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Southern Company Q3 Earnings Disappoint

Zacks Equity Research

Electric utility firm Southern Company (SO) reported third quarter 2013 earnings per share (excluding certain one-time charges) of $1.08, 3 cents below the Zacks Consensus Estimate as well as the year-ago adjusted profit of $1.11. The weak results could be attributed to lower usage on the back of mild weather conditions, further hamstrung by spiraling expenses.

The Atlanta, Georgia-based power supplier’s quarterly revenue – at $5,017.0 million – could not surpass the Zacks Consensus Estimate of $5,383.0 million. Moreover, Southern Company’s revenue came 0.6% lower than the third quarter 2012 level of $5,049.0 million.

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 third quarter deteriorated 2.9% from the same period last year.

Southern Company’s total retail sales fell by 1.5%, reflecting lower demand from residential customers, which decreased by 5.3%. Commercial sales registered a year-over-year downward movement of 1.3%.

However, industrial sales were up by a healthy 2.6%, providing some cushion to Southern Company’s third 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 2.4% to $928.0 million, while the company’s total operating expense for the period – at $3,526.0 million – was approximately 6.6% 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 (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 UNS Energy Corp. (UNS) as a good buying opportunity. This electric utility stock – sporting a Zacks Rank #1 (Strong Buy) – offers tremendous value and is worth buying now.

Read the Full Research Report on SO
Read the Full Research Report on EXC
Read the Full Research Report on DUK
Read the Full Research Report on UNS

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