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SJW Group Announces 2018 Second Quarter Financial Results

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SJW Group (NYSE:SJW) today reported financial results for the second
quarter ended June 30, 2018. SJW Group net income was $12.9 million for
the quarter ended June 30, 2018, compared to $18.7 million for the same
period in 2017. Diluted earnings per share were $0.62 and $0.90 for the
quarters ended June 30, 2018 and 2017, respectively. Diluted earnings
per share includes $0.72 per share from recurring operations offset by
$0.10 per share related to the Company's activities around the proposed
merger with Connecticut Water Service, Inc.

Operating revenue was $99.1 million for the quarter ended June 30, 2018
compared to $102.1 million in the same period in 2017. The $3.0 million
decrease in revenue was primarily attributable to a $10.9 million
decrease in the net recognition of certain balancing and memorandum
accounts, including $4.8 million related to the implementation of the
Tax Cuts and Jobs Act (H.R. 1) (the "Tax Act"), $4.3 million in lower
revenue recorded in our Water Conservation Memorandum Account, and $1.6
million in cost-recovery accounts that were recorded in revenue in 2017
which upon adoption of Topic 606, "Revenue from Contracts with
Customers" on January 1, 2018 are now recorded as capitalized costs
until recovery is approved by the California Public Utilities
Commission. The decrease was partially offset by a $5.7 million increase
in cumulative water rate changes, net of approximately $1.0 million rate
decrease from our 2018 cost of capital proceeding, $1.8 million in
higher customer usage, and $415,000 in revenue from new customers.

Water production expenses for the second quarter of 2018 were $39.9
million compared to $38.8 million for the same period in 2017, an
increase of $1.1 million. The increase in water production expenses was
attributable to $3.8 million in higher per unit costs for purchased
water, groundwater extraction and energy charges and $1.7 million in
higher customer water usage, partially offset by $3.3 million due to an
increase in the use of available surface water supplies and $1.2 million
related to cost-recovery balancing and memorandum accounts. Operating
expenses, excluding water production costs, increased $5.0 million to
$36.4 million from $31.4 million. The increase was primarily due to $2.7
million in various costs related to our proposed merger with Connecticut
Water Service, Inc., $1.6 million of higher depreciation expenses due to
assets placed in service in 2017, $448,000 in higher maintenance and
property taxes and other non-income taxes, and $143,000 of higher
administrative and general expenses, net of cost-recovery balancing and
memorandum accounts.

Other expense and income in the second quarter and first six months of
2017 included a pre-tax gain of $6.3 million on the sale of 444 West
Santa Clara Street Limited Partnership's interests in the commercial
building and land the partnership owned and sale of undeveloped land
which SJW Land Company owned for a pre-tax gain of $580,000.

The effective consolidated income tax rates were approximately 24% and
37% for the quarters ended June 30, 2018 and 2017, respectively. The
effective tax rate decreased primarily due to the change in the
statutory federal income tax rate from 35% to 21% as a result of the Tax
Act.

Year-to-date net income was $14.2 million, compared to $22.4 million in
2017. Diluted earnings per share were $0.68 in the first six months of
2018, compared to $1.08 per diluted share for the same period in 2017.

Year-to-date operating revenue increased by $3.0 million to $174.1
million from $171.1 million in the first six months of 2018. The
increase was attributable to $11.8 million in cumulative rate increases,
net of approximately $1.0 million rate decrease from our 2018 cost of
capital proceeding, $8.1 million in higher customer usage, and $792,000
in revenue from new customers. These increases were partially offset by
a $17.4 million decrease in the net recognition of certain balancing and
memorandum accounts, primarily due to $6.7 million in lower revenue
recorded in our Water Conservation Memorandum Account, $5.9 million
related to the implementation of the Tax Act, $1.7 million related to
cost-recovery accounts, an additional $1.4 million related to the
outcome of our cost of capital proceeding, and $1.4 million related to a
redistribution of certain customer accounts between residential and
business customers for the year ended December 31, 2016 that was
recorded in the 2017 first quarter. In addition, revenue from our real
estate operations was $229,000 lower.

Year-to-date water production expenses increased to $70.3 million from
$65.3 million in 2017. The $5.0 million increase was attributable to
$6.1 million in higher per unit costs for purchased water, groundwater
extraction and energy charges and $4.3 million in higher customer water
usage, offset by $4.6 million in lower expenses due to an increase in
the use of available surface water supplies and $708,000 related to
cost-recovery balancing and memorandum accounts. Operating expenses,
excluding water production costs, increased $11.4 million to $73.7
million from $62.3 million. The increase was primarily due to $6.5
million in various costs related to our proposed merger with Connecticut
Water Service, Inc., $3.1 million in higher depreciation expenses, $1.2
million in higher maintenance and property taxes and other non-income
taxes, and $566,000 in higher administrative and general expenses, net
of cost-recovery balancing and memorandum accounts.

The effective consolidated income tax rates were approximately 20% and
36% for the six-month periods ended June 30, 2018 and 2017,
respectively. The effective tax rate decreased in 2018 primarily due to
the change in the statutory federal income tax rate from 35% to 21% as a
result of the Tax Act.

The Directors of SJW Group today declared a quarterly dividend on common
stock of $0.28 per share. The dividend is payable on September 4, 2018
to shareholders of record on August 6, 2018.

