Earnings call transcript: American Water Works Q2 2025 sees EPS miss, revenue beat

American Water Works (AWK) reported its Q2 2025 earnings, revealing an earnings per share (EPS) of $1.48, slightly below the forecast of $1.51. The company surpassed revenue expectations, posting $1.28 billion against a forecast of $1.21 billion. Following the announcement, AWK’s stock experienced a modest uptick, rising 0.81% to $140.14 in after-hours trading. According to InvestingPro, the company maintains a FAIR overall financial health score of 2.32 out of 5, with particularly strong marks in profitability (3.34/5). The stock is currently trading above its Fair Value estimate, suggesting a premium valuation.

Key Takeaways

• American Water Works’ Q2 EPS missed expectations by 1.99%.
• Revenue exceeded forecasts by 5.79%, driven by rate increases and acquisitions.
• Stock price rose 0.81% post-earnings release.
• The company maintains a strong position in the U.S. water utility sector.

Company Performance

American Water Works demonstrated solid revenue growth in Q2 2025, supported by authorized rate increases, recent acquisitions, and organic customer growth. Despite an EPS miss, the company’s strategic investments and operational improvements contributed to a 9.4% year-to-date growth in weather-normalized EPS. The water utility giant continues to leverage its geographic diversity and regulatory execution to strengthen its competitive position.

Financial Highlights

• Revenue: $1.28 billion, up from the forecast of $1.21 billion.
• Earnings per share: $1.48, missing the forecast of $1.51.
• Year-to-date EPS: $2.53, up from $2.37 in the same period last year.
• Weather impact: Negative $0.06 per share.

Earnings vs. Forecast

American Water Works reported an EPS of $1.48, falling short of the forecasted $1.51, marking a 1.99% miss. However, the company delivered a revenue surprise by generating $1.28 billion, 5.79% above expectations. While the EPS miss could raise concerns, the revenue beat highlights the effectiveness of the company’s growth strategies.

Market Reaction

Following the earnings announcement, American Water Works’ stock rose by 0.81%, trading at $140.14. This increase reflects investor confidence in the company’s revenue performance and strategic direction, despite the EPS miss. The stock remains within its 52-week range, with a high of $155.5 and a low of $118.74.

Outlook & Guidance

The company has narrowed its 2025 EPS guidance to a range of $5.70 to $5.75, anticipating an 8.6% growth in EPS for the year. American Water Works plans to continue its infrastructure investments, targeting approximately $3.3 billion in capital spending for 2025. Long-term targets include 7-9% earnings growth and 8-9% rate base growth through 2029.

Executive Commentary

CEO John Griffith reaffirmed the company’s growth targets, stating, "We are again affirming our long term targets for both earnings and dividend growth at 7% to 9%." CFO David highlighted the company’s strategic value, emphasizing, "We believe our industry leading EPS and dividend growth coupled with our affordability position and sustainability leadership will continue to be highly valued."

Risks and Challenges

• Weather-related impacts remain a concern, as evidenced by the $0.06 per share negative effect in Q2.
• Regulatory challenges could arise from ongoing rate cases and decoupling efforts.
• Economic conditions may affect customer growth and operational costs.
• Potential integration challenges from recent acquisitions.

Q&A

During the earnings call, analysts inquired about the company’s acquisition strategy, particularly in Pennsylvania, and the integration of Nexus Water Group. Executives also addressed financing options and the implications of California’s decoupling bill on future operations.

Full transcript - American Water Works Inc (AWK) Q2 2025:

Alan, Conference Call Operator: Good morning, and welcome to American Water’s Second Quarter twenty twenty five Earnings Conference Call. As a reminder, this call will be recorded and is also being webcast with an accompanying 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 like now to introduce your host for today’s call, Aaron Musgrave, Vice President of Investor Relations. Mr.

Musgrave, you may begin.

Aaron Musgrave, Vice President of Investor Relations, American Water: Thank you, Alan. Good morning, everyone, and thank you for joining us for today’s call. At the end of our prepared remarks, we will open 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 second quarter earnings release and Form 10 Q, each filed yesterday with the SEC. And finally, all statements during this presentation related to earnings and earnings per share refer to diluted earnings and diluted earnings per share. With that, I’ll turn the call over to American Water’s President and CEO, John Griffith.

