- Second quarter 2016 diluted earnings
per share increased 13.2 percent to 77 cents compared to the second
quarter 2015
- Revenue increased 5.8 percent to
$827 million for the quarter
- 55,400 new customers to be added
through closed and pending regulated acquisitions in 2016
- Affirmed 2016 earnings from
continuing operations guidance of $2.75 to $2.85 per diluted common
share
American Water Works Company, Inc. (NYSE: AWK)
today reported results for the quarter ended June 30, 2016.
"American Water’s employees delivered strong
second quarter results, reflecting our employees’ commitment to
delivering safe, clean, reliable and affordable water and water
services,” said Susan Story, president and CEO of American Water.
“Our quarter over quarter growth was primarily driven by continued
regulated system investments and improved operational efficiency,
both of which significantly benefit our customers. The results also
reflect a couple of timing benefits which we experienced during the
second quarter. We remain on track to meet our long-term goal of
growing earnings at a seven to ten percent CAGR over the five year
period of 2016 through 2020. We are affirming our 2016 earnings
guidance to be in the range of $2.75 to $2.85 per diluted common
share.”
Consolidated Results
For the second quarter 2016, the company
reported net income of $137 million, or 77 cents per diluted common
share (“diluted share”), compared to 68 cents per diluted share for
the second quarter of 2015, a 13.2 percent increase. For the first
six months of 2016, the company reported net income of $219
million, or $1.23 per diluted share, compared to $1.13 per diluted
share for the first half of 2015, an 8.8 percent increase.
For the first six months of 2016, the company
made capital investments of approximately $552 million, which
included $24 million for regulated acquisitions. The majority of
the remaining $528 million was in regulated operations, primarily
for water and wastewater system improvements for the benefit of
American Water’s customers.
American Water plans to invest $1.4 billion to
$1.5 billion across its footprint in 2016, with the majority to
improve its water and wastewater systems. Included in this range
for the full year 2016 are the acquisitions expected to close this
year. All closed and pending acquisitions are expected to add
approximately 55,400 new customers to the American Water footprint.
Regulated acquisitions that closed during the first half of 2016
added approximately 7,600 water and wastewater customers. Pending
acquisitions for water and wastewater systems are expected to add a
total of approximately 47,800 customers. Pending acquisitions
include the wastewater collection and treatment assets of the Sewer
Authority of the City of Scranton, Pennsylvania with approximately
31,000 wastewater customers, and the announcement of Shorelands
Water Company in New Jersey with approximately 11,000
customers.
Regulated Businesses
For the second quarter 2016, net income for the
Regulated Businesses was $135 million compared to $122 million for
the same period in 2015. The increase is primarily attributable to
revenue growth of $29 million, or 4.2 percent, from authorized rate
increases driven by investment growth and acquisitions. Partially
offsetting increased revenue was higher depreciation and
amortization expense of $7 million from infrastructure investment
growth. Lower operations and maintenance (O&M) expense of $2
million was due to continued improved efficiency and timing, offset
by an increase in medical and prescription drug group insurance
costs of $5 million. The company expects higher group insurance
costs to continue for the remainder of 2016.
For the six months ended June 30, 2016, net
income was $222 million compared to $203 million for the same
period in 2015. The increase is primarily attributable to revenue
growth of $48 million, or 3.7 percent. Partially offsetting
increased revenue was higher depreciation and amortization expense
of $15 million from infrastructure investment growth. Lower O&M
expense of $6 million was due to continued improved efficiency and
timing, partially offset by the higher year-to-date medical and
prescription drug group insurance costs of $5 million noted
above.
Year-to-date August 3, 2016, the company
received approximately $66.7 million in additional annualized
authorized revenues from general rate cases, step increases, and
infrastructure charges. As of August 3, 2016, the company was
awaiting final orders or proposed settlements for general rate
cases in six states, requesting approximately $110.4 million in
total additional revenues and $3 million in infrastructure charges.
The extent to which requested rate increases will be granted by the
applicable regulatory agencies will vary. General rate case revenue
amounts are based on pro forma usage in the proceedings.
