American Water Works Q1 2025 Earnings Report

American Water Works EPS Results

• Actual EPS: $1.05
• Consensus EPS: $1.06
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: $0.95

American Water Works Revenue Results

• Actual Revenue: $1.14 billion
• Expected Revenue: $1.09 billion
• Beat/Miss: Beat by +$55.41 million
• YoY Revenue Growth: +13.00%

American Water Works Announcement Details

• Quarter: Q1 2025
• Date: 4/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 9:00AM ET

American Water Works (NYSE:AWK) is a water and wastewater utility company that provides essential services to residential, commercial, industrial and public-sector customers. Through its regulated operations, the company treats and distributes drinking water, collects and treats wastewater, and manages related infrastructure such as pipelines, treatment plants, storage facilities and pumping stations.

The company also provides water and wastewater services to military installations and operates businesses serving municipalities and other public-sector customers. Its activities include infrastructure management, engineering, technical support and other specialized services designed to improve the reliability, safety and efficiency of water systems.

Founded in 1886, American Water has grown into one of the largest publicly traded water and wastewater companies in the United States. Its regulated utility operations serve customers across multiple states, while its national service businesses support communities and government facilities in additional locations. The company is headquartered in Camden, New Jersey.

American Water Works Q1 2025 Earnings Call Transcript

Key Takeaways

• Q1 EPS up 11% to $1.05 per share year-over-year and management reiterated its full-year 2025 guidance targeting 8% EPS growth, reflecting confidence in operational execution.
• Dividend increased 8.2% to $0.0825 per share, with the company reaffirming a long-term target of 7–9% annual dividend growth in line with EPS.
• Key regulatory victories include a constructive Missouri rate‐case settlement and enactment of future test year legislation, plus approval of a $15 million revenue increase in Virginia, all supporting infrastructure investment.
• First-quarter capital spending totaled $518 million, keeping the company on track for approximately $3.3 billion in 2025 investments, while maintaining a robust acquisition pipeline of ~37,000 customer connections.
• S&P and Moody’s both affirmed American Water’s strong investment-grade ratings and stable outlook, underscoring the company’s solid balance sheet and consistent cash flows.

Presentation

[Operator]

Good morning and welcome to American Water's first quarter 2025 earnings conference call. As a reminder, this call is being recorded and is also being webcast within the company's slide presentation through the company's investor relations website. The audio webcast archive will be available for one year on American Water's investor relations website. I would now like to introduce you, your host for today's call, Aaron Musgrave, Vice President of Investor Relations. Mr. Musgrave, you may begin.

[Aaron Musgrave, VP of Investor Relations at American Water]

Thank you, Danielle. Good morning, everyone, and thank you for joining us for today's call. At the end of our prepared remarks, we'll be opening the call for your questions. Let me first go over some safe harbor language. Today, we will be making forward-looking statements that represent our expectations regarding our future performance or other future events. These statements are predictions based on our current expectations, estimates, and assumptions. However, since these statements deal with future events, they are subject to numerous known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from the results indicated or implied by such statements. Additional information regarding these risks, uncertainties, and factors, as well as a more detailed analysis of our financials and other important information, is provided in the first quarter earnings release and Form 10Q, each filed yesterday with the SEC.

[Aaron Musgrave, VP of Investor Relations at American Water]

All statements during this presentation related to earnings and earnings per share refer to diluted earnings and diluted earnings per share. John Griffith, our President, will share year-to-date highlights, our affirmation of 2025 EPS guidance and long-term targets, and our dividend increase. David Bowler, our Executive Vice President and CFO, will discuss our first quarter financial results, provide rate case and legislative updates, and will review our affirmation of growth drivers and financing plans. Cheryl Norton, our Executive Vice President and COO, will then discuss our capital investment program, our acquisition outlook, and will conclude with comments on the state of infrastructure in the U.S. After our prepared remarks, we'll then close by answering your questions. Our CEO, Susan Hardwick, is also with us and will be available for Q&A. With that, I'll turn the call over to American Water's President, John Griffith.

[John Griffith, President at American Water]

Thank you, Aaron, and good morning, everyone. As we announced yesterday, we started 2025 with solid financial results. As shown on slide five, earnings were $1.05 per share for the quarter, a nearly 11% increase compared to $0.95 last year. The increased results are on track to achieve our full-year earnings guidance, which we are pleased to affirm, representing our expectation of 8% EPS growth in 2025 compared to our weather-normalized 2024 EPS. First quarter 2025 results included $0.03 per share of additional interest income from the February 2024 amendment of the seller note related to the sale of homeowner services. Here, you can also see a recap of some of our other key accomplishments so far in 2025, and David and Cheryl will add to these in their remarks.

