American Water Reports Solid First Quarter for 2012

Last week, American Water Works Company, Inc., reported increases in revenues, net income and earnings per share for the first quarter, which ended March 31, 2012, as compared to the first quarter of 2011.

“With strong year-over-year growth, American Water’s commitment to the efficient use of capital and a sharpened focus on driving operational excellence are clearly reflected in our solid first quarter results,” said Jeff Sterba, president and CEO of American Water. “So far this year we have successfully resolved five rate proceedings with annualized revenue increases of $62.6 million, improved our O&M efficiency, continued to invest in our infrastructure to ensure superior service to our customers and closed the transactions involved in our portfolio optimization effort.”

For the three months ending March 31, the company reported income from continuing operations of $49.3 million or earnings per share of $0.28, compared with $40.7 million, or $0.23 per share, for the comparable period in 2011. Included in income and earnings per share for continuing operations in the first quarter of 2012 is a charge of $1.4 million or $0.01 per share, related to severance costs associated with organizational streamlining.

For the first quarter of 2012, the company’s revenues increased 3.7 percent or $21.8 million over the comparable quarter in 2011 to $618.6 million. Operating expenses for the three months ending March 31, totaled $458.8 million, an increase of $5.4 million or 1.2 percent, compared to the same period in 2011. This overall increase is mainly attributable to increases in depreciation and amortization expenses and general taxes.

Net cash provided by operating activities for the three months ending March 31, was $148.1 million compared to $161.5 million for the first quarter in 2011, mainly due to changes in working capital. The company’s capital expenditures for the first quarter of 2012 were $233.4 million, compared to $176.4 million for the same period in the prior year. The increase is mainly attributable to increased spending on infrastructure replacement projects due to the milder winter weather, as well as expenditures associated with the company’s business transformation project and the replacement of a new water treatment facility in New Jersey. The company anticipates investing more than $900 million in construction and other capital projects in 2012 to help ensure reliable water and wastewater services.

Here are some notable first quarter results:

  • Income and earnings per share from continuing operations increased more than 20 percent quarter-over-quarter to $49.3 million and $0.28 per share.
  • Revenues increased 3.7 percent, or $21.8 million, over first quarter of previous year to $618.6 million.
  • Regulated Operation and Maintenance Efficiency Ratio, a non-GAAP financial measure, improved to 45.3 percent from 48.1 percent over first quarter of 2011.
  • Completed outstanding portfolio optimization transactions (involving Arizona, New Mexico, Ohio and New York properties).

Regulated Operations

American Water’s Regulated Businesses’ revenues increased by $13.6 million, or 2.6 percent, over the prior year’s period, mainly driven by new rates needed to deliver reliable services. This increase was partially offset by decreased consumption over the prior year. The Regulated Businesses’ operation and maintenance (O&M) expense decreased $7.0 million or 2.7 percent over the prior year’s period. The regulated entities showed continued improvement in their O&M efficiency ratio (a non-GAAP measure), which decreased to 45.3 percent in the first quarter of 2012 from 48.1 percent in the first quarter in 2011.

American Water’s Regulated Businesses continued to prudently invest dollars to upgrade and maintain their water systems. Increased revenues, a result of rate authorizations, were in recognition of that investment. During the first quarter, the company received authorizations in Missouri, Iowa and New York for additional annualized revenues of $32.4 million. Also during the first quarter, the company filed a general rate case in Virginia, which would generate approximately $6 million in total additional revenues if approved as filed.

Subsequent to the quarter’s end, a rate authorization was received in New Jersey, granting $30.0 million in additional annualized revenue. As of May 2, the company was awaiting final orders for general rate cases in four states, totaling $101.2 million in requested additional annual revenues. The extent to which requested rate increases will be granted by the applicable regulatory agencies will vary. All annualized revenue amounts are based on current usage.

Reflecting the company’s ongoing commitment to provide reliable service to its customers, American Water anticipates investing more than $900 million in 2012 to upgrade and maintain plants, pumps and pipes, as well as for other capital projects, primarily in the Regulated Businesses. The company is in the final stages of its $101 million project in Pittsburgh, Penn., to upgrade two water treatment plants and pumping capacity that will serve more than 500,000 people. Work is also nearing completion for a new $75 million plant to replace a 1920s-era water treatment facility in Millburn, N.J., which will serve more than 126,500 people. Both of these major projects are scheduled to be completed this summer.

“As the nation’s water and wastewater infrastructure continues to decline, American Water remains committed to upgrading and maintaining its systems to ensure quality and reliability for our customers,” said Sterba. “This year marks the 40th anniversary of the Clean Water Act, which serves as a reminder of how far we have come as a country in terms of protecting and preserving our water resources. But there is more work to do. The American Water Works Association’s recently released report, Buried No Longer, documents the need for $1 trillion of investment in the next 25 years to ensure the continued viability of underground water systems and the health, economic vitality and fire protection that is supported by them. By continually investing in our systems, as well as innovative technologies that increase efficiency and sustainability, American Water is committed to addressing these challenges.”

American Water also continued its efforts to optimize its business portfolio to ensure that it is operating in areas where it can best create value for its customers and shareholders. During the quarter, American Water completed the sale of its regulated water and wastewater systems in Arizona and New Mexico.

Market-Based Operations

American Water’s Market-Based Operations revenue increased by $5.2 million during the first quarter of 2012. The increase was primarily attributable to its contracts to provide water and wastewater services for military bases. The Market-Based Businesses’ O&M expenses during the first quarter increased by $3.2 million over the comparable quarter, reflecting the increases in revenue.

Quarterly Dividend

On March 1, 2012, the company paid a cash dividend of $0.23 per common share to shareholders of record as of Feb. 3, 2012. On Feb. 24, 2012, American Water’s Board of Directors declared a quarterly cash dividend of $0.23 per common share, payable on June 1, 2012 to all shareholders of record as of April 20, 2012.

Earnings Guidance

The company’s 2012 earnings from ongoing operations are estimated to be in the range of $1.90 to $2.00 per share. The company’s earnings forecasts are subject to numerous risks, including those described under “Forward-Looking Statements” and under “Risk Factors” in its Annual Report on Form 10-K for the fiscal year ended December 31, 2011. To see more details of American Water?s first quarter financial report, visit

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