10-QPeriod: Q2 FY2018

American Water Works Company, Inc. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 1, 2018For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported solid financial performance for the second quarter and first half of 2018, demonstrating growth in both its regulated and market-based businesses. Net income attributable to common stockholders increased significantly year-over-year, driven by infrastructure investments, strategic acquisitions, and improved operational efficiency. The company successfully integrated the acquisition of Pivotal Home Solutions, which is expected to contribute to future growth. The company's financial results were also positively impacted by the Tax Cuts and Jobs Act (TCJA), which lowered the federal corporate income tax rate. While these savings are largely being passed on to customers through rate adjustments, they have improved the company's effective tax rate. AWK continues to invest heavily in infrastructure improvements across its regulated operations, positioning itself for sustained long-term value creation.

Financial Highlights

49 data points
Beta

Revenue

$840.00M

Net Income

$162.00M

19.3% Net Margin

EPS (Diluted)

$0.91

Total Assets

$20.47B

Cash & Equivalents

$68.00M

Free Cash Flow

-$69.00M

Financial Statements
Beta
Revenue$840.00M
Operating Expenses$551.00M
Operating Income$302.00M
Net Income$162.00M
EPS (Basic)$0.90
EPS (Diluted)$0.91
Shares Outstanding (Basic)179.00M
Shares Outstanding (Diluted)179.00M

Key Highlights

  • 1Net income attributable to common stockholders increased by 23.7% to $162 million for the three months ended June 30, 2018, compared to $131 million in the prior year.
  • 2Diluted earnings per share (EPS) rose to $0.91 for the second quarter of 2018, up from $0.73 in the same period of 2017.
  • 3The company completed the acquisition of Pivotal Home Solutions for $363 million, financed by approximately 50% debt and 50% equity.
  • 4Operating revenues saw a modest increase of 1.1% to $853 million for the second quarter, primarily driven by growth in Regulated Businesses and Market-Based Businesses.
  • 5Capital expenditures for the first six months of 2018 totaled $1.1 billion, primarily focused on infrastructure improvements and acquisitions.
  • 6The effective income tax rate decreased significantly to 26.0% for the first six months of 2018 from 39.5% in the prior year, largely due to the Tax Cuts and Jobs Act (TCJA).
  • 7The company entered into agreements to acquire wastewater systems in Exeter Township, Pennsylvania, and the City of Alton, Illinois, for approximately $96 million and $54 million, respectively, pending regulatory approval.

Frequently Asked Questions

The acquisition of Pivotal Home Solutions for $363 million was completed on June 4, 2018. It was financed with approximately 50% debt and 50% equity, including proceeds from an equity forward transaction. While Pivotal's results are included in the company's consolidated statements, their individual impact on the net income for the three and six months ended June 30, 2018, was not material, but it is expected to contribute to future growth, particularly within the Homeowner Services Group.

The TCJA, enacted in late 2017, reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. This significantly lowered AWK's effective income tax rate to 26.0% for the first six months of 2018, compared to 39.5% in the prior year. For regulated operations, the company is working with regulators to pass these tax savings to customers, which is reflected as a reserve on revenue and a corresponding regulatory liability. This has a positive impact on net income by reducing the tax expense provision.

American Water is making significant investments in its infrastructure and growth opportunities. For the first six months of 2018, capital expenditures and acquisitions totaled approximately $1.1 billion. This included $713 million for infrastructure improvements in Regulated Businesses, $363 million for the Pivotal acquisition, and $14 million for smaller acquisitions in Regulated Businesses. The company anticipates full-year 2018 capital investment to be in the range of $2.0 billion to $2.1 billion.

The company received final court approval for a global settlement related to the January 2014 Freedom Industries chemical spill in West Virginia, with American Water's contribution being $23 million net of insurance recoveries. An insurance settlement with a carrier provided a $20 million benefit. In California, legal proceedings related to the Monterey Peninsula water supply project and desalination project are ongoing, with potential impacts on project timelines and costs.