[John Griffith, President at American Water]

We continued our track record of regulatory and capital plan execution in the first quarter, with new rates effective in several states and investments in infrastructure progressing well. I'm proud of our team's efforts supporting two key priorities in Missouri this year. We achieved a constructive settlement in the general rate case in Missouri and are awaiting a final order. Through a collaborative effort with many stakeholders, future test year legislation was signed into law in the state. Both outcomes are supportive of important utility infrastructure investments and aligned with our focus on providing safe, clean, reliable, and affordable service to our customers. In addition, we were pleased to see S&P and Moody's again recognize our strong balance sheet and cash flows and our low-risk profile as they both affirmed our strong investment-grade credit ratings and stable outlook.

[John Griffith, President at American Water]

Turning to slide six, this quarter, we are again affirming our long-term targets for both earnings and dividend growth at 7%-9%, driven by 8%-9% rate-based growth. This affirmation is based on our clear top-tier capital growth plan and our strong regulatory and operational execution that I believe is a positive differentiator from our peers. We expect to consistently grow earnings and dividends at an industry-leading pace over the next five years and beyond, leading to a very competitive value proposition for our shareholders. Moving on to slide seven, as we announced yesterday, our board of directors approved an increase in the company's quarterly cash dividend from $0.76 per share to $0.82 and $0.75 per share, an 8.2% increase. We have grown our dividend consistently over the last decade, significantly outpacing virtually all of our utility peers.

[John Griffith, President at American Water]

Looking ahead, we continue to expect to grow our dividend at 7%-9% per year, in line with our compelling 7%-9% EPS growth target. Our board and management team understand and appreciate how important the dividend component of our total shareholder return is to our investors. Finally, I would like to note that today is our last earnings call with Susan at the helm. As you recall, we announced in February with the Q4 release that Susan will be retiring upon our annual shareholders' meeting on the 14th of this month. Susan, we will miss your presence, your leadership, and your wisdom, and are grateful for everything you have done for American Water. You've had a long and very distinguished career in the utility sector, and we wish you much happiness and a lot of relaxation in your retirement.

[John Griffith, President at American Water]

With that, I'll hand it over to David to cover our financial results and rate case and legislative updates in further detail. David?

[David Bowler, EVP and CFO at American Water]

Thanks, John, and good morning, everyone. Turning to slide nine, I'll provide some further insights into our financial results for the quarter. Consolidated reported earnings were $1.05 per share, up $0.10 per share versus the same period in 2024. Revenues were higher by $0.44 per share, primarily due to authorized rate increases to recover investment across our states. Revenues were also higher from closed water and wastewater acquisitions and organic customer growth. In looking at operating costs, O&M was higher by $0.15 per share, driven primarily by employee-related costs and other increases that support growth in the business, and cost-related acquisitions completed in 2024, as we expected. Depreciation increased $0.11 per share, and financing costs increased $0.10 per share, both as expected in support of our investment growth.

[David Bowler, EVP and CFO at American Water]

Finally, we have $0.01 per share of additional interest income from the February 2024 note amendment related to the sale of HOS, which is included in the other net column. Turning to slide 10, I'll cover the latest regulatory activity in our states. The two key developments this quarter were rate cases in Missouri and Virginia. In Missouri, we entered into a settlement agreement with several parties, including commission staff and the Office of Public Counsel. We agreed to an annualized revenue increase of $63 million as compared to our most recent revised request of $107 million. New rates are expected to go into effect on May 31st, 2025. Once a final order is received from the commission, we will give our view on ROE and capital structure. In Virginia, the commission issued an order approving our settlement of the general rate case.

[David Bowler, EVP and CFO at American Water]

The order approved a $15 million annualized increase in water and wastewater revenues compared to the original filing that had requested a $20 million increase. The order also approved a return on equity of 9.7% and a higher equity component of the capital structure than in our previous case at nearly 46%. Since interim rates were implemented in May of 2024, results in 2025 will not be meaningfully impacted by this case. Turning to active cases, the proceeding in Iowa is progressing as expected, and we expect to receive a final order this month. In Hawaii, we filed a partial settlement agreement subject to regulatory approval that results in a $1.5 million increase based on a 9.75% ROE. We expect to receive a final order mid-year 2025.

