California Water Service Group Q1 Earnings: EPS Soars, But Revenue Challenges Loom

Let’s cut to the chase: California Water Service Group (CWT) just reported a quarter that’s a mixed bag. On one hand, earnings per share (EPS) blew past expectations—$0.22 vs. the $0.16 estimate, a 37.5% surprise. On the other? Revenue took a nosedive, dropping $66.7 million to $204 million. Here’s why you need to dig deeper.

The Good: EPS Beats and Regulatory Momentum

First, the EPS beat isn’t a fluke—it’s a sign of the company’s focus on non-GAAP metrics that strip out one-time items. In Q1 2024, CWT benefited from a $90.3 million interim rate relief tied to the delayed 2021 California General Rate Case (GRC). That’s gone now, which explains the GAAP revenue drop. But adjusted for that, non-GAAP net income jumped $9.2 million, and operating revenue rose $23.5 million thanks to rate hikes and increased water usage.

The real story is regulatory progress. CWT’s 2024 California GRC submission is on track, proposing $1.6 billion in infrastructure investments through 2027—and rate hikes of 17.1% by 2026. If approved, this would fund critical projects like the Palos Verdes Pipeline ($14.2 million approved in Q1) and drought-related surcharges ($1.4 million). CEO Martin Kropelnicki isn’t just spinning; he’s hitting milestones, with evidentiary hearings set for May 2025.

Meanwhile, the company’s rate escalations in 18 districts added $27.2 million in annual revenue, and Hawaii’s Ka’anapali rate case delivered a $7.5 million boost. This isn’t just about survival—it’s about locking in future growth.

The Bad: Revenue Lag and Liquidity Concerns?

Now, let’s address the elephant in the room: the $66.7 million revenue drop. Yes, it’s a big number, but it’s not a death knell—it’s a deliberate reset. The prior-year’s one-time rate relief skewed comparisons. Stripping that out, revenue growth is healthy, driven by rate changes and usage.

Liquidity? Solid. CWT ended Q1 with $90.1 million in cash and a $315 million credit line. Capital spending hit $110.1 million, up from the prior year, proving they’re investing for the long game.

The Ugly: Risks Still Lurking

Don’t get complacent. The 2024 California GRC’s outcome is everything. If regulators delay or slash proposed rate hikes, CWT’s infrastructure plans—and earnings—could stall. Add in drought risks, which could spike costs or reduce usage, and the PFAS compliance costs (a regulatory wildcard), and this stock isn’t a sure bet.

Dividend: A Steady Anchor in Volatile Waters

CWT’s dividend machine remains intact. The $0.30 quarterly dividend marks 58 years of increases, with a 7.7% CAGR over five years. A special $0.04 dividend in January sweetened the deal. For income investors, this is a reliable bet, even amid short-term volatility.

Verdict: Hold for the Long Game

Here’s the deal: CWT’s Q1 is a transitional quarter. The EPS beat and regulatory wins signal management’s execution, but revenue still needs time to normalize. The stock’s 11.7% YTD gain vs. the S&P’s -5.3% shows investors are betting on the rate case’s success.

Bottom line? Hold CWT if you’re in for the long haul. The $1.6 billion infrastructure pipeline and dividend stability are strong pillars. But if you’re short-term focused? Wait for clearer GRC clarity. This isn’t a “buy now” stock—it’s a “wait and see” story, where patience could pay off in spades.

Final Take: Regulatory wins and dividend strength make CWT a solid hold, but don’t let the revenue drop spook you. The real test? How fast that 2024 GRC gets approved. If it’s a green light, this stock could surge. If delayed? Prepare for a bumpy ride.