California Water Service Group (CWT -0.09%), a regulated water utility serving communities in California and several other Western states, released its Q2 2025 earnings results on July 31, 2025. The most notable news was a clear outperformance versus analyst expectations: GAAP earnings per share reached $0.71, well above the GAAP consensus of $0.56. Revenue (GAAP) climbed to $264.95 million, topping GAAP estimates by more than $21 million and rising more than 8% year over year (GAAP). Operating expenses (GAAP) rose at nearly the same pace as revenue (GAAP), as cost pressures continued. Overall, the period reflected solid execution, ongoing capital investment, and steady progress with major regulatory initiatives, but the outlook remains closely tied to regulatory outcomes and expense management.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS | $0.73 | $0.56 | $0.71 | 2.8 % |
| Revenue | $264.95 million | $243.46 million | $244.30 million | 8.4 % |
| Net Income | $42.17 million | N/A | $40.6 million | 3.9 % |
| Operating Expenses (GAAP) | $213.15 million | N/A | $196.13 million | 8.7 % |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Business Overview and Strategic Focus
California Water Service Group is a large investor-owned utility specializing in regulated water and wastewater services. Its market includes more than two million people across California and select communities in Hawaii, Washington, Texas, and New Mexico. Most revenue comes from California, where it operates under strict regulatory oversight and must justify rates through General Rate Cases reviewed by state authorities.
The company’s recent business focus has centered on earning fair returns via regulatory approval, investing in modern water systems, and maintaining regulatory compliance. Success depends heavily on outcomes from state rate cases, prudent infrastructure investment, and strict environmental standards. Strong engagement with regulators and investment in sustainable water management and quality upgrades have been central to operations. The company must also address rising operational costs and complex regulatory mechanisms, which have a significant impact on reported earnings.
Second Quarter Highlights and Notable Developments
Revenue (GAAP) grew 8.5% year over year, driven by a mix of rate increases and higher customer usage. Rate changes contributed $23.9 million in new revenue, while usage increases added another $7.0 million. Customer water consumption rose 5%. These gains were offset by a $9.4 million unfavorable year-over-year comparison due to a one-time regulatory accrual in Q2 2024.
Operating expenses (GAAP) reached $213.1 million, up 8.7% from the prior year (GAAP). Key contributors to this growth included a $7.9 million increase in water production costs due to higher wholesale water rates (GAAP). Other operations expenses increased $8.0 million, primarily due to higher labor costs year-to-date and lower bad debt expenses in Q2 2024, and a $3.1 million increase in depreciation tied to new capital assets placed in service. Operating expenses grew slightly faster than revenue. Notably, some of the shift in operational costs stemmed from the end of one-time bad debt relief received in Q2 2024, which no longer provided an offset.
The company continued to advance its infrastructure investment program, with capital expenditures totaling $119.4 million and year-to-date investment at $229.5 million for the six months ended June 2025, a 7.0% increase year-to-date over the same period in 2024. This capital outlay included projects to modernize water delivery, enhance supply reliability, and ensure regulatory compliance. A major new development was the agreement signed on June 24, 2025, to take on operations for the Silverwood wastewater and recycled water systems in Southern California, which will serve over 15,000 customer connections at full buildout. Phase 1 construction at Silverwood will require an estimated $60.0 to $70.0 million.
Compliance with environmental regulations remained a major enterprise focus. The company received its first settlement payment of $10.6 million (net of fees) from 3M as part of PFAS contamination litigation. The PFAS (per- and polyfluoroalkyl substances) settlement funds will go toward capital investments needed to meet new federal drinking water standards, which are expected to require more than $226.0 million in upgrades. Additional settlements are anticipated later this year and in future periods, helping to defray future compliance costs. The company also highlighted a 23.5% reduction in greenhouse gas emissions (Scope 1 and 2) from its 2021 baseline, as reported in the 2024 Sustainability Report, $3.0 million spent on energy efficiency upgrades as reported in the 2024 Sustainability Report, and a 100% compliance rate in water quality testing as reported in the 2024 Sustainability Report.
The board declared its 322nd consecutive quarterly dividend, maintaining its $0.30 per share payout. This continues a trend of dividend increases—dividends have grown for 58 consecutive years, with a five-year compound annual dividend growth rate of 7.7%.
Product and Service Portfolio
The company provides water and wastewater utility services, including potable water, recycled water service, water treatment, and distribution. New initiatives, such as the Silverwood project, broaden the portfolio to include large-scale wastewater plant construction and management. In June 2025, the company signed an agreement to own and operate the wastewater and recycled water systems of Silverwood, a new master-planned community in San Bernardino County, California. with recent activity in Texas and Hawaii supporting future growth and network reach.
Looking Ahead: Outlook and Key Watchpoints
Management emphasized steady focus on regulatory execution, ongoing infrastructure investments, and cost discipline. The company's financial trajectory will be shaped largely by the California General Rate Case outcome, as proposed rates and revenue structure changes await regulatory approval. Key decisions pending include the Low-Use Water Equity Program, designed to decouple some revenue from usage among lower-income households and create greater revenue stability. Progress on large capital projects and timely regulatory decisions will be central to maintaining cash flow and earnings momentum.
For the rest of the year, investors should monitor expense growth, as capital investment needs remain substantial, and while liquidity appears strong, substantial funding for long-term projects will likely require new borrowings or equity issuance. The board maintained the quarterly dividend at $0.30 per share, demonstrating continuity in returns to shareholders. No change to dividend policy or payout ratio was announced during the period.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