[David Bowler, EVP and CFO at American Water]

Finally, later today, we'll be making an initial submission related to our next general rate case in California, which is in keeping with the state's three-year cycle. The California case will seek to recover nearly $750 million in planned investment in pipe replacement, resiliency, and other important system needs. Slide 11 outlines three important pieces of priority legislation for us that were signed into law already in 2025. First, Missouri passed Senate Bill 4. As a result, beginning July 1st, 2026, water and wastewater utilities may request the use of a future test year in a general rate case for rate-based and certain expenses. As you know, our current Missouri general rate case was filed on July 1st, 2024, so we expect that our next general rate case in Missouri will request this future test year treatment.

[David Bowler, EVP and CFO at American Water]

This is a positive step for the regulatory and business environment in Missouri. Turning to Indiana, legislators there passed Senate Bill 426 in March, which modifies the existing distribution system improvement charge to allow for the deferral of depreciation and post-service carrying costs from the in-service state of eligible investments until they are included for recovery and rates. The language also provides important protections from lawsuits when utilities are meeting applicable water quality standards. In Virginia, Senate Bill 850 was passed and will permit a water or wastewater utility to petition the Virginia Commission for the recovery of an expanded list of eligible infrastructure costs outside of a base rate case. Collectively, these three laws represent progress towards achieving our allowed returns in each state and are supportive of further investments.

[David Bowler, EVP and CFO at American Water]

I'd like to congratulate our government and external affairs teams who worked alongside many others to help achieve these constructive policies in 2025. Finally, on slide 12, as John mentioned, we've affirmed our 2025 EPS guidance, which again represents 8% annual growth. Our outlook and plans for 2025 remain unchanged from our February call. As Cheryl will speak to, we don't expect any of the recent tariff-related announcements to have a material impact on our 2025 plan or financial results. I'm confident in our team's ability to execute on our financial and operating plans and cost management strategies. This includes delivering cost-effective financing while maintaining our balance sheet strength and credit profile. As we announced in late February, we completed a successful long-term debt issuance of $800 million at a 5.25% coupon that attracted strong demand.

[David Bowler, EVP and CFO at American Water]

Our treasury team did a great job of timely executing part of our financing objectives for the year amidst a challenging market environment. Our total debt-to-capital ratio as of the end of the quarter, that of $114 million of cash on hand, was 58%, which was within our target of less than 60%. Also, as John mentioned, S&P affirmed our A rating in April, which followed Moody's affirmation of our BAA1 investment credit rating in January, with a stable outlook from both. Both agencies note advantages of our scale, our low-risk business profile, our strong regulatory and operational diversity across 14 states, and our steady financial performance in their analysis. They also noted our expected sustained FFO-to-debt ratios well within the current ratings thresholds. We are confident our business and financial profile, including FFO-to-debt, will continue to support either our current or higher investment-grade credit ratings.

[David Bowler, EVP and CFO at American Water]

With that, I'll turn it over to Cheryl to talk more about our capital program, our recent acquisition activity, and a look at the state of infrastructure in the U.S. Cheryl?

[Cheryl Norton, EVP and COO at American Water]

Thanks, David. Good morning, everyone. On slide 14, our capital program is off to a good start this year, investing $518 million in the first quarter. Our state and corporate leaders and their teams did a great job working through a particularly harsh winter across many of our states. This result keeps us on pace to hit our goal of approximately $3.3 billion of capital investment in 2025. We continue to expect these capital investments in infrastructure and in acquisitions will grow regulated rate-based at a long-term rate of 8%-9%. As our capital investments related to PFAS remediation and lead service line replacement begin to ramp up, we've been asked by investors if the amount or timing of our investments will change. Our answer is still the same. We haven't changed our plans. EPA's rules around PFAS and lead and copper are final regulations.

[Cheryl Norton, EVP and COO at American Water]

Some of our states also have existing regulations for PFAS and lead and copper. While we'll continue to monitor for any potential changes in this realm, for now, we're moving forward. As I'll note a bit later in my comments, if the capital spend needed to address PFAS and/or lead and copper goes down, we would redeploy it to other important system needs, such as pipe replacement. This quarter, we also thought it would be helpful to share a few comments about the potential impact of tariffs on our capital and operating expenses. Our teams analyze the potential cost increases that could come from tariffs on various raw materials or finished goods that we purchase to serve our customers.

[Cheryl Norton, EVP and COO at American Water]

The good news, as David alluded to, is that our supply chain is predominantly sourced domestically, and therefore our exposure is very limited on things like fleet purchases, pumps, and some construction-related materials. Of course, we'll work to mitigate even that small exposure through our supply chain team and our purchasing power. Related to operating costs, we don't expect any significant tariff-related impacts, as most of our key expenses, such as labor, power, and chemicals, are primarily sourced domestically. Again, even with the uncertainty around tariffs amidst other uncertainties, I believe the high degree the market is seeing how resilient American Water is. I'll say it again. I believe the high degree of visibility to our capital investment plan, combined with the low-risk nature of the plan, uniquely positions American Water in the utility sector and is fundamental to our investment thesis.