For the 12-month period ended June 30, 2016,
the adjusted O&M efficiency ratio (a non-GAAP financial
measure) improved to 35.2 percent, compared to 35.9 percent for the
12-month period ended June 30, 2015. 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 second quarter of 2016, the
Market-based Businesses reported net income of $13 million compared
to $12 million for the second quarter 2015. Operating revenues
totaled $115 million, an increase of $15 million compared to the
second quarter of 2015. The increase in revenues primarily reflects
the addition of $11 million from Keystone Clearwater Solutions,
which was acquired in July 2015. Another $4 million was primarily
due to incremental revenue in Homeowner Services from contract
growth. Second quarter 2016 O&M expense increased to $94
million, up $14 million compared to the second quarter 2015,
primarily reflecting additional costs from Keystone Clearwater
Solutions, and incremental costs in Homeowner Services
corresponding with increased revenues. Offsetting these increases
was a favorable settlement of a contract dispute of about $3
million.
For the first half of 2016, the Market-based
Businesses reported net income of $19 million, flat compared to the
first half of 2015. Operating revenues totaled $229 million, an
increase of $42 million compared to the first half of 2015. The
increase in revenues reflects $23 million for the addition of
Keystone Clearwater Solutions. Another $19 million was primarily
for the Military Services for construction projects during the
first quarter of 2016 and Homeowner Services from geographic
expansion and contract growth. First half 2016 O&M expense
increased to $193 million, up $39 million compared to the first
half of 2015, primarily reflecting the addition of Keystone
Clearwater Solutions and new construction project activities in
Military Services and marketing expenses for Homeowner Services,
offset by settlement of the contract dispute noted above.
Dividend Declared
On July 29, 2016, American Water’s board of
directors declared a quarterly cash dividend payment of 37.5 cents
per share of common stock, payable on September 1, 2016, to all
stockholders of record as of August 8, 2016.
2016 Earnings Guidance
American Water affirmed its 2016 earnings
guidance from continuing operations to be in the range of $2.75 to
$2.85 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
adjusted O&M efficiency ratio, which excludes from its
calculation estimated purchased water revenues and purchased water
expenses, and the allocable portion of non-O&M support services
costs, mainly depreciation and general taxes, and the impact of the
Freedom Industries chemical spill as well as the estimated impact
of weather. This item is derived from American Water’s consolidated
financial information but is not presented in its financial
statements prepared in accordance with GAAP. The item constitutes a
“non-GAAP financial measure” under SEC rules. 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 the 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 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 at the end of this release is a table
that reconciles the non-GAAP financial measure to the most directly
comparable GAAP financial measure.
Second Quarter 2016 Earnings Conference
Call
The second quarter earnings 2016 conference
call will take place on Thursday, August 4, 2016, 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 www.amwater.com. Presentation slides that
will be used in conjunction with the earnings conference call will
also be made available online at http://ir.amwater.com. 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 August 11,
2016. 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 10089150. The online
webcast will be available at American Water’s investor relations
homepage at http://ir.amwater.com through September 6, 2016. After
that, the archived webcast will be available for one year at
http://ir.amwater.com.
About American Water
American Water is the largest and most
geographically diverse publicly traded U.S. water and wastewater
utility company. Marking its 130th anniversary this year, the
company employs more than 6,700 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
www.amwater.com.
Cautionary Statement Concerning
Forward-Looking Statements
Certain statements in this press release
including, without limitation, 2016 earnings guidance, the outcome
of pending acquisition activity, the amount of future capital
investments, 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
December 31, 2015, 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
of regulatory commissions’ actions concerning rates and other
matters; changes in laws, governmental regulations and policies,
including environmental, health and safety, water quality, and
public utility regulations and policies; potential costs and
liabilities of American Water for environmental and similar matters
resulting from, among other things, the provision of water services
to 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; weather
conditions, patterns or events or natural disasters, including
drought or abnormally high rainfall, strong winds, coastal and
intercoastal flooding, earthquakes, landslides, hurricanes and
tornadoes, and cooler than normal temperatures; 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 technology 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 and attacks on, or infiltration of, its
computer systems or other critical infrastructure; 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 acquire, new
customers in its Market-based Businesses, including with respect to
the provision of water services to customers in the natural gas
exploration and production market; cost overruns relating to
improvements in or the expansion of its operations; our ability to
maintain safe work sites; changes in general economic, 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 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; and civil
disturbances, terrorist threats or acts, or public apprehension
about future disturbances or terrorist threats or acts.
