American Water (AWK) Q3 2026 earnings review
American Water clears key merger hurdles, but regulators trim rate hikes
American Water, the largest regulated water utility in the United States, grew profit as rate hikes outweighed wet summer weather. Operating revenue rose 4% (or 5% without the weather drag by our math), while profit per share excluding one-offs gained 6%. Chief executive John Griffith raised the bottom of the 2026 profit outlook and set a 2027 target calling for 8% growth.
| Operating revenue | $1,510M +4.1% from a year ago (+5.3% excluding weather by our math) |
|---|---|
| Profit per share, excluding one-offs | $2.00 +5.8% from a year ago |
| 2026 profit per share outlook | Raised $0.025 middle of the range: $6.095 (+8.1% growth) |
| 2027 standalone profit outlook | $6.53–6.63 +8.0% from the 2026 midpoint |
⚖️ Verdict: 🟢 Bullish
The story got better because the company reached settlement agreements in Pennsylvania, North Carolina and Texas for its planned merger with Essential Utilities. Settling in Pennsylvania removes the biggest political hurdle to closing the deal by March 2027. One caution: by our math, New Jersey regulators approved just 47% of the company's rate request, matching the 47% share granted in Pennsylvania.
The question now is whether tough state rate caps will slow revenue growth or whether a large backlog of rate filings will keep earnings compounding at 8%. If regulators in Illinois and Missouri also grant less than half of what the utility asked for, hitting the 2027 target will require tight cost cuts. Final orders in those states and the terms of the Pennsylvania merger settlement over the next two quarters will tell.
🐂 Bull Case
State Settlements Clear the Way for the Merger
American Water plans to buy rival Essential Utilities in an all-stock deal to expand its water and wastewater network. The biggest risk to the deal was winning approval from every state regulator where the two companies operate, especially in Pennsylvania. Chief executive John Griffith said the utilities are "reaching settlement agreements in several states" and still expect to close the transaction by the end of the first quarter of 2027.
During the third quarter, the companies reached formal settlements in Pennsylvania, North Carolina and Texas. Three other states — Kentucky, Ohio and Virginia — had already approved the deal in the first half of the year. Settling in Pennsylvania matters most because the state is American Water's largest market and its governor has pushed back against utility rate hikes. The settlement removes the main political hurdle that could have delayed the closing.
What to watch: final commission votes on the Pennsylvania settlement and the remaining review in New Jersey over the next two quarters. Approval without harsh rate freezes would let the merger close on schedule by March 2027.
New Rates Lift the Profit Outlook Through 2027
As a regulated utility, American Water grows by spending money on pipes and treatment plants and then asking state commissions to raise customer bills. Revenue rose 4.1% to $1,510 million in the third quarter, "primarily a result of authorized revenue increases from completed general rate cases and infrastructure proceedings", the company said. Those new rates took effect in Pennsylvania and New Jersey during the quarter and pushed regulated profit up 6.3%.
- Annualized rate increases approved this year: $284 million, up from $216 million at the end of June
- Implied fourth-quarter profit per share excluding one-offs: $1.47 at the middle of the range, up 18.1% from a year ago by our math
- Standalone 2027 profit per share plan: $6.53 to $6.63, up 8.0% from the new 2026 midpoint
- Five-year capital spending plan (2026–2030): raised to more than $20 billion, up from $19–20 billion
Because the Pennsylvania and New Jersey rate hikes took effect midway through the third quarter, their full benefit starts in the fourth quarter. That is why management raised the bottom of its 2026 profit outlook by 5 cents and set a 2027 target that matches its 7% to 9% long-term growth goal.
What to watch: decisions on the $360 million of pending rate requests across five states over the next three quarters. Approvals near half of the requested amount would lock in the revenue needed for the 2027 plan.
Customer Acquisitions Speed Up After Nexus
Alongside fixing its own pipes, American Water targets 2% annual customer growth by buying municipal water and wastewater systems. Through September, the utility group spent $437 million on regulated acquisitions and added about 81,000 customer connections. By our math, that means the company closed roughly 28,700 connections in the third quarter alone, after closing 52,300 in the first half when it completed the multi-state Nexus Water purchase.
Adding 81,000 connections in nine months puts the utility well ahead of last year's full-year total of 20,900 connections. Every acquired municipal system enters the regulated asset base, which allows American Water to earn a state-approved profit return on both the purchase price and the follow-on upgrades.
What to watch: the backlog of signed acquisition agreements when the third-quarter filing arrives. A backlog rebounding toward 60,000 connections would show the deal pipeline is refilling after the third-quarter closings.
🐻 Bear Case
Regulators Cut the New Jersey Rate Request in Half
"The company has delivered solid results to date in 2026, including key regulatory outcomes that provide for a reasonable and timely return on the investments made for the benefit of our customers," chief executive John Griffith said. Management frames its recent state rate orders as constructive decisions that fully support its growth model.
The numbers inside the release show state regulators are granting less than half of what the utility asks for. Approved general rate case revenues rose by $68 million in the third quarter, from $111 million at the end of June to $179 million at the end of September, as new rates took effect in New Jersey. Against American Water's $145 million request in New Jersey, that $68 million increase represents a 47% approval rate by our math — matching the 47% share it won in Pennsylvania ($75 million granted out of $160 million requested).
Winning less than half of the requested money in its two largest states shows that political pushback over household utility bills is capping rate hikes. To hit its 8% profit growth target, the utility has to file larger requests and lean harder on automatic infrastructure surcharges, which added $105 million this year.
