing factors should not be construed as exhaustive.
American Water Works Company, Inc. and
Subsidiary Companies Consolidated Statements of Operations
(Unaudited)
In millions except per share data
For the Three Months Ended June 30, For the Six
Months Ended June 30, 2017 2016
2017 2016 Operating revenues $ 844 $
827 $ 1,600 $ 1,570 Operating expenses:
Operation and maintenance 349 351 686 699 Depreciation and
amortization 126 115 250 231 General taxes 63 64 131 130 Gain on
asset dispositions and purchases (2 ) (2 ) (2
) (3 ) Total operating expenses, net 536
528 1,065 1,057 Operating
income 308 299 535
513 Other income (expense): Interest, net (85 ) (81 ) (170 )
(161 ) Other, net 3 7 6
9 Total other income (expense) (82 )
(74 ) (164 ) (152 ) Income from continuing operations
before income taxes 226 225 371 361 Provision for income taxes
95 88 147 142
Net income attributable to common stockholders $ 131
$ 137 $ 224 $ 219 Basic earnings per
share: Net income attributable to common stockholders $ 0.74
$ 0.77 $ 1.26 $ 1.23 Diluted earnings per
share: (a) Net income attributable to common stockholders $ 0.73
$ 0.77 $ 1.26 $ 1.23 Weighted-average
common shares outstanding: Basic 178 178
178 178 Diluted 179
178 179 178
Dividends declared per common share $ 0.415 $ 0.375 $
0.415 $ 0.375 (a) Amounts may not sum due to
rounding.
American Water Works Company,
Inc. and Subsidiary Companies Condensed Consolidated Balance
Sheet Information (Unaudited)
In millions except per share data
June 30, 2017 December 31, 2016 ASSETS
Property, plant and equipment $ 20,575 $ 19,954 Accumulated
depreciation (5,184 ) (4,962 ) Property, plant and
equipment, net 15,391 14,992 Current
assets: Cash and cash equivalents 64 75 Restricted funds 28 20
Accounts receivable, net 288 269 Unbilled revenues 236 263
Materials and supplies 41 39 Other 151 118
Total current assets 808 784
Regulatory and other long-term assets: Regulatory assets 1,324
1,289 Goodwill 1,373 1,345 Other 70 72
Total regulatory and other long-term assets 2,767
2,706
TOTAL ASSETS $ 18,966 $ 18,482
June 30, 2017 December 31, 2016
CAPITALIZATION AND LIABILITIES Capitalization:
Common stock ($0.01 par value, 500,000,000
shares authorized, 182,342,528 and 181,798,555 shares issued,
respectively)
$ 2 $ 2 Paid-in-capital 6,416 6,388 Accumulated deficit (702 ) (873
) Accumulated other comprehensive loss (85 ) (86 ) Treasury stock,
at cost (4,064,010 and 3,701,867 shares, respectively) (247
) (213 ) Total common stockholders' equity 5,384
5,218 Long-term debt 5,650 5,749 Redeemable
preferred stock at redemption value 9 10
Total long-term debt 5,659 5,759
Total capitalization 11,043 10,977
Current liabilities: Short-term debt 1,117 849 Current portion of
long-term debt 686 574 Accounts payable 134 154 Accrued liabilities
490 609 Taxes accrued 47 31 Interest accrued 62 63 Other 125
112 Total current liabilities 2,661
2,392 Regulatory and other long-term
liabilities: Advances for construction 291 300 Deferred income
taxes, net 2,723 2,596 Deferred investment tax credits 23 23
Regulatory liabilities 410 403 Accrued pension expense 422 419
Accrued postretirement benefit expense 85 87 Other 70
67 Total regulatory and other long-term liabilities
4,024 3,895 Contributions in aid of
construction 1,238 1,218 Commitments and contingencies
TOTAL CAPITALIZATION AND LIABILITIES $ 18,966
$ 18,482
American Water Works Company, Inc.
and Subsidiary Companies Adjusted Regulated Operation and
Maintenance Efficiency Ratio (A Non-GAAP, unaudited measure)
In millions
For the Twelve Months Ended June 30, (In
millions) 2017 2016 Total operation
and maintenance expenses $ 1,491 $ 1,443 Less: Operation and
maintenance expenses—Market-Based Businesses 351 397 Operation and
maintenance expenses—Other (43 ) (43 ) Total
operation and maintenance expenses—Regulated Businesses 1,183 1,089
Less: Regulated purchased water expenses 123 116 Allocation of
non-operation and maintenance expenses 27 32 Impact of binding
global agreement in principle 65 —
Adjusted operation and maintenance expenses—Regulated Businesses
(a) $ 968 $ 941 Total operating revenues $
3,332 $ 3,249 Less: Operating revenues—Market-Based Businesses 428
476 Operating revenues—Other (22 ) (18 ) Total
regulated operating revenues—Regulated Businesses 2,926 2,791 Less:
Regulated purchased water revenues* 123 116
Adjusted operating revenues—Regulated Businesses (b) $ 2,803
$ 2,675 Adjusted operation and maintenance
efficiency ratio—Regulated Businesses (a)/(b) 34.5 % 35.2 %
*Calculation assumes purchased water
revenues approximate purchased water expenses.
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American Water Works Company, Inc.Edward VallejoVice President,
Investor Relations856-566-4005edward.vallejo@amwater.comorMaureen
DuffyVice President, Communications and Federal
Affairs856-309-4546maureen.duffy@amwater.com
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