10-QPeriod: Q2 FY2017

American Water Works Company, Inc. Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 2, 2017For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported steady performance in its Q2 2017 10-Q filing, with revenues increasing slightly year-over-year. The company continued its strategic focus on infrastructure investment and acquisitions within its Regulated Businesses segment, which is the primary driver of its financial results. While net income attributable to common stockholders saw a slight decrease for the quarter, this was largely influenced by a one-time, non-cash cumulative tax adjustment related to New York legislation. The company maintained a strong balance sheet, with total assets growing and leverage remaining manageable. AWK highlighted its commitment to growth through capital investments and strategic acquisitions, projecting substantial capital expenditures for the full year. Operational efficiency also saw improvement, as evidenced by a better adjusted O&M efficiency ratio. Investors should note the ongoing legal proceedings, particularly the West Virginia chemical spill settlement, which, despite a recent setback in preliminary court approval, remains a significant contingent liability. The company's regulated nature provides a stable revenue base, and its ongoing investments aim to support long-term value creation and dividend sustainability.

Financial Highlights

48 data points
Beta

Net Income

$131.00M

EPS (Diluted)

$0.73

Total Assets

$18.97B

Cash & Equivalents

$64.00M

Free Cash Flow

-$85.00M

Financial Statements
Beta
Operating Expenses$534.00M
Operating Income$310.00M
Net Income$131.00M
EPS (Basic)$0.74
EPS (Diluted)$0.73
Shares Outstanding (Basic)178.00M
Shares Outstanding (Diluted)179.00M

Key Highlights

  • 1Total assets grew to $18.97 billion as of June 30, 2017, from $18.48 billion as of December 31, 2016, indicating continued investment in the business.
  • 2Operating revenues increased by 2.1% for the three months ended June 30, 2017, and 1.9% for the six months ended June 30, 2017, primarily driven by growth in the Regulated Businesses segment due to rate increases and acquisitions.
  • 3Net income attributable to common stockholders was $131 million for Q2 2017, a 4.4% decrease from $137 million in Q2 2016, largely impacted by a $4 million non-cash tax adjustment in New York.
  • 4The company invested approximately $618 million in capital expenditures and acquisitions during the first six months of 2017, with a full-year projection of $1.5 billion to $1.6 billion.
  • 5The Regulated Businesses segment remains the core performer, with net income increasing by 3.7% for the quarter and 5.4% for the six-month period.
  • 6The Market-Based Businesses segment experienced a revenue decrease of 10.4% for the quarter and 10.0% for the six-month period, primarily due to lower capital upgrades in the Military Services Group.
  • 7Despite a setback in preliminary court approval, the company continues to work towards settling claims related to the West Virginia Elk River chemical spill, with a proposed aggregate pre-tax settlement amount of $126 million.

Frequently Asked Questions

The primary driver of American Water Works' revenue growth is its Regulated Businesses segment. This growth is fueled by infrastructure investment, acquisitions of new water and wastewater systems, and authorized rate increases implemented to fund these investments and ensure operational efficiency. The company consistently invests in its regulated utility infrastructure to maintain service quality and expand its customer base.

For the three months ended June 30, 2017, net income attributable to common stockholders decreased slightly year-over-year. This was primarily due to a one-time, non-cash, cumulative tax adjustment of $4 million resulting from new legislation in New York that increased the state's income tax rate for water utilities. While the Regulated Businesses segment showed income growth, the tax adjustment and a decrease in income from Market-Based Businesses partially offset these gains.

American Water Works is involved in a binding global agreement in principle to settle claims related to the 2014 chemical spill into the Elk River. The proposed settlement has an aggregate pre-tax amount of $126 million, with $65 million contributed by West Virginia American Water Company (WVAWC) and the remainder by insurance carriers. However, on July 6, 2017, the court denied preliminary approval of the settlement, citing concerns with allocation methodologies and claim appeal processes. The company and plaintiffs are working to propose acceptable alternative provisions. The company recorded a $65 million charge (pre-tax) in Q3 2016, reflecting this potential liability, with an offsetting insurance receivable.

American Water Works is actively investing in its infrastructure and growth. For the first six months of 2017, capital investments and acquisitions totaled approximately $618 million, with $576 million directed towards infrastructure improvements in its Regulated Businesses segment and $42 million for acquisitions. The company projects total capital investments, including regulated acquisitions, to be in the range of $1.5 billion to $1.6 billion for the full year 2017, underscoring its commitment to modernizing its systems and expanding its reach.