John Griffith, President and CEO, American Water: Thank you, Aaron, and good morning, everyone. Let’s turn to Slide five, and I’ll start by covering some highlights of the second quarter and first half of the year. As we announced yesterday, we delivered solid financial results through the 2025. Earnings were $1.48 per share for the second quarter compared to $1.42 for the same period last year. In the first six months of twenty twenty five, earnings were 2.53 per share compared to $2.37 per share in the same period of 2024.

With this strength across the business, combined with our expectations for the rest of the year, we now expect to achieve the top half of our initial EPS guidance range for 2025, which we’ve narrowed to $5.7 to $5.75 per share. David will share more about our results and guidance a bit later. Moving on to some of our other key accomplishments so far in 2025. We invested $1,300,000,000 in capital projects year to date, again reflecting great work by our teams responsible for planning and completing these investments. We were also very pleased to announce several new acquisition agreements in the first half of the year, including the NEXUS Water Group systems that will add nearly 47,000 customer connections, which we expect to close by August 2026.

As Cheryl will discuss, we are continuing to build momentum with our business development platform with 87,000 customer connections under agreement totaling over $500,000,000 across our platform, and we continued our track record of regulatory execution in the 2025 with new rates effective in several states and new cases filed to reflect investments in infrastructure for the benefit of our customers, which leads us to Slide six, which describes the drivers of American Water’s very competitive and sustainable shareholder return profile. We have a clear top tier capital growth plan underpinned by decades of fundamental water and wastewater infrastructure renewal and water quality investment. This, combined with our strong regulatory and operational execution, results in a value proposition that we believe is unique in the utility sector. We are again affirming our long term targets for both earnings and dividend growth at 7% to 9%, driven by 8% to 9% rate base growth. We expect to consistently grow earnings and dividends at an industry leading pace over the next five years and beyond.

With that, I’ll hand it over to David to cover our financial results, rate case updates and our 2025 outlook in further detail. David?

David, CFO, American Water: Thanks, John, and good morning, everyone. Turning to Slide eight, I’ll provide further insights on second quarter results. Consolidated earnings were 1.48 per share, up $06 per share versus the same period in 2024. Revenues were higher by $0.50 per share driven by authorized rate increases to recover investment across our states. Revenues were also higher from recently completed water and wastewater acquisitions and organic customer growth.

Weather on the other hand was unfavorable by an estimated $06 per share year over year. This was due to wet weather in 2025 across many states resulting in an unfavorable $03 impact combined with the $03 unfavorable weather variance from the warm and dry conditions experienced in the 2024. And looking at operating costs, O and M was higher by $0.17 per share driven primarily by employee related expense, increased maintenance and technology cost, as well as costs related to acquisitions completed in 2024, which we expected. Depreciation increased $0.10 per share and financing costs increased $08 per share, both as expected in support of our investment growth. Turning to Slide nine.

Year to date consolidated earnings were $2.53 per share, up $0.16 per share versus the same period in 2024. On a weather normalized basis, EPS was up 9.4% year to date compared to the prior year. Many of the same drivers I described for the quarter apply to this period as well, including the unfavorable impact of weather. Revenues were higher by $0.94 per share and O and M was higher by $0.32 per share. Depreciation increased $0.21 per share and financing costs increased $0.18 per share, both as expected in support of our investment growth.

Turning to Slide 10, I’ll cover the latest regulatory activity in our states. First on completed cases, we received a final order from the Missouri Commission in May approving our settlement agreement, which we discussed last quarter. In Iowa, we received a final order from the commission approving an annualized revenue increase of $13,000,000 based on an ROE of 9.6% and an equity layer of 52.57%, in line with the Iowa’s approved capital structure in its previous rate case. As a reminder, interim rates were effective on 05/11/2024 in the amount of $5,100,000 and final rates will go into effect tomorrow on August 1. In Hawaii, we received a final order last week from the commission approving an annualized revenue increase of $1,500,000 based on an ROE of 9.75% and an equity layer just north of 52%.

We expect new rates to go into effect in early August. Turning to active cases, you can see we have general rate cases in progress in three jurisdictions. On May 5, we filed a general rate case in West Virginia reflecting $300,000,000 in system investments covering the period March 2024 through February 2027. We are seeking $48,000,000 of additional annual revenue, which would be reflected in two steps, in March 2026 and March 2027. And we expect this case to be completed by the February 2026.