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 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 June 30, For the
Six Months Ended June 30, 2016 2015 2016
2015 Operating revenues $ 827 $ 782 $ 1,570
$ 1,480 Operating expenses: Operation and maintenance
351 336 699 660 Depreciation and amortization 115 109 231 216
General taxes 64 60 130 124 Gain on asset dispositions and
purchases (2 ) (1 ) (3 ) (2 ) Total
operating expenses, net 528 504
1,057 998 Operating income 299
278 513 482 Other income
(expense): Interest, net (81 ) (76 ) (161 ) (151 ) Other, net
7 2 9 6
Total other income (expense) (74 ) (74 ) (152
) (145 ) Income from continuing operations before income
taxes 225 204 361 337 Provision for income taxes 88
81 142 134 Net income
attributable to common stockholders $ 137 $ 123 $ 219
$ 203 Basic earnings per share: Net income
attributable to common stockholders $ 0.77 $ 0.69 $
1.23 $ 1.13 Diluted earnings per share: Net income
attributable to common stockholders $ 0.77 $ 0.68 $
1.23 $ 1.13 Weighted average common shares
outstanding: Basic 178 180 178
180 Diluted 178 180
178 180 Dividends declared per
common share $ 0.375 $ 0.34 $ 0.375 $ 0.34
American Water Works
Company, Inc. and Subsidiary Companies Condensed
Consolidated Balance Sheets Information (Unaudited)
In millions
June 30, 2016 December 31, 2015 Cash
and cash equivalents $ 52 $ 45 Other current assets 639 612
Property, plant and equipment, net 14,317 13,933 Total regulatory
and other long-term assets 2,698 2,651
Total Assets
$ 17,706 $ 17,241 Short-term debt $ 950 $ 628 Current
portion of long-term debt 54 54 Other current liabilities 736 851
Total long-term debt 5,861 5,874 Total regulatory and other
long-term liabilities 3,765 3,664 Contributions in aid of
construction 1,187 1,121 Total common stockholders' equity
5,153 5,049 Total Capitalization and Liabilities $ 17,706 $
17,241
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 June 30,
2016 2015 Total operation and maintenance expenses $
1,443 $ 1,347 Less: Operation and maintenance expenses—Market-Based
Businesses 397 316 Operation and maintenance expenses—Other
(43 ) (55 ) Total operation and maintenance
expenses—Regulated Businesses 1,089 1,086 Less: Regulated purchased
water expenses 116 119 Allocation of non-operation and maintenance
expenses 32 39 Impact of Freedom Industries chemical spill in West
Virginia — 1 Estimated impact of weather (mid-point of range)
— (2 ) Adjusted operation and maintenance
expenses—Regulated Businesses (a) $ 941 $ 929
Total operating revenues $ 3,249 $ 3,058 Less: Operating
revenues—Market-Based Businesses 476 385 Operating revenues—Other
(18 ) (18 ) Total regulated operating
revenues—Regulated Businesses 2,791 2,691 Less: Regulated purchased
water revenues* 116 119 Plus: Estimated impact of weather
(mid-point of range) — 17 Adjusted
operating revenues—Regulated Businesses (b) $ 2,675 $ 2,589
Adjusted operation and maintenance efficiency
ratio—Regulated Businesses (a)/(b) 35.2 % 35.9 % *
Calculation assumes purchased water revenues approximate purchased
water expenses.
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American Water Works Company, Inc.Gregory
PanagosVice President, Investor
Relations856-566-4005gregory.panagos@amwater.comorMaureen DuffyVice
President, Communications856-309-4546maureen.duffy@amwater.com
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