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Cold Weather Fuels Southern Company Earnings

Zacks Equity Research

Electric utility firm Southern Company (SO) reported first quarter 2014 earnings per share (excluding certain one-time charges) of 66 cents, surpassing the Zacks Consensus Estimate of 55 cents and the year-ago adjusted profit of 49 cents. The strong results could be attributed to higher electricity usage on the back of favorable weather conditions, as well as robust industrial activity. These positives were partially offset by spiraling expenses.

The Atlanta, GA-based power supplier’s quarterly revenue – at $4,644.0 million – comfortably surpassed the Zacks Consensus Estimate of $3,905.0 million. Moreover, Southern Company’s revenue came 19.2% higher than the first quarter 2013 level of $3,897.0 million.

Overall Sales Breakup

Colder-than-normal winter temperatures boosted Southern Company’s electricity demand. This brought about an upward movement in overall electricity sales and usage. Total electricity sales during the first quarter improved 9.7% from the same period last year.

Southern Company’s total retail sales rose by 7.1%, reflecting higher demand from residential customers, which jumped by 14.8%. Commercial sales registered a year-over-year upward movement of 3.7%.

In particular, industrial sales were up by a healthy 2.8%, lifting Southern Company’s first 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 inched up 1.2% to $986.0 million, while the company’s total operating expense for the period – at $3,944.0 million – was approximately 10.4% 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 Entergy Corp. (ETR) 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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