Essential Utilities, Inc.

Essential reported Q2 GAAP EPS of $0.37, which included about $0.01 of merger-related costs, and adjusted non-GAAP EPS of $0.38. Daniel Schuller said O&M increased about $5.1 million, or 3.5%, while adjusted O&M excluding merger costs rose 2.6%. The earnings bridge included a $0.06 benefit from regulatory recoveries in surcharges, $0.02 from higher water volumes, and $0.01 from customer growth, partly offset by $0.02 from higher operating expenses, $0.02 from lower gas volumes, and $0.06 of other items including $0.03 from depreciation and $0.03 from higher interest and lower AFUDC. For the year, management reiterated 5% to 7% normalized EPS growth guidance through 2027, anchored to adjusted 2024 EPS of $1.97. The company also said it has finalized rate cases or surcharges representing $56.6 million in annualized revenue in 2026, has $79.7 million of water and wastewater cases/surcharges pending, and has a Pennsylvania gas base rate case pending for $163.2 million.

Christopher H. Franklin framed the quarter around execution on three fronts: the merger, infrastructure investment, and regulatory work. He said the company has already secured 3 regulatory approvals for the merger and still expects closing in the first quarter of 2027, while describing integration planning as well underway and collaboration with American Water as better than expected. On the core business, he emphasized continued investment in aging regulated water and gas systems, the need to balance affordability with infrastructure replacement, and the company’s focus on shareholder value through dividend growth and a strong balance sheet.

Daniel Schuller focused on the earnings bridge and the operating drivers behind the quarter. He cited $56.6 million in annualized revenue from finalized rate cases and surcharges in 2026, $79.7 million of pending water and wastewater requests, and a $163.2 million Pennsylvania gas base rate case. On costs, he said O&M rose about $5.1 million, or 3.5%, driven by employee-related costs, production costs in water and wastewater, and newly acquired customers, partly offset by insurance recovery and lower bad debt; excluding merger costs, O&M rose 2.6%. He also said the effective tax rate has been in the low single digits so far this year, and that the company expects that to continue, with a one-time item still expected later in 2026.

Analysts focused on how Pennsylvania regulatory scrutiny could affect the next Aqua rate case, including ROE and capital structure assumptions. Management said it would file the case in a similar way as in the past, but would be respectful of the governor’s position; Schuller referenced the American case being anchored around a disc ROE of about 9.07% as a starting point. Another question asked how much Pennsylvania capital is DISC-eligible; Schuller said it is about 55% in 2026. On merger timing, Franklin said the process has largely gone according to plan, with Pennsylvania the main variable, but he still sees the transaction closing comfortably in Q1 2027 based on current timelines. Management also said higher fuel prices tied to Middle East tensions are flowing through results, but otherwise there was “really nothing” unusual year to date.