Intervenor testimony is set for October and rebuttal testimony in November. On May 16, we filed a general rate case in Kentucky, reflecting $212,000,000 in system investments covering February 2025 through December 2026. We’re seeking $27,000,000 additional annual revenue and we expect proposed rates to go into effect on an interim basis in December 2025. Intervenor testimony is set for August and rebuttal testimony in September. And finally, on July 1, we filed a general rate case in California, reflecting system investments through 2028.

We are seeking $63,000,000 of additional annual revenue in 2027 compared to authorized 2025 revenue and a total increase in revenue over the twenty twenty seven to twenty twenty nine period of $111,000,000 If approved by the commission, the new rates would take effect on 01/01/2027, with subsequent increases expected in January 2028 and 2029. As a reminder, our request for a one year extension of our cost of capital filing to 05/01/2026, was approved earlier this year, which maintains our current authorized cost of capital through 2026 absent significant movements in interest rates. Another piece of our filing is decoupling. We currently have partial decoupling in California, but again are requesting full decoupling to promote affordable rates in conservation. On a similar front on the legislative side, a decoupling bill related to water utilities has passed out of the California Senate and is currently awaiting action in the California Assembly Appropriations Committee.

On Slide 11, as John mentioned, yesterday, we announced that we are narrowing our 2025 EPS guidance to the top half of the range we first disclosed last October. The 2025 EPS guidance range is now $5.7 to $5.75 from $5.65 to $5.75 previously on a weather normalized basis. We are seeing strength in the business across several regulated states so far in 2025, including solid customer usage. Coupled with the fact that we will continue to have revenue increases year over year in several states through Q3, we expect the 2025 to deliver financial results to achieve this narrowed guidance range. This puts us on track to deliver 8.6 EPS growth in 2025 at the midpoint of the narrowed guidance range.

I’m confident in our team’s ability to execute on our financial and operating plans, including delivering cost effective financing, while maintaining our balance sheet strength and credit profile. Our total debt to capital ratio as of the end of the quarter, net of $94,000,000 of cash on hand was 58%, which was within our target of less than 60%. As a reminder, our 2025 financing plans still includes another long term debt issuance of roughly $1,000,000,000 to be completed in the 2025. And finally, on Slide 12, I want to reemphasize that we continue to expect to achieve consistent EPS growth within the 7% to 9% range through 2029 and beyond. We believe our industry leading EPS and dividend growth coupled with our affordability position and sustainability leadership will continue to be highly valued and rewarded by investors.

We believe these aspects of our business and our position as the largest and most geographically diverse water and wastewater utility in the country distinguishes us from all other utilities. With that, I’ll turn it over to Cheryl to talk more about our capital program, our recent acquisition activity.

Cheryl, Executive, American Water: Thank you, David, and good morning, everyone. On Slide 14, our capital program delivered $1,300,000,000 of investments in the first half of the year. This result keeps us on pace to hit our goal of approximately $3,300,000,000 of capital investment in 2025. Our low risk annual capital plan is made up of hundreds of individual projects, which our teams do a really great job of executing. As a reminder, the nature of the program also gives us the ability to flex up or flex down our organic CapEx spending annually in order to achieve our overall planned capital spend, including acquisitions.

We continue to expect these capital investments in infrastructure acquisitions will grow regulated rate base at a long term rate of 8% to 9%. Turning to Slide 15. We continue to be well positioned for growth through acquisitions across many states with about 87,000 customer connections under agreement from deals totaling $535,000,000 In May, we were pleased to announce an agreement with the Nexus Water Group subsidiary to purchase multiple water and wastewater systems located in eight states for $315,000,000 This acquisition will add nearly 47,000 customer connections and approximately $200,000,000 to rate base. Through this transaction, we will grow in eight of our existing regulated states, supporting our long term growth target of 2% for customer additions. As with other acquisitions, we’ll be able to leverage our scale and size to deliver safe, clean, reliable and affordable water and wastewater services to these new customers.

We also believe this expansion will help lead to more growth since it will expand some of our in state geographies. We expect closing will take place by or before August 2026. In addition to the Nexus systems, we currently have 20 acquisitions in seven states under agreement for February that would add about 40,000 customer connections. This represents significant progress on the business development front, including in West Virginia and Pennsylvania. Importantly, we’ve seen renewed activity in Pennsylvania, including four systems closed so far this year and an additional eight systems under agreement.

