Essential Utilities Inc. (WTRG) Earnings & Analysis

Latest quarter

Essential Utilities reported Q2 FY2026 revenue of $530.9 million, above the consensus of $501.6 million. Adjusted earnings per share of $0.38 matched the consensus, while GAAP diluted earnings per share fell to $0.37 from $0.38 a year earlier.

The company’s filing attributed growth in regulated water revenue to higher water and wastewater rates and increased volume. It said natural gas revenue declined as lower purchased gas costs and warmer weather reduced revenue, partly offset by higher rates and surcharges. The company passes purchased gas costs through to customers.

Essential’s gross margin rose to 91.3% from 89.0%, while its operating margin increased to 36.4% from 36.0%. The filing attributed higher depreciation and amortization expense principally to infrastructure spending and acquisitions, and said net interest expense also increased. Free cash flow was −$73.4 million, compared with −$72.5 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CFO Daniel Schuller said regulatory recoveries and surcharges added $0.06 per share to quarterly earnings, while higher water volumes contributed $0.02 and water customer growth added $0.01. He said those gains were partly offset by lower gas volumes, higher operating expenses, depreciation and interest costs.

Schuller said operations and maintenance costs rose as employee-related and water production costs increased. An insurance recovery and lower gas bad-debt expense partly offset those increases, he said. Essential also incurred $1.2 million in merger-related expenses; excluding those costs, Schuller said operations and maintenance expenses rose by 2.6%.

On rates, Schuller said cases and surcharges finalized so far in 2026 represented $56.6 million in annualized revenue. He said pending water and wastewater proceedings sought approximately $79.7 million in annualized increases, while the Pennsylvania gas subsidiary had a $163.2 million base rate case pending. CEO Christopher Franklin said Essential anticipated filing its next Pennsylvania water rate case around year-end.

Franklin said the company had invested $662 million year to date in its regulated systems. He also said signed acquisition agreements covered about 200 thousand customers, including DELCORA, but that a federal bankruptcy court stay continued to stall that transaction.

On the merger with American Water, Franklin said Essential had received approvals in Kentucky, Ohio and Virginia and reached a settlement in principle in Texas. He said negotiations continued in Pennsylvania and the company expected the merger to close in the first quarter of 2027.

In the question-and-answer session, Schuller said he expected a low-single-digit effective tax rate for the full year and a one-time item later in the year that would benefit earnings.

Guidance

Schuller said Essential’s long-term outlook remained unchanged. Franklin reaffirmed the company’s 5% to 7% multiyear earnings-per-share growth guidance through 2027, using adjusted 2024 earnings per share of $1.97 as the base.