Southern Company Beats on Earnings, Revs

Zacks Equity Research

Electric utility firm Southern Company (SO) reported fourth quarter 2013 earnings per share (excluding certain one-time charges) of 48 cents, surpassing the Zacks Consensus Estimate of 46 cents and the year-ago adjusted profit of 44 cents. The strong results could be attributed to higher electricity usage on the back of favorable weather conditions, as well as stronger industrial activity. These positives were partially offset by spiraling expenses.

The Atlanta, GA-based power supplier’s quarterly revenue – at $3,927.0 million – surpassed the Zacks Consensus Estimate of $3,854.0 million. Moreover, Southern Company’s revenue came 6.1% higher than the fourth quarter 2012 level of $3,703.0 million.

For its fiscal year ended Dec 31, 2013, Southern Company reported income (excluding the impact of special items) of $2.71 per share, above the Zacks Consensus Estimate of $2.69 and the 2012 earnings of $2.68 per share. Revenues of $17,087.0 million were 3.3% above the year ago period and also managed to beat the Zacks Consensus Estimate of $17,027.0 million.

Overall Sales Breakup

Milder-than-normal temperatures boosted Southern Company’s electricity demand. This brought about an upward movement in overall electricity sales and usage. Total electricity sales during the fourth quarter improved 3.4% from the same period last year.

Southern Company’s total retail sales rose by 3.9%, reflecting higher demand from residential customers, which increased by 6.0%. Commercial sales registered a year-over-year upward movement of 1.4%.

In particular, industrial sales were up by a healthy 4.8%, lifting Southern Company’s fourth quarter results. 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 Company, as compared to other utilities that are less dependent on the industrial component.

Expenses Summary

Southern Company’s operations and maintenance cost increased 3.5% to $1,008.0 million, while the company’s total operating expense for the period – at $3,128.0 million – was approximately 8.3% higher than the prior-year level.

Zacks Rank & Stock Picks

Southern Company – one of the largest generators of electricity in the nation along with the likes of Exelon Corp. (EXC) and Duke Energy Corp. (DUK) –  currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at National Grid plc (NGG) as a good buying opportunity. This electric utility stock – sporting a Zacks Rank #1 (Strong Buy) – offers tremendous value and is worth buying now.

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