American Water Works CEO Discusses Q2 2012 Results - Earnings Call Transcript

American Water Works (AWK)

Q2 2012 Earnings Call

August 3, 2012 09:00 AM ET


Ed Vallejo - VP, IR

Jeff Sterba - President & CEO

Walter Lynch - President & COO, Regulated Operations

Ellen Wolf - CFO & SVP


Kevin Cole - Credit Suisse

Neil Mehta - Goldman Sachs

Michael Roomberg - Ladenburg Thalmann & Company

Gerard Sweeney - Boenning & Scattergood

Brian Chin - Citigroup

Steve Fleishman - Bank of America

Kevin Cole - Credit Suisse

Jonathan Reeder - Wells Fargo



Good morning and welcome to the American Water Second Quarter 2012 Earnings Conference Call. As a reminder, this call is being recorded and also being webcast with an accompanying slide presentation through the Company's website

Following the earnings conference call, an audio archive of the call will be available through Friday, August 10, 2012 by dialing 303-590-3030 for U.S. and international callers. The access code for replay is 4548322. The online archive of the webcast will be available through August 31, 2012 by accessing the Investor Relations page of the Company's website located at At this time, all participants have been placed into a listen-only mode. Following the management's prepared remarks, we will then open the calls for questions. (Operator Instructions).

I would now like to introduce your host for today's call Ed Vallejo, Vice President of Investor Relations. Mr. Vallejo, you may begin.

Ed Vallejo

Thank you. Good morning, everyone and welcome to American Water's 2012 second quarter earnings conference call. As usual we will keep our call to about an hour and at the end of our prepared remarks, we will have time for questions.

Before we begin, I'd like to remind everyone that during the course of this conference, both in our prepared remarks and in answers to your questions, we may make statements related to future performance. Our statements represent our most reasonable estimates. However, since these estimates deal with future events, they are subject to numerous risks, uncertainties, and other factors that may cause the actual performance of American Water to be materially different from the performance indicated or implied by such statements. These risk factors are set forth in the Company's SEC filings which are available to the public in the company’s investment relations website.

With that I would now like to turn the call over to Jeff Sterba, our President and CEO.

Jeff Sterba

Thanks Ed. Good morning all and thanks for joining us this morning. In addition to Ed, I have also got with me Ellen Wolf our Chief Financial Officer and Walter Lynch, President of the Regulated Operations. It's great to speak with all of you as we announce very strong quarterly results and our most recent consistent string of record setting quarterly earnings reports. Underlying the performance for the quarter is frankly one thing, consistent execution of our strategy. From investing appropriate capital to manage supply and delivery issues and that’s particularly given though weather challenges and drought conditions that we are facing throughout the country.

To drive operational expertise through developing a culture of continuous improvement and to growing our market based opportunities within and outside of our footprint is really execution that counts. All the while keeping the essential regulated feel of our cash flows our risk profile that you would expect when investing in the water utility sector while providing multiple avenues for solid growth.

So to summarize the quarter on slide five, you can see we have delivered very strong second quarter and year-to-date results and 11.5% increase in revenue quarter-over-quarter was coupled with solid cost control that resulted in an operating efficiency ratio for the last 12 months of 41.7% compared to 45.2% for the prior 12 months.

These two items fueled a 56% increase in earnings per share from continuing operations quarter-over-quarter or more than a 42% increase for the first six months compared to the same period if 2011. We saw similar improvements in cash flow from operations with the 67% and 21% increase for the quarter in six months respectively.

And this provided an additional $55 million of internal cash so far this year to help fund our regulated investments. This all reflects in our earned ROE which for the last 12 months increased almost a full percentage point over the prior 12 month period and as you know in May our Board of Directors increased its quarterly cash dividend payments which is payable in September by 8.7%. Also based on our performance so far and prospects for the balance of the year we are increasing our earnings guidance for 2012. The range that we have had in place for the year is a $1.90 to $2 per share.

We estimate that the company’s 2012 earnings now will be in the range of $2.12 to $2.22 per share for continuing operations. Assuming normal weather patterns for the balance of the year and by that I mean from August going forward. Included in that range of 212 to 222 is $0.13 to $0.16 per share which is our best estimate of what we think is associated with increased pumpage experienced throughout the end of the July due to weather both in parts of our eastern operations as well as particularly the mid-west.

So, we are increasing our guidance range by $0.22 a share of which 60% to 70% is weather related and the balance is improved in our baseline performance. The mid-point of the new range translates into about a 22% increase in earnings per share from continuing ops over 2011 and roughly a 14% increase once you take out what we have indicated or likely impacts of weather through July.

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