American Water Works narrowed its 2026 adjusted earnings guidance to $6.07 to $6.12 a share, up from $6.02 to $6.12 previously, after reporting third-quarter revenue of $1.5 billion, up 4.1% on a year earlier, the slowest year-on-year revenue growth of any of the past eight quarters for the largest regulated water utility in the United States. Operating income rose 4.4% to $641 million and operating margin reached 42.5%, up 0.1 percentage points from 42.3% a year earlier. Net income was $387 million, up 2.1% from $379 million.
All five metrics also improved sequentially: revenue rose from $1,355 million in the second quarter, operating income from $542 million, net income from $315 million, diluted EPS from $1.61, and operating cash flow from $602 million.
2026 guidance narrows upward, 2027 guidance begins at 8% growth
The adjustment is a narrowing rather than a jump: the top of the range stays at $6.12, while the bottom rises by five cents to $6.07, tightening the range management set when it last updated guidance in July. Management also initiated standalone 2027 guidance for the first time, of $6.53 to $6.63, which it says represents 8% EPS growth at the midpoint compared with the 2026 range. Long-term targets were affirmed: earnings per share growth of 7-9% a year and rate base growth, including acquisitions, of 8-9% a year. The board separately declared a quarterly dividend of $0.8950 per share, payable 1 December 2026, against a long-term dividend-growth target that is also 7-9% a year.
Revenue grew at the slowest pace of the past eight quarters
Set against its own history, the slowdown looks more pronounced than the headline number suggests. Revenue has compounded at 10.7% a year over 2022-2025 and 6.4% a year over 2020-2025; the third quarter's 4.1% growth undercuts both multi-year trends, and growth was faster in 8 of the previous eight quarters. Operating margin, though, is running well above its own recent norm: this quarter's 42.5% compares with an average of 36.1% across the preceding 12 quarters.
GAAP earnings are flat; there is no consensus to measure against
On a GAAP basis, diluted earnings per share were $1.94, a year-on-year change of 0.0% from the $1.94 reported in the third quarter of 2025.
Free cash flow swings further negative as the capital programme accelerates
The quarter's $160 million free cash flow outflow, against $33 million a year earlier, looks more like a function of investment pace than of operating profitability: operating cash flow fell 4.7% year-on-year to $728 million, while capital spending appears to have risen faster still. The pattern holds over the trailing twelve months: free cash flow margin stands at −21.7%, which translates to a trailing-twelve-month free cash flow of −$1.2 billion and sits in the 9th percentile of its own history, as capital expenditure grew 16.3% against operating cash flow growth of 12.9%. Net income over the same twelve months grew a slower 2.2%, while free cash flow margin fell 3.2 percentage points from a year earlier.
New rates in New Jersey and Pennsylvania, and progress on the Essential merger
| Metric | Q2 FY2026 | Q3 FY2026 | Q3 FY2025 |
|---|---|---|---|
| Revenue | $$1.4 billionm | $$1.5 billionm | $$1.5 billionm |
| Operating income | $$542.0 millionm | $$641.0 millionm | $$614.0 millionm |
| Net income | $$315.0 millionm | $$387.0 millionm | $$379.0 millionm |
| Diluted EPS (GAAP) | $1.61 | $1.94 | $1.94 |
| Operating cash flow | $$602.0 millionm | $$728.0 millionm | $$764.0 millionm |
The revenue increase came chiefly from new rates. Acquisitions added roughly 81,000 customer connections through September, including systems formerly owned by Nexus Water Group. Approval of the proposed merger with Essential Utilities is proceeding state by state, with three states having now signed off, and management points to settlement agreements covering Pennsylvania, North Carolina and Texas as further evidence the process is advancing. The company still expects to close the deal by the end of the first quarter of 2027.
Risk factors are unchanged, but financing costs and merger timing are the live questions
Those standing risks include regulatory lag between investment and rate recovery, the capital intensity of ageing infrastructure, and the conditions attached to completing the Essential merger.
Slower growth and a wider cash gap: what moves American Water's model value
Cash conversion is pulling the other way: a trailing-twelve-month free cash flow margin of −21.7% reduces near-term cash generation even as rate-based earnings grow. Dividends paid over the trailing twelve months equalled 59.4% of net income, and the diluted share count grew just 0.6% year-on-year. These are model values under stated assumptions, not a comparison with the share price.
Dates that matter: Illinois, Kentucky, California and the merger close
The Essential Utilities merger remains on track, in management's words, to close by the end of the first quarter of 2027.
