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Southern Company (SO) to Report Q3 Earnings: What to Expect?

Zacks Equity Research

Southern Company SO is expected to release third-quarter 2019 results before the opening bell on Wednesday, Oct 30. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of $1.14 on revenues of $5.9 billion.

Let’s delve into the factors that might have influenced the company’s performance in the September quarter.

Factors to Consider This Quarter

Southern Company's seven major regulated utilities serve approximately nine million electric and natural gas customers. Leveraging the demographics of its operating territories, the firm has been successfully expanding its regulated business customer base. As part of that effort, Southern Company added 23,000 residential electric and 14,000 residential gas customers in the first half of 2019, a trend that most likely continued in the third quarter because of healthy population and job growth across its electric and gas franchises.

The power supplier’s operations and maintenance cost in the second quarter decreased 13.6% to $1.3 billion, while the utility’s total operating expense for the period – at $3.8 billion – was down 32.5% from the prior-year level. The falling cost trajectory is likely to have continued in the third quarter due to Southern Company’s prudent cost management efforts. 

However, the bottom line is expected to reflect the impact of the ongoing trade war with China and the strong U.S. dollar in the form of weak industrial sales. Investors should note that with approximately a third of Southern company’s total retail sales coming from industrial customers, a sluggish economy severely affects the fortunes of the firm, as compared to other utilities that are less dependent on the industrial component.

What Does Our Model Say?

The proven Zacks model does not conclusively show that Southern Company is likely to beat estimates in the third quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Southern Company has an Earnings ESP of 0.0%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.14.

Zacks Rank: Southern Company sports a Zacks Rank of 1, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult for the stock this time around.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Highlights of Q2 Earnings & Surprise History

In the last reported quarter, the Atlanta, GA-based service provider beat the consensus mark on positive effects of rates and pricing changes, favorable weather conditions, as well as lower costs and expenses. Southern Company reported adjusted earnings per share of 80 cents that surpassed the Zacks Consensus Estimate by 8 cents and was in line with the year-ago profit.

Revenues of $5.1 billion came 9.4% lower than the second-quarter 2018 sales and missed the Zacks Consensus Estimate of $5.2 billion. The miss was primarily on account of loss of revenue from the divestment of its Gulf Power subsidiary and other assets.

As far as earnings surprises are concerned, the electric utility firm is on an excellent footing, having met/gone past the Zacks Consensus Estimate in the last four reports. This is depicted in the graph below:

Southern Company (The) Price and EPS Surprise

 

Southern Company (The) Price and EPS Surprise

Southern Company (The) price-eps-surprise | Southern Company (The) Quote

Stocks to Consider

While earnings beat looks uncertain for Southern Company, here are some firms from the utility space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this season:

ONEOK, Inc. OKE has an Earnings ESP of +0.54% and is Zacks #3 Ranked. The utility is anticipated to release earnings on Oct 29.

American Water Works Company, Inc. AWK has an Earnings ESP of +1.17% and a Zacks Rank #3. The utility is anticipated to release earnings on Oct 30.

National Fuel Gas Company NFG has an Earnings ESP of +3.13% and is Zacks #3 Ranked. The utility is anticipated to release earnings on Oct 31.

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Southern Company (The) (SO) : Free Stock Analysis Report
 
National Fuel Gas Company (NFG) : Free Stock Analysis Report
 
ONEOK, Inc. (OKE) : Free Stock Analysis Report
 
American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
 
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