Electric utility firm
Southern Company
(
SO
) reported marginally better-than-expected second quarter 2012
earnings on the back of solid industrial demand and lower costs.
The company reported earnings per share (excluding the impact of an
insurance claim) of 69 cents, a penny ahead of the Zacks Consensus
Estimate.
However, the Atlanta, Georgia-based power supplier's per share
profits came slightly lower than the second quarter 2011 level of
71 cents amid a drop in the demand for electricity in mild spring
weather.
Quarterly revenue at $4,181 million was down 7.5% year over
year, below the Zacks Consensus Estimate of $4,745 million.
Near-normal weather across most of the country curbed
electricity demand for air conditioning. This brought about a
downward movement in overall electricity sales and usage. Total
electricity sales during the second quarter were down 3.0% from the
same period last year.
Total retail sales fell by 1.9%, reflecting lower demand from
residential customers, which deteriorated by 4.3%. Commercial sales
registered a year-over-year decline of 1.4%.
In an encouraging sign though, Industrial sales remained
essentially flat. With approximately a third of the company's total
retail sales coming from industrial customers, direction of the
economy significantly affects the fortunes of Southern, as compared
to other utilities that are less dependent on the industrial
component.
Expenses Summary
The company's operations and maintenance expense increased 3.7%
year over year, the second consecutive quarterly rise following
three successive declines. However, Southern's total operating
expense for the period, at $3,038.0 million, was approximately
10.3% lower than the prior-year level.
Outlook
Management indicated that it continues to see positive
indications of economic growth, especially in Southern's core
Southeast market. The company remains particularly upbeat about the
addition of 20,000 new residential customers in the first six
months of 2012, which exceeded its projections for the entire
year.
Rating & Recommendation
Even though Southern Company has a Zacks #2 Rank (Buy rating) in
the short run, we are Neutral on the shares in the longer term.
Southern Company - one of the largest generators of electricity
in the nation along with the likes of
Exelon Corporation
(
EXC
) and
Duke Energy Corporation
(
DUK
) - serves both regulated and competitive markets across the
Southeastern U.S. It is a holding company for four regulated
Southern electric utilities that serve about 4.4 million customers:
Georgia Power, Alabama Power, Gulf Power and Mississippi Power.
One of the largest and best-managed electric utility holding
entities in the U.S., Southern Company dominates the power business
across the southeastern region. With a good rate base growth and
constructive regulation, we expect the firm to generate steady
earnings and dividend growth in the coming years through its
long-term power contracts.
However, the challenging economic environment and increased
spending levels to ensure regulatory compliance may hamper Southern
Company's results in the next few quarters. We are also concerned
by its high level of Vogtle-related spending, which may result in
reduced returns going forward.
Consequently, we do not anticipate a significant upside in the
near future and expect the stock to perform in line with the
broader market.
DUKE ENERGY CP (DUK): Free Stock Analysis
Report
EXELON CORP (EXC): Free Stock Analysis Report
SOUTHN COMPANY (SO): Free Stock Analysis Report
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