SJW Group is a publicly traded holding company headquartered in San
Jose, California. SJW Group is the parent company of San Jose Water
Company, SJWTX, Inc., and SJW Land Company. Together, San Jose Water
Company and SJWTX, Inc. provide water service to more than one million
people in San Jose, California and nearby communities and in Canyon
Lake, Texas and nearby communities. SJW Land Company owns and operates
commercial real estate investments.

This press release may contain certain forward-looking statements
including, but not limited to, statements relating to SJW Group's plans,
strategies, objectives, expectations and intentions, which are made
pursuant to the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995.
These forward-looking statements
involve known and unknown risks, uncertainties and other factors which
may cause the actual results, performance or achievements of SJW Group
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.

Results for a quarter are not indicative of results for a full year
due to seasonality and other factors.
Other factors that may
cause actual results, performance or achievements to materially differ
are described in SJW Group's most recent reports on Form 10-K, Form 10-Q
and Form 8-K filed with the Securities and Exchange Commission.
SJW
Group undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise.

 

SJW Group

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands, except per share data)

   
Three months ended June 30, Six months ended June 30,
2018   2017 2018   2017
REVENUE $ 99,086 102,073 $ 174,128 171,118
OPERATING EXPENSE:
Production Expenses:
Purchased water 23,712 22,181 39,128 36,105
Power 1,624 1,704 2,892 2,991
Groundwater extraction charges 9,919 10,932 19,451 18,342
Other production expenses 4,626   3,991   8,838   7,851  
Total production expenses 39,881 38,808 70,309 65,289
Administrative and general 11,958 11,815 23,526 22,960
Maintenance 4,596 4,487 9,056 8,384
Property taxes and other non-income taxes 3,450 3,111 7,316 6,806
Depreciation and amortization 13,656 12,033 27,239 24,152
Merger related cost 2,746     6,552    
Total operating expense 76,287   70,254   143,998   127,591  
OPERATING INCOME 22,799 31,819 30,130 43,527
OTHER (EXPENSE) INCOME:
Interest expense (6,084 ) (5,756 ) (12,136 ) (11,813 )
Unrealized gain/(loss) on California Water Service Group stock 140 (527 )
Gain on sale of real estate investment 6,903 6,903
Pension non-service cost (595 ) (1,032 ) (1,178 ) (1,907 )
Other, net 679   614   1,355   1,077  
Income before income taxes 16,939 32,548 17,644 37,787
Provision for income taxes 4,068   11,964   3,488   13,532  
NET INCOME BEFORE NONCONTROLLING INTEREST 12,871 20,584 14,156 24,255
Less net income attributable to the noncontrolling interest   1,896     1,896  
SJW GROUP NET INCOME 12,871 18,688 14,156 22,359
Other comprehensive income, net   56     172  
SJW GROUP COMPREHENSIVE INCOME $ 12,871   18,744   $ 14,156   22,531  
 
SJW GROUP EARNINGS PER SHARE:
Basic $ 0.63 0.91 $ 0.69 1.09
Diluted $ 0.62 0.90 $ 0.68 1.08
DIVIDENDS PER SHARE $ 0.28 0.22 $ 0.56 0.44
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 20,592 20,504 20,577 20,495
Diluted 20,732 20,674 20,717 20,665
 
 

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

   
June 30,
2018
December 31,
2017
ASSETS
Utility plant:
Land $ 18,212 17,831
Depreciable plant and equipment 1,755,624 1,714,228
Construction in progress 68,153 45,851
Intangible assets 15,650   14,413
Total utility plant 1,857,639 1,792,323
Less accumulated depreciation and amortization 579,572   553,059
Net utility plant 1,278,067   1,239,264
 
Real estate investments 56,336 56,213
Less accumulated depreciation and amortization 11,730   11,132
Net real estate investments 44,606   45,081
CURRENT ASSETS:
Cash and cash equivalents 8,926 7,799
Accounts receivable and accrued unbilled utility revenue 57,939 54,309
Other current assets 6,308   4,750
Total current assets 73,173   66,858
OTHER ASSETS:
Investment in California Water Service Group 3,207 4,535
Regulatory assets, net 98,332 99,554
Other 2,736   2,709
104,275   106,798
$ 1,500,121   1,458,001
 
 

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

 
  June 30,
2018
  December 31,
2017
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock $ 21 21
Additional paid-in capital 84,375 84,866
Retained earnings 380,898 376,119
Accumulated other comprehensive income   2,203
Total stockholders' equity 465,294 463,209
Long-term debt, less current portion 431,258   431,092
Total capitalization 896,552   894,301
CURRENT LIABILITIES:
Line of credit 59,000 25,000
Accrued groundwater extraction charge, purchased water and purchased
power
18,555 14,382
Accounts payable 26,183 22,960
Accrued interest 6,968 6,869
Accrued payroll 4,837 6,011
Other current liabilities 9,008   9,830
Total current liabilities 124,551   85,052
 
DEFERRED INCOME TAXES 84,064 85,795

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION

245,115 244,525
POSTRETIREMENT BENEFIT PLANS 75,229 72,841
REGULATORY LIABILITY 61,639 62,476
OTHER NONCURRENT LIABILITIES 12,971   13,011
$ 1,500,121   1,458,001
 

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