American Water Works (AWK 1.24%) is slated to release its second-quarter 2022 results after the market close on Wednesday, July 27. The top management team of the largest publicly traded U.S. water and wastewater utility is scheduled to hold an analyst conference call on the following day at 9 a.m. ET.
Over the last year, American Water stock has slightly outperformed the broader market, which has performed poorly in 2022. The stock's return is 7.4% in the red for the one-year period through July 12, while the S&P 500 index's return is underwater by 11.3% over this period.
Here's what to watch in the company's upcoming Q2 report.
Image source: Getty Images.
Key numbers
Here are American Water's results for the year-ago period and Wall Street's estimates to use as benchmarks.
| Metric | Q2 2021 Result | Wall Street's Q2 2022 Consensus Estimate | Wall Street's Projected Change (YOY) |
|---|---|---|---|
| Revenue | $999 million | $973.5 million | (2.6%) |
| Adjusted EPS | $1.14 | $1.17 | 2.6% |
Data sources: American Water Works and Yahoo! Finance. YOY = year over year. EPS = earnings per share.
Without any context, investors might be concerned that Wall Street expects the company's revenue to contract slightly from the year-ago period and its earnings to grow less than 3%. But there is nothing to be concerned about here. Context matters more than usual for the quarter to be reported.
Revenue is projected to edge a bit lower for two main reasons. First, in the year-ago quarter, revenue got a boost from average weather in the company's operating area being hotter and dryer than usual. Second, since the year-ago period, the company has divested its homeowner services business (Q4 2021) and its regulated utility businesses in two states, New York and Michigan (both Q1 2022). The company now has regulated operations in 14 states.
The above items will also affect the bottom-line comparison. For instance, the weather factor added an estimated $0.03 to the company's second-quarter 2021 adjusted EPS. American Water doesn't strip out the weather factor as a one-time item, so it affects adjusted earnings as well as reported earnings. This makes sense, as weather can be expected to fluctuate.
As an aside, the year-ago period's results illustrate how the company is poised to benefit from climate change.
Regulated business efficiency
Investors should continue to monitor American Water's adjusted operation and maintenance (O&M) efficiency ratio. This ratio, which is for the trailing year, reflects how well the company is controlling costs in its regulated business. The lower the number, the better.
In the first quarter, this ratio was 33.9%, an improvement over 34.1% in the year-ago period.
Guidance
Last quarter, American Water Works affirmed its previously released 2022 earnings guidance and long-term financial targets through 2026. Given the quite stable and predictable nature of earnings for utilities, it seems unlikely management will revise its guidance, at least for 2022. But if it does, the stock could move.
For 2022, management expects earnings in the range of $4.39 to $4.49 per share. For the five-year period through 2026, it projects an EPS compound annual growth rate of 7% to 9%. And it expects its dividend growth through 2026 to average at the high end of the 7%-to-10% range.