[Cheryl Norton, EVP and COO at American Water]

Turning to slide 15, we continue to be well-positioned for growth through acquisitions across many states, with about 37,000 customer connections under agreement. I want to highlight three states in particular today as we think about our acquisition outlook. First, in Pennsylvania, already this year, we've received multiple unanimous approvals from the commission to acquire water and wastewater systems. We remain confident in our Pennsylvania acquisition pipeline, and we are continuing to invest in regulated acquisition opportunities in Pennsylvania, driven by the need for system consolidation and upgrading. A great example of this is the East Dunkard Water System, which we just closed this week. That system was out of EPA compliance since 2014, and the residents in that community could not trust that the water coming out of their taps was safe to drink.

[Cheryl Norton, EVP and COO at American Water]

The system was placed into a receivership under Pennsylvania American Water last year, and our team has done a phenomenal job in rectifying approximately 75 violations from the state DEP. In Pennsylvania, as in all our states, American Water will continue to be the solution provider to communities who deserve high-quality water and wastewater service. Next, you can see that West Virginia has nearly 15,000 customer connections under agreement. Our business development team there is doing an excellent job in identifying consolidation opportunities and converting them to signed asset purchase agreements. Finally, in New Jersey, we have a signed purchase agreement for the South Orange Water System, which passed a voted referendum last fall. That system is in need of significant follow-on capital over the next decade, which in particular includes a great deal of lead service line replacements.

[Cheryl Norton, EVP and COO at American Water]

To close on slide 16, the American Society of Civil Engineers' latest report card for America's infrastructure, issued every four years since 2001, recently gave the nation's drinking water systems a C- grade and wastewater systems a D+ grade, both of which are unchanged from the 2021 report card. EPA estimates that our country's water infrastructure needs a total of $625 billion of investments over the next 20 years, and that estimate keeps going up, not down, each time they update their estimates. We believe even that estimate is way too low by a factor of two or three. Aging infrastructure, extreme weather events, and costs associated with regulatory and environmental compliance continue to place increased strain on the nation's water systems.

[Cheryl Norton, EVP and COO at American Water]

This strain is generally felt most acutely by small to medium-sized municipal systems that do not always have the capital or the expertise to address the issues at hand. The need for consolidation of the fragmented U.S. water industry to help solve these problems is dire. Within the communities we already serve, we need to invest $36 billion-$37 billion over the next 10 years to help ensure safe, clean, reliable, and affordable water and wastewater service. The solutions needed across the country will require the public and private sectors to work together. Together, we can safeguard public health, incentivize economic investment, and ultimately create American jobs. With that, I will turn it back over to our operator to begin Q&A and take any questions you may have.

[Operator]

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on a touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time a question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from Richard Sunderland from JPMorgan. Excuse me, from JPMorgan. Please go ahead.

[Richard Sunderland, Equity Research Analyst at JPMorgan]

Hi, good morning.

[Aaron Musgrave, VP of Investor Relations at American Water]

Morning, Rich.

[Richard Sunderland, Equity Research Analyst at JPMorgan]

First, congrats again to John, Susan, and the whole team. Susan, I hope you enjoy your retirement.

[Susan Hardwick, CEO at American Water]

Thanks, Rich. I certainly appreciate it. I plan to.

[Richard Sunderland, Equity Research Analyst at JPMorgan]

Great. Starting off, any thoughts on pulling forward your 2026 equity issuance given the recent share price strength or just financing thoughts overall on approach to equity?

[Aaron Musgrave, VP of Investor Relations at American Water]

Hey, Rich, thanks for the question. You know, we'll continue to evaluate the market and opportunities, but at this point, no plans to pull that forward. We're going to issue equity when we need the financing, and we'll leave it at that.

[Richard Sunderland, Equity Research Analyst at JPMorgan]

Understood. Very clear. Circling back to some of the earlier M&A acquisition outlook commentary, how do you see the landscape standing under a scenario where recession puts pressure on muni finances? Do you think this could bolster some of the medium-term opportunities for you?

[John Griffith, President at American Water]

Rich, it's John here. You know, I'd say our prior narrative that we expect to see continuous flow of acquisition opportunities is still in place. It's possible that whether it's recession or just less federal funding could drive some sellers or potential sellers to want to transact. It is an opportunity, and we think about that as part of a broader list of reasons why sellers could sell, you know, whether it's environmental remediation, deferred capital investment, spend, retiring operators, things like that, all point to continued activity.

