American Water Works Company, Inc. (AWK) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance with EPS growth, increased dividends, and revenue growth through acquisitions and rate increases. The Q&A section showed confidence in stakeholder relationships and future acquisitions, with no major concerns raised. The company's strong guidance and investment strategy, along with an 8.2% dividend increase, suggest a positive market reaction. Despite increased expenses, the overall sentiment remains positive, indicating a likely stock price increase between 2% to 8%.
Key Financial Performance
Earnings per Share (EPS) for Q2 2025 $1.48 per share, up $0.06 per share (4.2%) year-over-year. The increase was driven by authorized rate increases, acquisitions, and organic customer growth, partially offset by unfavorable weather conditions.
Earnings per Share (EPS) for the first half of 2025 $2.53 per share, up $0.16 per share (6.7%) year-over-year. The increase was attributed to higher revenues from rate increases, acquisitions, and customer growth, despite unfavorable weather impacts.
Capital Investments Year-to-Date 2025 $1.3 billion, reflecting strong execution of planned investments. This supports the company's goal of $3.3 billion in capital investments for the year.
Revenue Increase in Iowa Annualized revenue increase of $13 million approved, based on an ROE of 9.6% and equity layer of 52.57%. This reflects system investments and regulatory approval.
Revenue Increase in Hawaii Annualized revenue increase of $1.5 million approved, based on an ROE of 9.75% and equity layer just over 52%. This reflects system investments and regulatory approval.
Operating and Maintenance (O&M) Costs for Q2 2025 Higher by $0.17 per share year-over-year, driven by employee-related expenses, increased maintenance and technology costs, and costs related to acquisitions.
Depreciation Costs for Q2 2025 Increased by $0.10 per share year-over-year, as expected, to support investment growth.
Financing Costs for Q2 2025 Increased by $0.08 per share year-over-year, as expected, to support investment growth.
Debt-to-Capital Ratio as of Q2 2025 58%, within the target of less than 60%, reflecting balance sheet strength and credit profile maintenance.
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Operating Highlights
Acquisition agreements: Several new acquisition agreements were announced in the first half of 2025, including the Nexus Water Group systems, which will add nearly 47,000 customer connections. This acquisition is expected to close by August 2026. Additionally, there are 20 acquisitions in 7 states under agreement for $220 million, adding about 40,000 customer connections.
Geographic expansion: The Nexus Water Group acquisition will expand operations in 8 existing regulated states, supporting long-term growth targets for customer additions. Renewed activity in Pennsylvania includes 4 systems closed this year and 8 systems under agreement.
Capital investments: $1.3 billion invested in capital projects year-to-date, with a goal of approximately $3.3 billion for 2025. Investments are focused on infrastructure and acquisitions to grow regulated rate base at 8%-9% long-term.
Regulatory execution: New rates were made effective in several states, with general rate cases in progress in West Virginia, Kentucky, and California. These cases reflect significant system investments and are expected to result in additional annual revenue.
Earnings and dividend growth: The company reaffirmed long-term targets for earnings and dividend growth at 7%-9%, driven by 8%-9% rate base growth. EPS guidance for 2025 was narrowed to $5.70-$5.75, reflecting strong business performance.
Sustainability and affordability: The company emphasized its leadership in sustainability and affordability, positioning itself as a unique player in the utility sector.
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Risk or Challenges
Weather Impact: Unfavorable weather conditions in 2025, including wet weather across many states, negatively impacted earnings by $0.06 per share year-over-year. This includes a $0.03 unfavorable impact from wet weather in 2025 and a $0.03 unfavorable variance from warm and dry conditions in 2024.
Operating Costs: Operating and maintenance (O&M) costs increased by $0.17 per share, driven by higher employee-related expenses, increased maintenance and technology costs, and costs related to acquisitions completed in 2024.
Depreciation and Financing Costs: Depreciation costs increased by $0.10 per share, and financing costs rose by $0.08 per share, both attributed to supporting investment growth.
Regulatory Risks: The company has several active rate cases in progress across multiple jurisdictions, including West Virginia, Kentucky, and California. These cases involve significant system investments and revenue increase requests, which are subject to regulatory approval and could impact financial outcomes if not approved as expected.
Debt Levels: The company's total debt-to-capital ratio was 58% as of the end of the quarter, close to its target of less than 60%. However, the 2025 financing plan includes another long-term debt issuance of roughly $1 billion, which could increase financial leverage.
Acquisition Integration: The company has multiple acquisitions under agreement, including the Nexus Water Group systems and others, totaling $535 million. Successful integration of these acquisitions is critical to achieving planned growth and operational efficiencies.
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Guidance & Outlook
EPS Guidance for 2025: The company has narrowed its 2025 EPS guidance to the top half of the range, now set at $5.70 to $5.75 per share, up from the previous range of $5.65 to $5.75. This reflects an expected 8.6% EPS growth in 2025 at the midpoint of the guidance range.
Long-term EPS and Dividend Growth: The company reaffirms its long-term targets for earnings and dividend growth at 7% to 9%, driven by 8% to 9% rate base growth. This growth is expected to continue consistently through 2029 and beyond.
Capital Investment for 2025: The company plans to invest approximately $3.3 billion in capital projects in 2025, with a long-term expectation of growing regulated rate base at a rate of 8% to 9%.
Acquisition Growth: The company has 87,000 customer connections under agreement from deals totaling $535 million, including the Nexus Water Group acquisition, which will add nearly 47,000 customer connections and approximately $200 million to rate base by August 2026. Additional acquisitions in progress include 20 deals in 7 states, adding about 40,000 customer connections for $220 million.
