American Water Works ( AWK 0.14% ) launched fourth-quarter and full-year 2021 outcomes after the market shut on Wednesday, Feb. 16.
Shares of the U.S. water and wastewater utility large rose 1.2% on heavier-than-average quantity on Thursday. That acquire is small but it surely was a pleasant bump for a utility inventory on a day that the S&P 500 index dropped 2.1%. The market’s poor efficiency was pushed by heightening Russia-Ukraine tensions.
It appears seemingly that American Water inventory’s small acquire was partly a optimistic response to the corporate’s earnings launch and partly as a result of market dynamics. The market dynamics concerned a flight to security, which is a comparatively frequent response when geopolitical tensions flare.
In 2022, American Water inventory is down 21.2% (together with dividends) via Feb. 18, whereas the S&P 500 has misplaced almost 9%. As I wrote in my earnings preview, the market has been struggling due to expectations that the Federal Reserve will increase rates of interest a number of instances this yr. Curiosity-rate delicate shares, which embody utilities, have typically been struggling essentially the most.
Picture supply: Getty Photographs.
American Water’s key quarterly numbers
| Metric | This fall 2021 | This fall 2020 | Change |
|---|---|---|---|
| Income | $951 million | $923 million | 3% |
| Web earnings | $645 million | $145 million | 345% |
| GAAP earnings per share (EPS) | $3.55 | $0.80 | 344% |
| Operational (or adjusted) EPS | $0.85 | $0.80 | 6.3% |
Knowledge supply: American Water Works. GAAP = typically accepted accounting ideas.
Fourth-quarter GAAP EPS features a acquire of $2.70 per share from the corporate’s sale of its home-owner companies (HOS) enterprise in December, decreased by a $0.19 per share contribution to the American Water Charitable Basis from the proceeds on the sale. The adjusted EPS consequence excludes this web acquire.
Wall Avenue was in search of adjusted EPS of $0.85 on income of $937.3 million. So the corporate exceeded the top-line consensus estimate and hit the revenue expectation on the bull’s eye.
For context, within the third quarter of 2021, income edged up 1.2% yr over yr to $1.09 billion. EPS elevated 4.8% to $1.53. On a weather-normalized foundation, EPS jumped 10% yr over yr.
This is how the segments carried out within the quarter:
| Phase | This fall 2021 EPS | This fall 2020 EPS | Change |
|---|---|---|---|
| Regulated enterprise | $0.91 | $0.85 | 7.1% |
| Market-based enterprise | $0.08 | $0.13 | (38%) |
| Mother or father and different | ($0.14) | ($0.18) | N/A. Loss narrowed 22%. |
| Operational (or adjusted) EPS | $0.85 | $0.80 | 6.3% |
| Achieve on sale of HOS | $2.70 | — | — |
| GAAP EPS | $3.55 | $0.80 | 344% |
Knowledge supply: American Water Works.
The earnings decline within the market-based enterprise displays the corporate solely proudly owning the HOS enterprise for simply over two months within the quarter. It bought this enterprise on Dec. 9, 2021.
This sale was a great transfer, in my opinion, as I believe many utility traders respect water and wastewater utility pure performs. American Water is now such a pure play. The one market-based enterprise it now owns is its navy companies group, which gives water and wastewater companies on U.S. navy bases below extraordinarily long-term contracts.
What the CEO needed to say
This is most of what CEO Susan Hardwick needed to say within the earnings launch:
American Water absolutely executed on the technique in 2021, persevering with our report of serious earnings progress and delivering on our plan, together with the completion of the sale of HOS in 2021 and the gross sales of our regulated subsidiaries in New York and Michigan in early 2022.
We invested $1.9 billion in our regulated enterprise, delivered higher efficiencies in our operations and efficiently accomplished 23 regulated acquisitions in the course of the yr. We’re additionally proud that 2021 marked one in all our greatest years of security efficiency and a continued recognition of our work to combine our core values of variety, inclusion, fairness and environmental management into all the things we do at American Water.
Effectivity continues to enhance
American Water’s key adjusted operation and upkeep (O&M) effectivity ratio was 34.1% for the one-year interval via the fourth quarter (in different phrases, for full-year 2021), an enchancment from 34.3% in 2020. This ratio displays how effectively the corporate is controlling prices in its regulated utility enterprise. The decrease the ratio, the higher.
Main happenings after the quarter ended
The corporate accomplished the sale of its regulated subsidiaries in New York and Michigan in early January 2022 and early February 2022, respectively. It now has regulated utility operations in 14 states.
The acquisition costs for these companies had been $608 million (New York) and $6 million (Michigan) in money.
Steerage
American Water Works affirmed its beforehand launched 2022 earnings steering and long-term monetary targets via 2026.
For full-year 2022, it expects earnings within the vary of $4.39 to $4.49 per share. For the five-year interval via 2026, it tasks an EPS compound annual progress price of seven% to 9%. And it expects its dividend progress via 2026 to common on the excessive finish of the 7% to 10% vary.
This text represents the opinion of the author, who might disagree with the “official” advice place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis – even one in all our personal – helps us all suppose critically about investing and make selections that assist us turn into smarter, happier, and richer.
