Southern Company with solid results

Mike Zaccardi, CFA, CMT

This has been the busiest week for US corporate earnings of the Q2 season. NextEra reported to the street last week, and investors were generally satisfied with the Florida-based utility’s results. More broadly, about 85% of US firms have beaten EPS expectations, well above the long-term average which is in the 70-75% range. So while Q2 was devastating for the economy, the saving grace is that companies weathered the storm better than feared.

A few more key utilities sector constituents have reported their results, too. Southern Company (SO) is among them. The Atlanta-based utility is one to watch for a gauge on how the industry is performing across the Southeast.

SoCo reported a solid beat on the bottom line and reiterated its 2020 guidance. Unfortunately, ongoing uncertainty remains regarding the Plant Vogtle saga. Southern had $152 million pre-tax charge for a probable loss on Vogtle construction. Mild weather also hurt to a small extent.

The elephant in the room is of course COVID-19. Coronavirus impacted second quarter retail sales by 7.5% versus the same quarter a year ago despite a 4.7% increase in residential load growth. More recently, Southern said retail sales have been improving during July – all while new daily infections had been on the rise in the Peach State.

What else has been going on at Southern Company? It’s a fascinating story – one that is indicative of the overall industry trends. Morningstar notes that SO has experienced one of the more dramatic shifts in its generation mix – away from coal and toward natural gas. Back in 2000, about 80% of SoCo’s generation came from dirty coal. Morningstar analysts expect coal to represent less than 20% of generation by 2030. Southern has a goal of being low to no-carbon by 2050. It could happen.

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Chart used with permission from TradingView.com