On August 4, Essential Utilities (NYSE:WTRG) reported second-quarter results that read like two different stories stapled together. Revenue climbed, the dividend grew for the 36th time in 35 years, and the merger with American Water inched closer to the finish line. But earnings per share actually dipped from a year earlier, and the company had to strip out merger costs just to show flat profitability. For a utility this steady, that split is worth a closer look.
A Bigger, Steadier Utility
Essential’s regulated water segment posted revenue of $357.5 million in the quarter, up 7.6% from $332.3 million a year earlier, and the whole company’s first-half revenue climbed 7.2% to nearly $1.4 billion. Much of that growth came from rate cases: state regulators approved $43.9 million in new annual water revenue across Pennsylvania, Illinois, Ohio, North Carolina and Indiana, plus $12.7 million more for the gas business in Kentucky and Pennsylvania. Another $79.7 million in water rate requests and a $163.2 million gas case in Pennsylvania, tied to replacing aging pipelines, are still working through the process.
The company keeps buying its way into new customers, too. In May, it closed a $4.9 million wastewater deal in Bastrop County, Texas, and it has signed agreements worth roughly $282 million to add over 200,000 more customers in Pennsylvania, Texas, North Carolina and New Jersey, including the $276.5 million purchase of Philadelphia-area sewer authority DELCORA. Since 2015, acquisitions have added more than 138,000 customers to Essential’s base.
Layer on the pending American Water merger, which cleared Virginia and Ohio regulators this year after nearly unanimous shareholder approval in February, and Essential is positioning itself as a much larger multi-state utility by early 2027. The board’s decision to raise the dividend 5.25% to $0.3606 per share, continuing a streak of 36 increases over 35 years, signals confidence that this growth is durable.
Profits Move The Other Way
Look past the top line and the picture gets less flattering. Second quarter net income actually fell to $105.7 million from $107.8 million a year ago, pulling GAAP earnings per share down to $0.37 from $0.38. Essential had to report an adjusted $0.38 figure just to exclude merger-related costs and show earnings roughly matching last year’s. The slide is sharper over six months: net income dropped to $330.1 million, or $1.16 per share, from $391.6 million, or $1.41 per share, in the first half of 2025.
Costs are climbing faster than the company would like. Operations and maintenance expenses rose 3.5% to $153.6 million in the quarter, with higher employee and production costs only partly offset by insurance recoveries, and water segment O&M alone jumped from $100.1 million to $109.4 million. The natural gas segment’s revenue actually shrank, falling to $169.3 million from $177.3 million, as warm weather cut into volumes. And much of the reported growth is coming from regulatory recoveries and pass-through costs rather than organic demand, which raises the question of how much of that 7.2% first-half revenue gain reflects the business actually getting bigger.
Wall Street Isn’t Nervous
40 hedge funds held Essential Utilities stock in the most recent quarter, up from 34 previously, a notable pickup in institutional interest. Short sellers have positioned against just 2.10% of the float, pointing to little organized skepticism about the stock. Shares trade at 17.45 times forward earnings as of September 4, a multiple that suggests the market is pricing in steady, utility-like growth rather than a turnaround story. That combination suggests that confidence has been building even as the per-share numbers softened.
The Merger Changes Everything
Essential Utilities is in a strange in-between moment: growing revenue and raising its dividend while GAAP profits slip and merger costs cloud the picture. The bulls can point to rate case wins, a fast-growing acquisition pipeline, and a nearly finalized merger with American Water that would create a much larger utility by 2027. The bears can point to declining first-half earnings, rising operating costs, and a gas business that shrank once weather worked against it. Guidance still calls for 5% to 7% annual earnings growth through 2027, but that target excludes DELCORA and the hundreds of thousands of potential acquisition customers still sitting in the pipeline.
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