Thanks to the Weather and Acquisitions, Aqua America Inc.'s Revenue Flows Higher

By Matthew

The weather typically gets blamed for its negative impact on a company's revenue because of its ability to impact consumers' ability to spend. However, for a utility, the weather can actually have a positive effect on quarterly performance. That certainly was the case for Aqua America , which noted that its customers consumed a higher volume of water due to weather conditions, though that wasn't the only factor driving its performance during the quarter.

Aqua America results: The raw numbers

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Data source: Aqua America.

What happened with Aqua America this quarter?Aqua America's revenue grew, but earnings were flat.

  • There were three primary drivers behind Aqua America's rising revenue. Higher consumption due to weather conditions drove 40% of the increase, acquisitions drove another 40% of the increase, while rates, surcharges, and organic growth filled out the remaining 20%.
  • Unfortunately, this trio didn't flow down to the bottom line, which was flat year over year. The culprit was higher operations and maintenance expenses, which were 8.5% higher than in the year-ago quarter, though recent acquisitions were responsible for 5% of that amount.
  • The company has also invested $257 million year to date to improve its infrastructure systems. It remains on pace to invest more than $325 million this year and more than $1 billion over the next three years.

What management had to sayCEO Christopher Franklin said, "Aqua delivered another quarter of strong financial results highlighted by a 5% increase in revenue compared to the same quarter in 2014." As he also noted:

All three of those factors have been on display in 2015. To date, the company has completed a number of acquisitions across the country adding 9,300 connections, which represents 1% year-over-year customer growth. Furthermore, when combined with organic growth, it expects to grow its customer count by 1.7% to 2% for the year. Also, it is in the midst of a $1 billion investment program to upgrade its infrastructure. Finally, while acquisitions added to its expenses during the quarter, overall expense growth should moderate due to efficiency gains with Aqua expecting that same-system operating and maintenance expenses will only increase by 1% to 3% for the full year.

It's important to note the role that acquisitions have in driving Aqua America's growth. Its growth-through-acquisition strategy is expected to deliver 1.5% to 2% customer growth each year, while organic growth is expected to be about 1% annually. However, as has been the case this year, when acquisitions don't materialize or come with increased costs, it can mute not just customer growth but earnings growth.

Because of this acquisition-driven focus, Aqua has a more muted growth outlook than fellow water utility American Water , which has a robust growth plan in place. American Water expects to grow its earnings per share by an industry-leading 7% to 10% per year through 2019. The foundation of American Water's growth is regulated investments, which should drive 3%-6% annual growth in earnings. Regulated acquisitions complement this by adding 1%-2% per year to earnings growth with the company seeking further upside from market-based opportunities and shale. The key difference between the two companies is that American Water is focused on leading its peers in growing earnings on a per-share basis, while Aqua America's per-share growth will be a little more muted because it lacks the organic growth.

Looking forwardThat slower growth profile aside, what Aqua America lacks in growth, it makes up for with stability. That's why it is comfortable reaffirming its 2015 guidance of $1.25 to $1.27 earnings per share. While that is below the $1.31 per share it earned last year, it will at least be flat with 2013 when it earned $1.25 per share.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Aqua America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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