10-QPeriod: Q1 FY2017

American Water Works Company, Inc. Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 3, 2017For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported its first quarter 2017 financial results, showing a year-over-year increase in net income attributable to common stockholders of 13.4% to $93 million, or $0.52 per diluted share, up from $82 million, or $0.46 per diluted share, in the same period of 2016. This growth was primarily driven by continued expansion in the Regulated Businesses segment, fueled by investments, acquisitions, and organic growth, along with a beneficial tax impact from the adoption of a new accounting standard for stock-based compensation. The company maintained its focus on safety, customers, people, growth, and technology. Capital investments remain a priority, with approximately $1.5 billion planned for 2017, largely directed towards infrastructure improvements within the Regulated Businesses. The company also reported an improvement in its adjusted Operation and Maintenance (O&M) efficiency ratio for its regulated operations, a key indicator of operational effectiveness.

Financial Highlights

47 data points
Beta

Net Income

$93.00M

EPS (Diluted)

$0.52

Total Assets

$18.61B

Cash & Equivalents

$78.00M

Free Cash Flow

$7.00M

Financial Statements
Beta
Operating Expenses$526.00M
Operating Income$230.00M
Net Income$93.00M
EPS (Basic)$0.52
EPS (Diluted)$0.52
Shares Outstanding (Basic)178.00M
Shares Outstanding (Diluted)179.00M

Key Highlights

  • 1Net income attributable to common stockholders increased by 13.4% to $93 million ($0.52 per diluted share) in Q1 2017, compared to $82 million ($0.46 per diluted share) in Q1 2016.
  • 2Total operating revenues grew by 1.7% to $756 million, with the Regulated Businesses segment showing a 3.9% increase to $659 million.
  • 3Capital expenditures for the first three months of 2017 were $270 million, with a full-year 2017 forecast of approximately $1.5 billion, primarily for infrastructure improvements in regulated operations.
  • 4The company closed on $38 million in regulated acquisitions, adding approximately 13,000 customers by May 3, 2017, including the acquisition of Shorelands Water Company for $33 million.
  • 5Adjusted O&M efficiency ratio for regulated businesses improved to 34.6% for the twelve months ended March 31, 2017, from 35.6% in the prior year period, indicating increased operational efficiency.
  • 6The company declared a quarterly cash dividend of $0.415 per share, an increase from the previous quarter's $0.375 per share, demonstrating a commitment to returning value to shareholders.
  • 7A significant charge related to the West Virginia chemical spill settlement ($126 million pre-tax, $65 million net of insurance) was recorded in Q3 2016, with the settlement amount reflected in liabilities as of March 31, 2017.

Frequently Asked Questions

Revenue growth was primarily driven by authorized rate increases in the Regulated Businesses segment, which funded infrastructure investment, acquisitions, and organic growth. There was also a contribution from newly acquired customers and price increases in the Homeowner Services Group. Partially offsetting this growth was a decrease in revenue from the Market-Based Businesses, specifically the Military Services Group, due to the completion of a large project and reduced budgets.

American Water Works plans to invest approximately $1.5 billion in 2017, with the majority allocated to infrastructure improvements in its Regulated Businesses. This includes ongoing capital investments and strategic acquisitions. The company is also constructing a new corporate headquarters, with an estimated cost of up to $165 million.

The company maintains a solid financial position. As of March 31, 2017, its debt-to-capitalization ratio was 0.58 to 1.00, well within its covenant of not more than 0.70 to 1.00. Liquidity is supported by cash flows from operations, a $1.75 billion revolving credit facility, and access to commercial paper markets. AWCC, the financing subsidiary, had $1.66 billion available under its revolving credit facility.

The company is involved in several legal proceedings, most notably the West Virginia Elk River Freedom Industries Chemical Spill settlement. A binding global agreement in principle was reached for a pre-tax amount of $126 million, with $65 million being the net charge after insurance receivables as of March 31, 2017. Additionally, California-American Water Company (Cal Am) is involved in a residential rate design proceeding with the CPUC, which could result in a penalty, though the settlement proposed a $0.5 million waiver of cost recovery in lieu of a penalty. The company believes these contingencies will not have a material adverse effect, but outcomes are uncertain.