Essential Utilities Q3 2026 Earnings: Revenue Rises as O&M Costs Decline

Essential Utilities (NYSE: WTRG) reported Q3 2026 revenue of $508.3 million, up 6.6% from $477.0 million a year earlier, while diluted GAAP EPS increased to $0.36 from $0.33. GAAP net income rose 12.8% to $103.8 million as both regulated segments grew and operations and maintenance expense declined, partly because of insurance recoveries and lower natural gas bad-debt expense. Adjusted EPS was $0.38 after excluding costs associated with the pending American Water merger.

Key Earnings Data

Revenue growth was driven mainly by regulatory recoveries and higher purchased-gas costs. Total costs and expenses increased 2.7%, slower than revenue, as lower O&M expense partly offset increases in purchased gas and depreciation; operating income consequently rose 13.5%, and operating margin expanded by about 2.3 percentage points.

Essential recorded $4.9 million of merger-related costs during the quarter. After adjusting for those costs and the related tax effect, non-GAAP income was $107.4 million and adjusted diluted EPS was $0.38.

Business and Segment Performance

Water remained the larger business, but natural gas produced the faster revenue growth. Water benefited from regulatory recoveries and a larger customer base, while gas revenue reflected higher rates and surcharges, increased purchased-gas costs, and favorable customer usage.

Both segments reduced O&M expense. Water benefited from lower employee-benefit costs associated with insurance recoveries, partly offset by costs from recently acquired systems. Gas benefited from lower bad-debt expense and insurance recoveries.

Quarterly Profit Improved, but Nine-Month Earnings Remained Lower

The Q3 improvement has not yet reversed the year-to-date earnings decline. For the first nine months of 2026, revenue increased 7.1% to $1.90 billion, but operating income was nearly unchanged at $696.6 million and net income declined 10.3% to $434.0 million. Diluted EPS fell to $1.53 from $1.73.

The divergence reflects a broader increase in year-to-date costs. O&M expense rose 9.6% and included $22.5 million of merger-related costs, while purchased-gas expense increased 17.6%, depreciation rose 9.2%, and interest expense increased 9.7%. Income taxes also shifted to a $16.4 million expense from an $11.7 million benefit in the prior-year period. Adjusted diluted EPS for the first nine months was $1.58 after excluding merger-related expenses and their tax impact.

Infrastructure Spending and the Balance Sheet

Essential invested approximately $1.1 billion in regulated water and natural gas infrastructure during the first nine months. Net property, plant and equipment reached $15.08 billion at September 30, 2026, up from $14.26 billion at the end of 2025.

The current portion of long-term debt and loans payable increased to $670.3 million from $172.0 million at December 31, while long-term debt excluding the current portion decreased to $8.03 billion from $8.11 billion. Current assets declined to $485.8 million from $610.4 million. Essential reported $759 million of available credit-line capacity and a 4.14% weighted average cost on fixed-rate long-term debt, although quarterly interest expense rose to $91.3 million from $82.3 million.

The board also declared a quarterly dividend of $0.3606 per share on October 21, payable December 1 to shareholders of record on November 10.

Regulatory and Transaction Pipeline

Rate activity remains central to funding Essential’s infrastructure program. During 2026, the water segment received rate awards or infrastructure surcharges representing $53.6 million of additional annual revenue, while the natural gas segment received awards or surcharges representing $16.9 million. These figures describe annualized regulatory awards rather than revenue recognized entirely in Q3.

Pending water and wastewater rate cases or infrastructure surcharges seek an estimated $78.5 million of incremental annual revenue. The natural gas segment also has a Pennsylvania rate case requesting a $163.2 million annual increase to support replacement and retirement of aging gas mains.

For the proposed American Water merger, the companies have received regulatory approvals in Kentucky, Ohio, and Virginia. They have also reached settlements in Pennsylvania, North Carolina, and Texas, although each settlement remains subject to approval by the applicable utility commission.

Essential separately has signed water and wastewater asset purchase agreements totaling approximately $290 million and covering more than 208,000 customers or equivalent dwelling units. The total includes the $276.5 million DELCORA agreement, which represents 198,000 equivalent dwelling units. The company said its actively pursued municipal acquisition pipeline represents approximately 400,000 customers.

Guidance

Essential said it remains on track to invest $1.7 billion in infrastructure during 2026. Based on the approximately $1.1 billion invested through September, reaching that target would require roughly $600 million of additional investment in Q4. The company also continues to expect the American Water merger to close in Q1 2027.

Excluding one-time items and abnormal weather, management expects full-year O&M expense to be in line with historical norms.

Risks Investors Should Watch

• Merger approvals and transaction costs: The expected Q1 2027 closing remains dependent on outstanding consents and regulatory approvals. Merger-related costs totaled $4.9 million in Q3 and $22.5 million through the first nine months.
• Rate-case outcomes: Essential is seeking sizable water and natural gas revenue increases, but requested amounts are not guaranteed to be approved and may differ from the final awards.
• Financing and interest expense: The infrastructure program requires substantial capital, while the current portion of debt has increased and quarterly interest expense rose 11.0% year over year.
• Potential normalization of quarterly benefits: Q3 O&M expense benefited from insurance recoveries and lower gas bad-debt expense. Those benefits may not recur at the same level, and favorable natural gas customer usage also contributed to revenue growth.
• Acquisition execution: Signed water and wastewater transactions, particularly DELCORA, remain important to the company’s customer growth strategy and must still be completed successfully.

Summary

Essential Utilities’ Q3 2026 results improved as regulatory recoveries, customer growth, gas rate activity, and lower O&M expense supported higher revenue and profit. The main points to monitor are whether the quarterly cost benefits persist, how pending rate cases support the $1.7 billion infrastructure plan, and whether the American Water merger secures the remaining approvals needed for its expected Q1 2027 closing.