01—Abstract
Summary
Summary of the 10-Q filed May 4, 2011. Cited figures are marked; the original filing is the authoritative source.
American Water Works Company, Inc. (AWK) reported a strong first quarter for 2011, with net income increasing to $47.3 milliona from $30.8 million in the prior year's comparable period.
This growth was primarily driven by increased operating revenues from rate increases in its Regulated Businesses segment and higher revenues from its Market-Based Operations. Income from continuing operations also saw a significant rise, more than doubling to $41.5 millionb from $29.7 million, with diluted earnings per share from continuing operations reaching $0.24 compared to $0.17 in the prior year. The company is actively executing a portfolio optimization strategy, including the planned divestiture of its Arizona and New Mexico subsidiaries and the sale of its Texas subsidiary's assets.
Simultaneously, AWK is pursuing rate case resolutions and filed for significant annualized revenue increases in several states. Management is focused on improving operating efficiency and achieving authorized rates of return. Despite increased operating expenses, particularly in operation and maintenance, the company's financial performance demonstrates resilience and strategic progress.
02—Key points
Key Highlights
- Net income increased by 53.6% to $47.3 million for the three months ended March 31, 2011, compared to $30.8 million for the same period in 2010.
- Income from continuing operations increased by 40.0% to $41.5 million, with diluted EPS from continuing operations rising to $0.24 from $0.17.
- Total operating revenues grew by 7.8% to $610.9 million, driven by rate increases in Regulated Businesses and growth in Market-Based Operations.
- The company is progressing with its portfolio optimization by planning to sell its Arizona, New Mexico, and Texas subsidiaries.
- Operating efficiency ratio for Regulated Businesses improved to 48.2% from 49.4% year-over-year.
- Capital expenditures increased significantly to $176.4 million from $142.7 million in the prior year's comparable period.
- The company declared a quarterly dividend of $0.22 per share, consistent with the previous quarter.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2011filed May 4, 2011Financial Statements
Q1 FY2011 against Q1 FY2010
| Line item | Q1 FY2011Q1 FY2010 | Change |
|---|---|---|
| Revenue | $596.72M$554.21M | +7.7% |
| Operating Expenses | $453.46M$442.11M | +2.6% |
| Operating Income | $143.25M$123.83M | +15.7% |
| Interest Expense | $76.19M$78.70M | −3.2% |
| Net Income | $26.23M$30.81M | −14.9% |
| EPS (Basic) | $0.15$0.18 | −16.7% |
| EPS (Diluted) | $0.15$0.18 | −16.7% |
| Shares Outstanding (Basic) | 175.26M174.72M | +0.3% |
| Shares Outstanding (Diluted) | 176.05M174.80M | +0.7% |
05—Questions
Frequently Asked Questions
What drove the increase in American Water's net income in Q1 2011?
The primary drivers for the increase in net income were higher operating revenues, largely due to rate increases approved for its Regulated Businesses, and growth in its Market-Based Operations. Additionally, the cessation of depreciation on assets held by discontinued operations contributed to the higher reported net income under GAAP.
What is the status of American Water's portfolio optimization strategy?
The company is actively pursuing its portfolio optimization initiative, which includes agreements to sell its regulated water and wastewater systems in Arizona and New Mexico, and the sale of assets of its Texas subsidiary. The Missouri acquisition is also progressing and expected to close in Q2 2011. The divestitures of Arizona and New Mexico are anticipated by late 2011 or early 2012, while the Texas sale is expected in Q2 or Q3 2011.
How is the company managing its operating expenses and efficiency?
Consolidated operation and maintenance expense increased by 4.9% due to higher costs in both Regulated Businesses and Market-Based Operations. However, the operating efficiency ratio for Regulated Businesses improved to 48.2% from 49.4% in the prior year, indicating better efficiency in managing operational costs relative to revenues. The company is also actively pursuing rate case resolutions to improve its earned rate of return.
What is the company's approach to capital investment and financing?
American Water significantly increased its capital expenditures to $176.4 million in Q1 2011, up from $142.7 million in the prior year, reflecting investment in utility plant. The company funds its liquidity needs through operating cash flows, debt offerings, commercial paper, and credit facilities, maintaining a stable capital structure with approximately 55% long-term debt.
06—Continue