[Richard Sunderland, Equity Research Analyst at JPMorgan]

Great. Thank you for the time today.

[John Griffith, President at American Water]

Thanks, Rich.

[Operator]

As a reminder, if you have a question, please press star one. The next question comes from Anthony Crowdell from Mizuho. Please go ahead.

[Anthony Crowdell, Managing Director at Mizuho]

Hey, good morning, and I echo Rich's comments. Congrats to all. Just if I could just quickly hit on one state, on California. I think you mentioned you're going to file, I guess, a notice that you're planning to file a rate case. Curious if you could just talk about maybe percentage increase that you think you'll be asking in that case. Also, I just apologize, I forgot. It's the timing of when you guys would file the, I think you do it separately as a cost of capital proceeding in California.

[David Bowler, EVP and CFO at American Water]

Hey, Anthony, this is David. The California case that we're filing, you know, there's a requirement to file a case every three years. We haven't disclosed the percentage increase and won't disclose that at this time. As far as the cost of capital proceeding, that's correct. There's a separate proceeding. We requested that that be delayed until 2026. That was approved earlier this year. The 10.2% we have in place will stay in place through 2025.

[Anthony Crowdell, Managing Director at Mizuho]

Through 2025, do you have to file it this year then to have a new cost of capital in 2026, or are you beginning the filing in 2026 for a new cost of capital in 2027?

[John Griffith, President at American Water]

Filing in 2026 for a new cost of capital in January 2027, Anthony.

[Anthony Crowdell, Managing Director at Mizuho]

Great. Thank you so much. That's all I have. Thanks.

[Operator]

The next question comes from Gregg Orrill from UBS. Please go ahead.

[Gregg Orrill, Executive Director and Equity Analyst at UBS]

Yeah, thanks for taking my question. Thank you, Susan. Appreciate all your help.

[Susan Hardwick, CEO at American Water]

Thanks, Gregg.

[Gregg Orrill, Executive Director and Equity Analyst at UBS]

Hey, just maybe a little different topic. Just could you provide an update on the California desalination project and how that's going to help you there?

[Aaron Musgrave, VP of Investor Relations at American Water]

Sure. Gregg, I think on desal, as you recall, we got our last major permit approval back in November of 2022, which was the California Coastal Commission. We've got a CPCN from the California PUC. We'll need to provide updates to the PUC, but as we had noted in our 10-K, we expect to break ground this year on desal.

[Gregg Orrill, Executive Director and Equity Analyst at UBS]

That's not a part of the rate case.

[Aaron Musgrave, VP of Investor Relations at American Water]

Correct. That's a separate docket.

[Gregg Orrill, Executive Director and Equity Analyst at UBS]

Got it. Thank you.

[Aaron Musgrave, VP of Investor Relations at American Water]

Thanks, Greg.

[Operator]

Again, if you have a question, please press star one. The next question comes from Paul Zimbardo from Jefferies. Please go ahead.

[Paul Zimbardo, Managing Director and Research Analyst at Jefferies]

Hi. Thank you, team, and congrats again, everyone, especially Susan.

[Susan Hardwick, CEO at American Water]

Thanks, Paul.

[Paul Zimbardo, Managing Director and Research Analyst at Jefferies]

One from—oh, no, of course, of course. Just one for me on the legislative progress that you talked about the three states. I think you mentioned potential for stronger earned returns and incremental capital. Is there any way that you could frame the opportunities there? I know some states are larger in your mix versus some others. Just any quantification would be helpful if you can.

[David Bowler, EVP and CFO at American Water]

Yeah. Hey, Paul, this is David. We haven't really framed up how much of an opportunity the future test year in Missouri will provide to us, nor have we for the other states. I mean, obviously, it will incrementally help our earned returns in each state.

[Paul Zimbardo, Managing Director and Research Analyst at Jefferies]

Okay. Okay. I'll leave it there. Thank you very much.

[Operator]

This concludes our question-and answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Cheryl Norton, EVP and COO

Analysts

• Aaron Musgrave, VP of Investor Relations at American Water
• Gregg Orrill, Executive Director and Equity Analyst at UBS
• John Griffith, President at American Water
• Richard Sunderland, Equity Research Analyst at JPMorgan
• Paul Zimbardo, Managing Director and Research Analyst at Jefferies
• Anthony Crowdell, Managing Director at Mizuho
• David Bowler, EVP and CFO at American Water
• Susan Hardwick, CEO at American Water