What to watch: the final orders in the Illinois ($107 million requested) and Missouri ($179 million requested) rate cases in early 2027. Awards below 45% of the ask would signal that tougher rate caps are spreading beyond the East Coast.
Debt and New Shares Eat Into Rate Gains
Because American Water spends more on water pipes and acquisitions than it generates in cash, it funds the gap by borrowing and issuing stock. Total debt reached $16.34 billion in September, up $490 million since December, while diluted share count rose 2.1% from a year ago to 199 million shares after the company settled forward stock sales in June.
- Interest expense: $167 million in Q3, up 5.7% ($9 million) from a year ago
- Interest income: $3 million in Q3, down $20 million after the Homeowner Services loan was repaid in February
- Reported profit per share: $1.94, unchanged from a year ago despite $60 million of higher revenue
By our math, the combination of higher debt costs and lost interest income created a $29 million pre-tax drag in the quarter. Meanwhile, the extra 4 million shares spread the profit thinner, keeping reported per-share earnings flat.
What to watch: the settlement of the remaining 4.7 million forward shares in the fourth quarter. Those shares will add another 2.4% to the share count entering 2027.
Risks this quarter didn't answer
Three standing financial and legal questions could not be checked because the company released only its summary press release ahead of the quarterly filing and conference call.
- Five-year stock issuance plan: whether federal minimum-tax relief lowers the $2.5 billion of planned 2026–2030 stock sales; the conference call slides will show the updated financing table.
- Monterey desalination project: whether California regulators will let the company recover construction costs that ran more than $200 million above the initial cap, alongside an October condemnation hearing; the quarterly filing's legal note will update both.
- Chemical settlement funds: how many states approved applying the $234 million of chemical-maker settlement cash to customer bills; the quarterly filing will list the state orders.
👓 Other Themes
Wet Weather and Production Costs Slowed Q3 Sales
Third-quarter revenue rose 4.1%, down from roughly 6% growth in the first half, because wet weather curbed lawn watering and cut sales by $18 million compared with a warm, dry third quarter last year. Without that weather swing, revenue grew 5.3% by our math. Operating costs also rose $30 million, driven by "higher purchased water cost and usage and increased purchased power and chemicals costs",though lower technology spending kept total operation and maintenance costs down by 0.9 percentage points of revenue.
💲 Other KPIs
Operating profit rose 4.4% to $641 million, nudging the operating margin up 0.1 percentage points from 42.3% a year ago by our math. Operation and maintenance costs — the day-to-day cost of running plants and pipes — fell 0.9 percentage points to 35.2% of revenue, which offset a 0.7-point rise in depreciation from new capital projects.
American Water spent $2.8 billion on pipe upgrades and system acquisitions in the first nine months of 2026, up 27.3% from $2.2 billion at the same point last year. That equals 68.8% of nine-month revenue by our math and includes $437 million for buying regulated water systems.
Customer bills owed to the utility stood at $473 million at the end of September, up 3.1% from $459 million a year ago by our math. Receivables grew slower than the 4.1% rise in third-quarter revenue, showing that higher water rates have not slowed customer collections.
🔮 Guidance
Raised. Management lifted the bottom of its full-year range by 5 cents after holding it at $6.02 to $6.12 for four straight quarters, putting the middle of the range up 8.1% from 2025. By our math, that leaves about $1.47 per share for the fourth quarter, an 18.1% jump from a year ago as August and September rate hikes in Pennsylvania and New Jersey take full effect.
Unchanged against the long-term target. American Water issued its first dollar range for 2027 on a standalone basis, calling for 8.0% growth at the $6.58 midpoint over the updated 2026 plan. The forecast sits squarely in the middle of management's standing 7% to 9% annual growth promise and excludes any impact or costs from the pending Essential Utilities merger.
Unchanged. The utility kept its 2026 spending plan at $3.7 billion, including acquisitions. With $2.8 billion spent through September, the plan leaves $0.9 billion for the fourth quarter by our math, down from the $1.0 billion third-quarter pace because the $319 million Nexus acquisition already closed in June.
New. For 2027, the company plans to spend $4.1 billion on standalone pipe upgrades and system purchases, a 10.8% step-up from the $3.7 billion budgeted for 2026 by our math. Management also nudged its five-year (2026–2030) capital plan to "$20+ billion" from $19–20 billion previously, and its ten-year plan to "$48+ billion" from $46–48 billion.
❓ Key Questions
What did American Water give up to settle Pennsylvania?
Reaching a merger settlement in Pennsylvania removes the biggest hurdle to closing the Essential Utilities deal, but the press release gives no terms. Investors need to know if the settlement includes customer rate credits or rate-case freezes that could trim combined 2027 profit.
Does tax relief reduce the $2.5 billion stock sale plan?
Management raised the five-year capital spending target past $20 billion and set a $4.1 billion budget for 2027. After favourable federal minimum-tax rules earlier this year, did the company reduce its planned $1.5 billion of 2029 stock issuances in the updated five-year financing plan?
Will the 7–9% growth target hold after the merger?
The new $6.53 to $6.63 profit per share outlook for 2027 is strictly standalone, yet the Essential Utilities merger is scheduled to close by March 2027. Management still has not said whether the combined utility will grow at 7% to 9% from that base.
What happened at the October Monterey condemnation hearing?
A California water district is trying to seize American Water's Monterey system, with an evidentiary hearing scheduled for October 19, while desalination project costs sit more than $200 million above the prior cap. What is the status of the hearing and cost recovery?