American States Water Company (NYSE:AWR) is a diversified utility company that provides water, wastewater, and electric services to customers across the United States. With a strong focus on operational excellence and strategic investments, AWR has consistently delivered solid financial performance and shareholder returns.

Financials

In the fiscal year 2023, AWR reported annual net income of $124.9 million and annual revenue of $595.7 million. The company's annual operating cash flow stood at $67.7 million, while its annual free cash flow was -$120.9 million, reflecting the capital-intensive nature of its utility operations.

For the first quarter of 2024, AWR reported consolidated earnings of $0.62 per share, compared to $0.93 per share in the same period of 2023. Excluding the impact of retroactive rate adjustments and estimated revenues subject to refund recorded in the first quarter of 2023, the company's adjusted consolidated earnings for the first quarter of 2024 were $0.62 per share, an increase of $0.02 per share compared to the adjusted earnings of $0.60 per share in the first quarter of 2023.

Segment Performance

The water utility segment, operated through the company's Golden State Water Company (GSWC) subsidiary, reported earnings of $0.48 per share in the first quarter of 2024, compared to $0.74 per share in the same period of 2023. Adjusting for the same items mentioned above, the water segment's earnings increased by $0.07 per share, primarily due to higher water revenues from the third-year rate increases effective January 1, 2024, and an increase in other income.

The electric utility segment, operated through the company's Bear Valley Electric Service (BVES) subsidiary, reported earnings of $0.05 per share in the first quarter of 2024, compared to $0.06 per share in the same period of 2023. The decrease was largely due to the delay in the electric general rate case decision, which has kept rates unchanged, as well as higher operating and interest expenses.

The contracted services segment, operated through the company's American States Utility Services, Inc. (ASUS) subsidiary, reported earnings of $0.13 per share in the first quarter of 2024, compared to $0.15 per share in the same period of 2023. The decrease was primarily attributable to timing differences in construction activities.

Regulatory Environment

AWR's water and electric utility operations are regulated by the California Public Utilities Commission (CPUC), which approves rate increases to allow the company to recover operating expenses and earn a reasonable return on invested capital. In August 2023, GSWC filed a general rate case application for its water regions and general office, requesting new rates for the years 2025-2027 and capital budgets of approximately $611.4 million for the three-year rate cycle.

The company's electric utility, BVES, also has a pending general rate case application with the CPUC that will determine new electric rates for the years 2023-2026. A proposed decision in the electric general rate case is expected by the end of the third quarter of 2024.

Contracted Services

In addition to its regulated utility operations, AWR's contracted services segment, ASUS, operates, maintains, and performs construction activities on water and/or wastewater systems at various U.S. military bases under long-term, firm-fixed-price contracts with the U.S. government. In August and September 2023, ASUS was awarded new contracts to serve two additional military bases, with operations commencing in April 2024.

Liquidity

AWR's financial position remains strong, with the company maintaining high credit ratings from Standard & Poor's (A+ stable) and Moody's (A2 stable) for its regulated utility subsidiaries. As of March 31, 2024, the company had $17.0 million in cash and cash equivalents and $338.0 million in available borrowing capacity under its credit facilities.

Outlook

The company's capital expenditure program remains robust, with projected company-funded capital expenditures of $160 million to $200 million for the regulated utilities in 2024. These investments are focused on infrastructure renewal, water quality improvements, and system enhancements to support the company's long-term growth and service reliability.

AWR's consistent financial performance and shareholder-friendly policies have made it a reliable investment choice for income-oriented investors. The company has a long history of paying dividends, with the current quarterly dividend rate of $0.43 per share representing a dividend yield of approximately 2.17%. AWR has increased its dividend for 69 consecutive years, with a compound annual growth rate of 9.4% over the last five years.

Conclusion

Looking ahead, AWR remains well-positioned to continue delivering value to its shareholders. The company's diversified business model, prudent financial management, and focus on operational excellence position it to navigate the evolving regulatory landscape and capitalize on growth opportunities in its core markets. As the company continues to invest in its infrastructure and expand its contracted services operations, investors can expect AWR to maintain its track record of consistent financial performance and shareholder returns.