Summary
Southern Company (SO) reported solid financial results for the third quarter and the first nine months of 2003, demonstrating year-over-year growth in earnings per share. The company benefited from a growing customer base, effective cost control measures, and strong performance in its competitive generation business, particularly from hydro and coal-fired capacity due to mild summer weather and higher natural gas prices. The year-to-date results were also positively impacted by an $88 million after-tax gain from the termination of certain Power Purchase Agreements (PPAs) with Dynegy. Regulatory rate increases in Alabama and Florida further contributed to the improved financial performance. However, investors should note potential headwinds such as ongoing legislative and regulatory changes in the electric utility industry, environmental compliance costs related to the Clean Air Act, and the impact of Mirant's bankruptcy filing on contingent liabilities. The company's financial condition remained stable, with substantial capital expenditures for utility plant additions funded primarily through operating activities and net security issuances. Southern Company's liquidity was supported by significant unused credit arrangements, providing flexibility for ongoing operations and construction programs.
Key Highlights
- 1Earnings per share (EPS) increased to $0.85 for Q3 2003 and $1.86 for the nine months ended September 30, 2003, compared to $0.84 and $1.63, respectively, in the prior year.
- 2Consolidated net income for the nine months ended September 30, 2003, was $1.35 billion, up from $1.15 billion in the same period of 2002.
- 3Retail sales revenue showed a slight increase of 0.3% for Q3 2003 and 1.9% year-to-date, driven by customer growth and regulatory rate increases.
- 4Sales for resale increased significantly, especially due to the competitive generation business benefiting from favorable weather and market prices, as well as new plants coming online.
- 5Other revenues and other electric revenues also saw substantial increases, partly due to new operations and PPA terminations.
- 6Fuel expense increased by 10.9% for Q3 2003 and 13.3% year-to-date, primarily due to higher fuel costs and increased generation from new units.
- 7Financing activities included issuing $2.8 billion in senior notes and $125 million in preferred stock, mainly to refund existing debt, alongside managing short-term debt and credit facilities.
- 8The company continues to manage its exposure to market risks through hedging programs and fixed-price contracts.