SJW Group (NYSE: SJW) is one of the largest investor-owned pure-play water and wastewater utilities in the United States, providing life-sustaining and high-quality water service to nearly 1.5 million people. The company's locally led and operated water utilities - San Jose Water Company in California, The Connecticut Water Company in Connecticut, The Maine Water Company in Maine, and SJWTX, Inc. (dba The Texas Water Company) in Texas - possess the financial strength, operational expertise, and technological innovation to safeguard the environment, deliver outstanding service to customers, and provide opportunities to employees.
Financials
In the second quarter of 2024, SJW Group reported revenue of $176.2 million, a 12% increase from $156.9 million in the same period of 2023. This increase was largely driven by rate increases of $13.0 million, primarily in California, customer growth in Texas, higher customer usage of $3.8 million due to weather conditions, and $2.2 million from regulatory mechanism adjustments. For the first six months of 2024, revenue was $325.6 million, an 11% increase from $294.2 million in the same period of 2023. The year-to-date revenue increase was also primarily attributable to rate increases of $23.0 million, higher customer usage of $5.6 million, and customer growth, mainly in Texas.
Despite the higher water production expenses, SJW Group's net income for the second quarter of 2024 was $20.7 million, a 13% increase from $18.3 million in the same period of 2023. Diluted earnings per share (EPS) for the quarter was $0.64, compared to $0.58 in the prior year period. For the first six months of 2024, net income was $32.4 million, a 9% increase from $29.8 million in the same period of 2023. Diluted EPS for the first half of 2024 was $1.00, compared to $0.95 in the prior year period.
The increase in net income for both the quarter and year-to-date periods was primarily driven by the rate increases, customer growth, and higher customer usage, partially offset by higher water production expenses, increased depreciation and amortization, and higher interest and income tax expense.
Water Production Expenses
Water production expenses increased 14% in the second quarter of 2024 compared to the same period in 2023, primarily due to rate increases from SJW's water wholesaler in California, higher customer usage, and customer growth. For the first six months of 2024, water production expenses increased 12% compared to the same period in 2023, driven by the same factors.
Other Operating Expenses
Other operating expenses, excluding water production expenses, increased 2% in the second quarter of 2024 compared to the same period in 2023, primarily due to higher depreciation and amortization related to new utility plant additions, adjustments to certain regulatory assets as a result of the final decision in the Connecticut general rate case, and increased security expenses, partially offset by decreases in administrative and general expenses. For the first six months of 2024, other operating expenses, excluding water production expenses, increased 8% compared to the same period in 2023, driven by the same factors.
Tax Rates
The effective consolidated income tax rates for the second quarter of 2024 and 2023 were approximately 15% and (9)%, respectively. The higher effective tax rate in the 2024 period was primarily due to the partial release of an uncertain tax position reserve in the second quarter of 2023. For the first six months of 2024 and 2023, the effective consolidated income tax rates were approximately 16% and (1)%, respectively, with the higher 2024 rate also attributable to the partial release of the uncertain tax position reserve.
Recent Developments
SJW Group's capital expenditures for the first six months of 2024 were $158 million, or approximately 48% of the company's $332 million capital expenditure budget for the full year. The company plans to invest more than $1.6 billion in capital over the next five years to build and maintain its water and wastewater operations, including approximately $230 million to install treatment for per- and polyfluoroalkyl substances (PFAS), subject to regulatory approvals and availability of funding.
In California, SJW Group's San Jose Water subsidiary reached an all-party settlement agreement in principle with the Public Advocates Office and Water Rate Advocates for Transparency, Equity and Sustainability (WRATES) on almost all issues in its 2025 through 2027 general rate case application. The formal settlement motion and agreement will be submitted by August 19, 2024, and the company expects a decision from the California Public Utilities Commission (CPUC) in the fourth quarter of 2024, with new rates anticipated to be effective on January 1, 2025.
In Connecticut, the Connecticut Public Utilities Regulatory Authority (PURA) issued a final decision on Connecticut Water's general rate case, providing for a $6.5 million, or 5.5%, increase in the annual revenue requirement, a return on equity of 9.3%, and the opportunity to earn an additional $1.1 million for meeting certain performance metrics. The new rates were effective on July 1, 2024.
In Maine, the Maine Water subsidiary filed for increases in the Water Infrastructure Charge in both the Freeport and Oakland divisions, with a decision from the Maine Public Utilities Commission expected in the third quarter of 2024.
SJW Group's Texas service area is currently experiencing severe to extreme drought conditions, and the company has implemented Stage 4 drought restrictions, which will likely impact revenue in 2024. However, the company is not changing its 2024 earnings guidance range due to the situation in Texas, but is continuing to monitor the drought and its potential impact.
Outlook
For the full year 2024, SJW Group expects diluted EPS on a GAAP basis to be in the range of $2.66 to $2.76. On a non-GAAP basis, excluding the impact of real estate transactions, the company expects adjusted diluted EPS to be in the range of $2.68 to $2.78. The company also reaffirmed its long-term non-linear diluted EPS growth target of 5% to 7%, anchored off its 2022 diluted EPS of $2.43.
Conclusion
SJW Group's strong financial performance, strategic execution, and commitment to serving its customers and communities position the company well for continued success. The company's focus on investing in its operations, engaging actively in its local markets, and delivering sustainable value to its shareholders underscores its role as a leading provider of essential water services.