The most recent acquisitions announced were the Pittston Wastewater System and the Indian Creek Valley Water Authority, where we plan to utilize fair market value under the new guidelines set by the commission. We have negotiated purchase prices that we believe will result in approval by our regulators of transactions at full cost recovery. We remain confident in our acquisition pipeline, and we are continuing to invest in regulated acquisition opportunities across our footprint. In all of our states, the acquisition opportunities are driven by the need for system consolidation, infrastructure upgrades, regulatory compliance and operational enhancements. With that, I’ll turn it back over to our operator to begin Q and A and take any questions you may have.

Alan, Conference Call Operator: Our first question comes from Richard Sunderland of JPMorgan. Please go ahead.

Rich, Analyst, JPMorgan: Hi, good morning. Thanks for the time today. Good morning, Rich. How are you thinking about Pennsylvania stakeholder relationships and engagements in advance of the next rate case application in the state? Have you been seasoning the timing of an application and are you seeing recognition of that?

Cheryl, Executive, American Water: Hi, Rich, it’s Cheryl. Thanks for the question. We really appreciate it. Yeah, we’ve been doing a whole lot of work in that stakeholder space. First and foremost, we continue to provide really great customer service across the state, and so we know that that is the ultimate way for us to keep our customers happy.

That’s what they expect. But also we have created a stakeholder plan where we continue to reach out and build relationships across all of our stakeholder groups and we feel like we’re in a really good spot in Pennsylvania. We are continuing to plan for our rate filing just as you would normally expect and as we’ve talked about in the past.

Rich, Analyst, JPMorgan: Got it. That’s helpful color there. And then on the financing side, I know you’ve been clear on sort of strategy for the equity with blocks. Curious if you would explore a forward issuance to take care of the 26 equity needs, seeing a lot of peers in the space get ahead of equity. Thank you.

David, CFO, American Water: Hey, Rich, this is David. Yes, thanks for that question. Obviously, we keep I mean, all options on the table and are always evaluating are the options that we have to issue. But our plan is to take proceeds in 2026 and issue the equity in ’twenty six, so.

Rich, Analyst, JPMorgan: Great. I’ll leave it there. Thank you.

Alan, Conference Call Operator: The next question comes from Angie Storozynski of Seaport. Please go ahead.

Angie Storozynski, Analyst, Seaport: Thank you. So I wanted to ask about the Nexus acquisition. Anything you guys can provide as basis for the earnings power of this asset and how it compares to municipal M and A that you would typically pursue? And what does it say about the availability of larger municipal targets that you guys are going after a private set of assets? Thank you.

Cheryl, Executive, American Water: Thanks, Angie. I’ll take a stab at that question. We see the Nexus acquisition. It was a great opportunity for us to get a group of customers in states that we already provide service to, but it does help us to expand our footprint in those states. We don’t see it being a lot different than most of our acquisitions.

We’re going to go through the same processes to bring these customers online. We’ve already started outreach with employees and communities so that we can get to know them and they can get to know us a little bit as we go through the process, which is just typical for what we would do in any acquisition type of scenario. So we see this as being any kind of an indication regarding municipal deals. Those municipal deals are still out there. We’re still pursuing them and we’re still getting lots of interest across our footprint.

We think that it’s just. Another step in rightsizing the organizations across The U. S. And this consolidation piece that we’ve been pushing on and seeing all across the footprint is going to continue, and that will happen in various ways. So we’re excited about this deal, but it certainly has not taken our eye off the ball on the municipal systems.

Angie Storozynski, Analyst, Seaport: And it’s not going to have, you know, diminished profitability because of the goodwill that is being paid and then just a different treatment of privately owned asset acquisitions?

Cheryl, Executive, American Water: No, I don’t think that it’s going to have a negative impact at all. I think it’s going to be again, we’ll just roll them right in and we’ll just keep moving forward. And I don’t see a negative impact at all.

Angie Storozynski, Analyst, Seaport: Okay. Okay, that’s all I have. Thank

Alan, Conference Call Operator: Our next question comes from Jonathan Reeder of Wells Fargo. Please go ahead.

Jonathan Reeder, Analyst, Wells Fargo: Hey, good morning team. Congrats on a solid update. I wanted to start first, I guess, piggybacking off of Angie there and say congrats on the Nexus deal as well as a resumption of some Pennsylvania fair market value deals. Cheryl, could you just kind of talk a little bit more on the landscape in Pennsylvania on the fair market value front? Were these deals that are kind of already in the pipeline just waiting to get done once the PUC finalized the revisions to the rules?

