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Analyzing Southern Company before Its 1Q17 Earnings

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Part 3
Analyzing Southern Company before Its 1Q17 Earnings PART 3 OF 6

Southern Company: A Positive Surprise for Investors?

Earnings

According to analysts’ consensus estimates, Southern Company (SO) is expected to report earnings of $0.60 per share in 1Q17—compared to earnings of $0.58 per share in 1Q16.

Southern Company’s management issued its 2017 annual earnings guidance range of $2.90–$3.02 per share. The guidance implies an expected annual rise of 5.0% from the midpoints, which is in line with the industry (XLU) average.

Southern Company: A Positive Surprise for Investors?

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Earnings drivers

Despite posting a healthy rise in revenues in 4Q16, Southern Company couldn’t convert it into earnings. During 4Q16, the utility witnessed a huge rise of 48% in its operations and maintenance costs—compared to the same period in 2015.

Recently, Southern Company’s Kemper County and Vogtle nuclear power plants dented the company. Cost overruns due to construction delays had a negative impact on Southern Company’s financials.

On the positive side, Southern Company’s capital spending plan of $39.3 billion for the next five years will likely strengthen its regulated rate base and might bode well for earnings growth. The company has also been increasing its focus on renewables.

Southern Company’s increasing gas distribution operations after the AGL merger are good for long-term growth considering flattish growth prospects in traditional electric operations.

For fiscal 2016, Southern Company earned $2.89—the same as in 2015. Southern Company’s flat EPS was expected due to bonus depreciation and share issuances to fund the AGL Resources deal.

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