The Prudent Investor


SJW Update – First Quarter Report
May 1, 2007, 7:35 am
Filed under: Update

SJW Corp., the single holding in the portfolio at this point, fell significantly following last week’s quarterly earnings report. These reports should always be read to ensure that an understanding exists as to what is going on with the company.

First quarter profit came to 11 cents per share, as compared to 23 cents per share for the same time period last year. These two numbers are at the top of the report, but it needs to be understood that last year’s numbers included the sale of property that constituted 8 of the 12 cents difference. Apples to apples, this was about a 25% drop. Operating revenue increased about 16%, due to cumulative rate increases, increased customer demand, and new connections.

The crux of the drop in profits was explained by W. Richard Roth, “Rainfall to date in our watershed in California has been a little less than half of normal levels, and this could mean continued increases in purchased water and groundwater production for the next few quarters.” The key is “the next few quarters,” indicating that the remainder of the year could well see a decline in profits for each quarter. Weather is a major component of water utilities, and when it doesn’t rain then water must be purchased elsewhere. The key will be to pass the increased costs to the consumer.

I see nothing here to concern me. As it is the intention to hold onto this stock for the next five years unless I see a reason to sell, if a drop in precipitation is to happen then it is best to happen during the inital purchases planned for this company. I will make the regular purchase on the 7th of this month.

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