Or is this just kind of more the tip of the iceberg of the backlog of deals that are kind of waiting to come and we should expect to see a lot more Pennsylvania fair market value activity in the quarters ahead?

Cheryl, Executive, American Water: Yes. Jonathan, thanks for the question. These deals are all long lead time deals. So we’ve been working on all these deals for quite some time. Nothing happens overnight in the acquisition space.

But I would say these deals have just gone through the natural progression. I don’t think they were necessarily waiting in the wings for these rules to get finalized or anything like that. I think the timing is what it is just based on the conversations that we’ve been having. And we look at each deal to determine does it make sense to do a fair market value deal or does it make sense to do a more traditional type of deal. And we’ve had a mixture of those.

When you talk about all the deals that are happening in Pennsylvania, they’re not all fair market value deals. Do we expect more to come to the table? Absolutely. And we’ll continue to manage through those deals. We were glad when the commission gave us guidelines that we can follow along so that it makes that process of getting a deal closed smoother and hopefully faster.

And so we’re to follow those guidelines with our fair market value deals so that we can really push all these deals forward whether they’re fair market value or not. But yes, we think there’s still a lot more deals. There’s a lot of consolidation that needs to happen out there.

John Griffith, President and CEO, American Water: Hey, it’s John here. I’ll just add to Cheryl’s comments, and Cheryl is spot on there in terms of the Pennsylvania landscape. We really are seeing additional contribution from across our entire platform as well. So Pennsylvania remains healthy, but those same dynamics that drive Pennsylvania in terms of the need for investment, economies of scale, which leads to the regionalization, those all apply across our platform. And we’re really we’ve spent the last couple of years organizing to be able to move on those dynamics broadly across our states.

Jonathan Reeder, Analyst, Wells Fargo: Awesome. That’s great to hear the momentum is broad. One other question I had was on your reference to the bill, the decoupling bill in California. Can you kind of expand a little bit more what exactly that says or maybe what’s the goals of the bill? Because I believe the legislature in previous year kind of passed the decoupling bill, but it didn’t require the commission to adopt decoupling.

Does this bill like require them to approve decoupling, full decoupling for the California water utilities?

Cheryl, Executive, American Water: Yes, Jonathan, this bill was designed to try to close that gap for us. So we’re hopeful that it continues to make its way through and that the governor signs off on it. And we’re hoping to have a decision over the next few months.

Jonathan Reeder, Analyst, Wells Fargo: Okay. But at this point, it still needs to pass both chambers before even going to the Governor. Is that correct?

David, CFO, American Water: Yes. Well, it’s Jonathan, it’s David. It’s passed out of the Appropriations Committee. Now it’s got to go to the full legislature. And then once it passes there, it goes to the Governor’s desk.

Jonathan Reeder, Analyst, Wells Fargo: Excellent. All right. Thanks so much for taking the time to answer my questions. And again, congrats on a good update.

Paul Zimbardo, Analyst, Jefferies: Thanks, Adam. Thank you.

Alan, Conference Call Operator: The next question comes from Paul Zimbardo of Jefferies. Please go ahead.

Paul Zimbardo, Analyst, Jefferies: Hi, good morning team. Thank you.

John Griffith, President and CEO, American Water: Good morning, Paul.

Paul Zimbardo, Analyst, Jefferies: I just had one quick one, you’re comprehensive before. Just on the strength in the 2025 pushing up the guidance towards the top end, I know you attributed to some stronger usage and just outperformance across the footprint. Is there anything else in particular that kind of drove that strength? And if we should think about that those drivers, whatever they may be contributing in 2026 plus?

David, CFO, American Water: Paul, this is David. No, I mean, what we disclosed in the call here was really the primary driver. We’re just seeing strong usage. We saw that last year, a continuation of that. And that’s the main driver.

John Griffith, President and CEO, American Water: Yes. And Paul, just to add to that, it’s a lot of consistent regulatory execution and the strength of our diversified platform geographically as well as from a regulatory perspective.

Paul Zimbardo, Analyst, Jefferies: Okay. Understood. Very much. Have a good one.

Alan, Conference Call Operator: This concludes our question and answer session. Our presentation is now finished. You may now disconnect.

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