There was no single event that took place at American Water Works (NYSE: AWK) in 2017 that really stood out. But the year was still a good one for the water utility owner. This slow and steady performer crushed it by executing its game plan well and letting the little things add up. Here are some examples of what went right for American Water Works, and its shareholders, in 2017.
1. Capital spending
American Water Works is on target to spend around $1.65 billion on capital projects and acquisitions in 2017. Capital spending is an important number for the company because the vast majority of its revenue comes from regulated assets. Put simply: It has to get rate hikes approved by the government. Spending money to improve its water and wastewater systems is one of the key reasons regulators would approve raising costs for customers.
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This, however, isn't a new development. It's just the normal course of business for the utility. In fact, it currently plans to spend a roughly similar amount, on average, every year between 2018 and 2022. In other words, 2017's capital spending doesn't really stand out, even though it was an important foundational investment in the business.
2. Customer growth
Another incrementally positive development at American Water Works was customer growth. The company expects to add roughly 1% more customers in 2017 than it added in 2016, assuming a planned acquisition closes before the end of the year. Notably, around a quarter of the customer growth was organic.
The overall increase was not a standout number compared to past results. However, more customers mean more revenue. Slow and steady customer growth is the long-term goal in the utility world, and American Water Works hit the mark, again.
3. Rate case success
As noted above, capital spending helps American Water Works get favorable treatment during rate-hike cases. On that score, the utility saw rates reset in Illinois, New York, and Virginia in 2017. The authorized return on equity in each state is over 9%, a solid showing that's right in line with the returns being allowed in other states in which American Water Works operates. So, nothing special, but a key success for the company just the same.
4. Solid earnings
All of those little things helped American Water Works turn in a good top- and bottom-line showing in 2017. As the year draws to a close, management has reaffirmed guidance for adjusted earnings growth of roughly 6% to 8%. That's roughly in line with the company's long-term target of 7% to 10% earnings growth. No huge win here, but a solid result just the same that should make investors quite happy.