Electric utility firm
Southern Co.
(
SO
) reported first quarter 2012 earnings per share (
EPS
) of 42 cents, lagging the Zacks Consensus Estimate of 46 cents and
the year-ago period profit of 50 cents. The underperformance
reflects the adverse effects of an unusually warm winter.
Quarterly revenue, at $3,604 million, was down 10.2% year over
year and also came below the Zacks Consensus Estimate of $4,155
million.
Near-record mild weather across most of the country curbed
electricity demand for heating all winter. This brought about a
downward movement in overall electricity sales and usage. Total
electricity sales during the first quarter were down 7.3% from the
same period last year.
Total retail sales fell by 5.1%, reflecting lower demand from
residential customers, which deteriorated by 13.7%. Commercial
sales registered a year-over-year decline of 3.1%.
On a positive note, industrial sales increased 1.9%, providing
some respectability to Southern's first quarter results. With
approximately a third of the company's total retail sales coming
from industrial customers, a rebounding 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 2.4%
year over year, the first quarterly rise following three
consecutive quarterly declines. Additionally, Southern's total
operating expense for the period, at $2,838.0 million, is
approximately 10.1% 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. In the meantime, the company continues to build
on its emphasis on exceptional service, industry-leading
reliability and prices below the national average.
Recommendation & Rating
Headquartered in Atlanta, Georgia, Southern Company is the
second largest generator of electricity in the nation behind
Exelon Corp.
(
EXC
), serving 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 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 a return to
more normal spending levels may hamper Southern's results in the
next few quarters. We are also concerned by the company's 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, as reflected by our continued long-term Neutral
recommendation.
For the short-term though (1-3 months), Southern Company
currently retains a Zacks #4 Rank (Sell rating).
EXELON CORP (
EXC
): Free Stock Analysis Report
SOUTHN COMPANY (
SO
): Free Stock Analysis Report
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