Southern Company Q2 Earnings Disappoint

Zacks Equity Research

Electric utility firm Southern Company (SO) reported second quarter 2013 earnings per share (excluding certain one-time charges) of 66 cents, a penny below the Zacks Consensus Estimate and also lower than the year-ago adjusted profit of 69 cents. The weak results could be attributed to lower usage on the back of mild weather conditions, further hamstrung by spiraling expenses

Additionally, the Atlanta, Georgia-based power supplier’s quarterly revenue – at $4,246.0 million – could not surpass the Zacks Consensus Estimate of $4,295.0 million. However, Southern Company’s revenue came 1.6% higher than the second quarter 2012 level of $4,181.0 million amid more industrial sales.

Overall Sales Breakup

Milder-than-normal temperatures across Southern Company’s core Southeast market curbed electricity demand. This brought about a downward movement in overall electricity sales and usage. Total electricity sales during the second quarter deteriorated 4.6% from the same period last year.

Southern Company’s total retail sales fell by 2.9%, reflecting lower demand from residential customers, which decreased by 5.3%. Commercial sales registered a year-over-year downward movement of 4.2%.

However, industrial sales were up 0.6%, providing some cushion to Southern Company’s second 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 expense remained essentially flat from the year-ago quarter though total operating expense – at $3,606.0 million – was approximately 18.7% 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 #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at Integrys Energy Group Inc. (TEG) 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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Read the Full Research Report on DUK

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