- First quarter 2017 diluted earnings
per share from continuing operations increased 13.0 percent to 52
cents compared to the first quarter 2016
- Increased quarterly dividend by
approximately 10.7 percent to 41.5 cents per diluted common
share
- Company affirms 2017 earnings
guidance from continuing operations of $2.98 to $3.08 per diluted
share
American Water Works Company, Inc. (NYSE: AWK) today reported
results for the quarter ended Mar. 31, 2017.
“Our first quarter results demonstrate that American Water
employees continue to grow our business by focusing on our
customers and communities,” said Susan Story, president and CEO of
American Water. “Our results were solid, with first quarter 2017
earnings per diluted share up 13.0 percent compared to last year.
Reflecting the company’s solid performance, the Board of Directors
approved a 10.7 percent increase in our quarterly dividend to 41.5
cents per share, marking the fifth year in a row that the dividend
increases are at or above the top of the long-term EPS growth
range.
“The Regulated businesses continued to execute on growth,
investing approximately $242 million this quarter on infrastructure
to better serve our customers and adding approximately 16,700
customers to date through closed acquisitions and organic growth.
We also continued our focus of making improvements in O&M
efficiency, allowing us to keep our services affordable,” added
Story.
Consolidated Results
In the first quarter 2017, income from continuing operations
increased $0.06 per diluted share compared to the prior year. Net
income from the Regulated Businesses increased 8.1 percent or $0.04
per diluted share from authorized revenue growth driven by capital
investments, acquisitions and organic growth. Net income from the
Market-based Businesses increased 8.6 percent or $0.01 per diluted
share. Finally, the Parent had a tax benefit of $0.02 per diluted
share related to the new accounting standard for stock based
compensation, partially offset by higher interest expense of $0.01
per diluted share.
During the first quarter 2017, the company made capital
investments of approximately $242 million, including $223 million
to improve infrastructure in the Regulated Businesses to provide
safe, clean and reliable service to its customers and $19 million
for strategic and other capital investment. American Water plans to
invest about $1.5 billion across its footprint in 2017, with the
majority to improve its water and wastewater systems.
Regulated Businesses
For the first quarter 2017, net income in the Regulated
Businesses was $94.1 million, compared to $87.1 million for the
same period in 2016. Regulated revenue increased $24.7 million
through additional authorized revenue and surcharges to support
infrastructure investments, acquisitions, and organic growth,
slightly offset by lower demand. Partially offsetting the increases
in revenue was higher depreciation expense of $8 million associated
with infrastructure investment growth.
During the first quarter of 2017, the company received
additional annualized revenues of approximately $34 million from
general rate cases and step increases and $13 million in additional
annualized revenues from infrastructure surcharges. The company is
awaiting final orders or proposed settlements for general rate
cases in four states and filed infrastructure surcharge in one,
requesting approximately $170 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 March 31, 2017, the adjusted
O&M efficiency ratio (a non-GAAP financial measure) improved to
34.6 percent, compared to 35.6 percent for the 12-month period
ended March 31, 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
For the first quarter of 2017, net income in the Market-based
Businesses was $6.6 million, compared to $6.1 million for the same
period in 2016. The Homeowner Services Group and Keystone had
slight net income increases, partially offset by lower capital
upgrades in the Military Services Group, including completion of a
major project at Fort Polk in Louisiana in mid-2016.
Dividends
On April 21, 2017, American Water’s board of directors declared
a quarterly cash dividend payment of 41.5 cents per share of common
stock, an increase of 10.7 percent compared to the previous
quarterly dividend payment, payable on June 1, 2017, to all
stockholders of record as of May 5, 2017.
American Water’s dividend has now increased at or above the top
of its long-term 7 to 10 percent earnings per share compound annual
growth range for five consecutive years.
2017 Earnings Guidance
American Water has affirmed its 2017 earnings guidance from
continuing operations to be 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 the 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.
First Quarter 2017 Earnings Conference Call
The first quarter earnings 2017 conference call will take place
on Thursday, May 4, 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 May 11, 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 10104445. The online webcast will be
available at American Water’s investor relations homepage at
http://ir.amwater.com through June 8, 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 dividend 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 government action related to
the Freedom Industries chemical spill in West Virginia, including
matters pertaining to 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; our 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 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 March 31, 2017
2016 Operating revenues $ 756 $ 743
Operating expenses: Operation and maintenance 337 348
Depreciation and amortization 124 116 General taxes 68 66 Gain on
asset dispositions and purchases
—
(1 ) Total operating expenses, net 529
529 Operating income 227 214 Other income (expenses):
Interest, net (85 ) (80 ) Other, net 3 2
Total other income (expenses) (82 ) (78 )
Income from continuing operations before income taxes 145 136
Provision for income taxes 52 54 Net
income attributable to common stockholders 93 82 Basic
earnings per share: Net income attributable to common stockholders
$ 0.52 $ 0.46 Diluted earnings per share: Net income
attributable to common stockholders $ 0.52 $ 0.46
Weighted average common shares outstanding Basic 178
178 Diluted 179 179
Dividends declared per common share — —
American Water Works Company,
Inc. and Subsidiary Companies Condensed Consolidated Balance
Sheet Information (Unaudited)
In millions
March 31, 2017 December 31, 2016 Cash and cash
equivalents $ 78 $ 75 Other current assets 689 709 Property, plant
and equipment, net 15,128 14,992 Total regulatory and other
long-term assets 2,715 2,706 Total Assets $ 18,610 $
18,482 Short-term debt $ 980 $ 849 Current portion of
long-term debt 574 574 Other current liabilities 864 969 Total
long-term debt 5,753 5,759 Total regulatory and other long-term
liabilities 3,927 3,895 Contributions in aid of construction 1,225
1,218 Total common stockholders' equity 5,287 5,218
Total Capitalization and Liabilities $ 18,610 $ 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 March 31, (In
millions) 2017 2016 Total operation
and maintenance expenses $ 1,493 $ 1,428 Less: Operation and
maintenance expenses—Market-Based Businesses 361 383 Operation and
maintenance expenses—Other (44 ) (46 ) Total
operation and maintenance expenses—Regulated Businesses 1,176 1,091
Less: Regulated purchased water expenses 122 116 Allocation of
non-operation and maintenance expenses 28 33 Impact of Freedom
Industries binding global agreement in principle 65
—
Adjusted operation and maintenance expenses—Regulated
Businesses (a) $ 961 $ 942 Total operating
revenues $ 3,315 $ 3,204 Less: Operating revenues—Market-Based
Businesses 440 461 Operating revenues—Other (21 ) (19
) Total regulated operating revenues—Regulated Businesses 2,896
2,762 Less: Regulated purchased water revenues* 122
116 Adjusted operating revenues—Regulated Businesses
(b) $ 2,774 $ 2,646 Adjusted operation and
maintenance efficiency ratio—Regulated Businesses (a)/(b) 34.6 %
35.6 %
*Calculation assumes purchased water
revenues approximate purchased water expenses.
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American Water Works Company, Inc.Edward VallejoVice President,
Financial Planning and Investor
Relations856-566-4005edward.vallejo@amwater.comorMaureen DuffyVice
President, Communications and External
Affairs856-309-4546maureen.duffy@amwater.com
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