Regulatory Rate Cases: The company has active rate cases in West Virginia, Kentucky, and California, seeking additional annual revenues of $48 million, $27 million, and $63 million respectively. These cases reflect system investments through 2028, with new rates expected to take effect in 2026 and 2027.
Debt Issuance for 2025: The company plans to issue approximately $1 billion in long-term debt in the second half of 2025 to support its investment growth while maintaining a total debt-to-capital ratio target of less than 60%.
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Shareholder Return Plan
Dividend Growth: We are again affirming our long-term targets for both earnings and dividend growth at 7% to 9%, driven by 8% to 9% rate base growth. We expect to consistently grow earnings and dividends at an industry-leading pace over the next 5 years and beyond.
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Key Q&A
Q:How are you thinking about Pennsylvania stakeholder relationships and engagements in advance of the next rate case application in the state? Have you been seasoning the timing of an application? And are you seeing recognition of that?
A:Cheryl D. Norton stated that they have been working extensively in the stakeholder space, providing excellent customer service and building relationships across stakeholder groups. They are planning for the rate filing as expected.
Q:Would you explore a forward issuance to take care of the '26 equity needs, seeing a lot of peers in the space get ahead of equity?
A:David M. Bowler mentioned that they keep all options on the table and are always evaluating them, but the plan is to issue equity in 2026.
Q:Anything you can provide as a basis for the earnings power of the Nexus acquisition and how it compares to municipal M&A that you would typically pursue? What does it say about the availability of larger municipal targets?
A:Cheryl D. Norton explained that the Nexus acquisition helps expand their footprint in states they already serve and follows the same processes as other acquisitions. It does not indicate a shift away from municipal deals, which they are still pursuing actively.
Q:Is the Nexus acquisition going to have diminished profitability because of the goodwill being paid and the different treatment of privately-owned asset acquisitions?
A:Cheryl D. Norton stated that the acquisition will not have a negative impact and will be integrated seamlessly.
Q:Could you talk a little more on the landscape in Pennsylvania on the fair market value front? Were these deals already in the pipeline or is this the tip of the iceberg of a backlog of deals?
A:Cheryl D. Norton clarified that these deals are long lead-time deals and not necessarily waiting for rule finalizations. They expect more deals to come and are following guidelines to streamline the process. John C. Griffith added that similar dynamics apply across their platform.
Q:Can you expand on the decoupling bill in California? Does this bill require the commission to approve full decoupling for the California water utilities?
A:Cheryl D. Norton explained that the bill aims to close the gap and is progressing through the legislative process. David M. Bowler added that it has passed the appropriations committee and will go to the full legislature before reaching the governor.
Q:What drove the strength in the 2025 guidance being pushed towards the top end? Are there any drivers contributing to 2026 and beyond?
A:David M. Bowler attributed the strength to strong usage and outperformance across the footprint. John C. Griffith added that consistent regulatory execution and a diversified platform also contributed.
Q:Review of Unclear Management Responses
A:None of the questions were avoided or lacked clarity in the responses provided by the management.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Agnieszka Anna
American Water
Anna Storozynski
Appropriations Committee
Depreciation share
Executive VP
Intervenor testimony
Iowa
LLC Research
ROE equity
Research Division
Revenues share
commission increase
cost capital
date
decoupling
driver
equity layer
increase ROE
investment Slide
period weather
platform
profile
rate effect
share financing
state case
strength
system investment
testimony rate
weather basis
AWK Transcript
American Water Works Company, Inc. (AWK) Q2 2025 Earnings Call Transcript
Positive7-31
The earnings call highlights strong financial performance with EPS growth, increased dividends, and revenue growth through acquisitions and rate increases. The Q&A section showed confidence in stakeholder relationships and future acquisitions, with no major concerns raised. The company's strong guidance and investment strategy, along with an 8.2% dividend increase, suggest a positive market reaction. Despite increased expenses, the overall sentiment remains positive, indicating a likely stock price increase between 2% to 8%.
American Water Works Company, Inc. (AWK) Q1 2025 Earnings Call Transcript
Positive5-1
The earnings call highlights strong financial performance with an 11% EPS growth and successful debt issuance. The company has increased its dividend by 8.2%, which is generally well-received by investors. Despite regulatory challenges and increased operating costs, the management's optimistic outlook on acquisitions and infrastructure investments, coupled with a predominantly domestic supply chain, mitigates some risks. The Q&A section reveals a cautious but strategic approach to future financing and opportunities. Overall, these factors suggest a positive stock price movement in the short term.
American Water Works Company, Inc. (AWK) Q3 2024 Earnings Call Transcript
Positive10-31
The earnings call summary presents strong financial performance with EPS growth, increased revenue, and raised guidance. The company has a solid acquisition pipeline and plans for significant capital investments. The Q&A section, while highlighting some concerns like interest rate risk and cash flow impacts, doesn't significantly alter the positive outlook. The raised guidance, substantial capital investment, and acquisition strategy are likely to positively influence the stock price, despite some increased costs and interest rate risks.
American Water Works Company, Inc. (AWK) Q2 2024 Earnings Call Transcript
Positive8-1
The company's earnings call highlights strong financial metrics, including an EPS guidance raise and robust capital investment plans, which are positive indicators. The dividend growth target and increased shareholder returns further boost sentiment. Despite minor EPS declines, optimistic guidance and growth in customer acquisitions support a positive outlook. The Q&A section reveals no significant concerns, with management maintaining acquisition pace and addressing regulatory challenges effectively. Overall, these factors suggest a likely positive stock price movement in the short term.
AWK Report
Frequently Asked Questions
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