10-QPeriod: Q2 FY2017

SOUTHERN CO Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 2, 2017For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) reported solid financial results for the second quarter of 2017, with increases in net income for several of its operating companies, including Alabama Power and Southern Power. The company demonstrated steady performance across its regulated utility operations, supported by rate adjustments and operational efficiencies. However, Mississippi Power continued to face significant challenges related to the Kemper IGCC project, leading to substantial charges and a net loss for the quarter and year-to-date. Georgia Power's results were impacted by the ongoing evaluation of Plant Vogtle Units 3 and 4 construction costs and schedules following the EPC contractor's bankruptcy filing. Overall, Southern Company's diversified business model, with regulated utilities and competitive wholesale operations, continues to provide a stable revenue base. Investors should monitor the resolution of the Kemper IGCC project and the progress of Plant Vogtle Units 3 and 4, as these have the most significant potential impact on the company's future financial performance and outlook.

Financial Highlights

46 data points
Beta

Revenue

$5.43B

Net Income

-$1.35B

-24.8% Net Margin

EPS (Diluted)

$-1.37

Total Assets

$108.68B

Cash & Equivalents

$1.46B

Free Cash Flow

-$65.00M

Financial Statements
Beta
Revenue$5.43B
Operating Expenses$7.08B
Operating Income-$1.65B
Net Income-$1.35B
EPS (Basic)$-1.38
EPS (Diluted)$-1.37
Shares Outstanding (Basic)998.00M
Shares Outstanding (Diluted)1.00B

Key Highlights

  • 1Alabama Power reported a net income increase of 8.0% for Q2 2017 compared to Q2 2016, driven by rate increases and higher other income.
  • 2Georgia Power's net income slightly decreased by 0.6% in Q2 2017 compared to Q2 2016, primarily due to milder weather impacting sales, partially offset by lower operations and maintenance expenses.
  • 3Gulf Power's net income increased by 2.9% in Q2 2017 compared to Q2 2016, benefiting from higher wholesale revenues and lower depreciation, though offset by a write-down related to Plant Scherer Unit 3.
  • 4Mississippi Power reported a significant net loss of $2.05 billion for Q2 2017, primarily due to a $2.8 billion charge related to the Kemper IGCC project, reflecting the likely conversion to a natural gas plant.
  • 5Southern Power saw a 7.9% decrease in net income attributable to Southern Power in Q2 2017 compared to Q2 2016, mainly due to increased interest expense and higher non-controlling interests, partially offset by new generating facilities.
  • 6Southern Company Gas reported a net income of $49 million for the successor Q2 2017, compared to a net loss of $51 million for the predecessor Q2 2016, largely due to the impact of the merger and acquisition activities.
  • 7Southern Company's consolidated results benefited from overall strength in regulated utility operations, while the significant challenges at Mississippi Power's Kemper IGCC project remain a key concern.

Frequently Asked Questions

The most significant challenge for Southern Company in this period is the ongoing financial impact and regulatory uncertainty surrounding the Kemper IGCC project at Mississippi Power. The company recorded a substantial charge for the likely conversion of the project to a natural gas plant, leading to a significant net loss for Mississippi Power. Additionally, the construction costs and schedule for Plant Vogtle Units 3 and 4 at Georgia Power remain a key area of focus due to the EPC contractor's bankruptcy and subsequent settlement agreements.

The regulated utility operations, including Alabama Power, Georgia Power, and Gulf Power, generally showed stable to positive performance. Alabama Power saw an increase in net income driven by rate adjustments. Georgia Power experienced a slight dip in net income due to weather impacts but managed expenses effectively. Gulf Power's net income also saw a modest increase. These utilities benefited from their regulated rate structures, which allow for cost recovery.

Southern Power continues to execute its growth strategy by acquiring and completing the construction of power generation assets, particularly in the solar and wind sectors. During the first six months of 2017, it added approximately 498 MWs of solar and wind facilities. The company's strategy relies on long-term power purchase agreements (PPAs) with creditworthy counterparties, providing a stable revenue stream for these new assets. Growth is also being funded through debt issuances and contributions.

Southern Company Gas demonstrated improved financial performance in the successor period following the merger and acquisition activities, reporting a net income in Q2 2017 compared to a net loss in the predecessor period. The company is focused on expanding its customer base through infrastructure replacement programs and managing weather and commodity price risks through hedging strategies. Regulatory approvals for rate adjustments and infrastructure programs are key to its continued growth and profitability.