10-QPeriod: Q2 FY2018

SOUTHERN CO Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 8, 2018For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) reported its second quarter 2018 results, showcasing a mixed performance across its various subsidiaries. While Alabama Power demonstrated growth in net income driven by increased retail revenues and lower tax expenses, Georgia Power experienced a significant net loss due to a substantial charge related to the ongoing construction of Plant Vogtle Units 3 and 4. Southern Company Gas saw a decrease in net income, largely attributed to disposition losses and increased interest expenses, although infrastructure investments and favorable weather provided some offset. Southern Power reported a decrease in net income attributable to the company, primarily due to an asset impairment charge related to the pending sale of Florida Plants. Gulf Power's net income improved year-over-year, benefiting from higher retail base revenues and lower tax expenses, despite a reduction in retail revenues due to a tax reform settlement. Mississippi Power's net income significantly improved year-over-year, primarily due to a substantial reduction in charges related to the Kemper IGCC project, alongside positive outcomes from regulatory filings. Investors should closely monitor the developments and potential financial impacts of Georgia Power's Plant Vogtle project, regulatory outcomes for Mississippi Power's Kemper project, and the sale of Gulf Power, which are all significant factors influencing the company's future performance and financial stability.

Financial Highlights

48 data points
Beta

Revenue

$5.63B

Net Income

-$127.00M

-2.3% Net Margin

EPS (Diluted)

$-0.15

Total Assets

$112.78B

Cash & Equivalents

$1.98B

Free Cash Flow

-$298.00M

Financial Statements
Beta
Revenue$5.63B
Operating Expenses$5.56B
Operating Income$63.00M
Net Income-$127.00M
EPS (Basic)$-0.15
EPS (Diluted)$-0.15
Shares Outstanding (Basic)1.01B
Shares Outstanding (Diluted)1.01B

Key Highlights

  • 1Alabama Power's net income increased by 12.6% in Q2 2018 compared to Q2 2017, driven by higher retail revenues and lower income tax expenses.
  • 2Georgia Power recorded a net loss of $396 million in Q2 2018, primarily due to an $1.1 billion pre-tax charge related to the construction of Plant Vogtle Units 3 and 4.
  • 3Southern Company Gas' net income decreased by 163.3% in Q2 2018, influenced by disposition losses and increased interest expenses.
  • 4Southern Power reported a 73.2% decrease in net income attributable to the company in Q2 2018, mainly due to a $119 million asset impairment charge for the pending sale of Florida Plants.
  • 5Gulf Power's net income increased by 20.0% in Q2 2018, supported by higher retail base revenues and lower taxes.
  • 6Mississippi Power's net income increased significantly by over 2000% in Q2 2018, largely due to a substantial reduction in charges related to the Kemper IGCC project.
  • 7Southern Company is selling Gulf Power to NextEra Energy for $5.75 billion, expected to close in the first half of 2019.

Frequently Asked Questions

Georgia Power recorded a significant pre-tax charge of $1.1 billion in the second quarter of 2018 due to revised cost forecasts and uncertainties surrounding the recoverability of construction costs for Plant Vogtle Units 3 and 4. The project's total estimated capital cost is now $8.4 billion. The company does not intend to seek rate recovery for a $0.7 billion increase in base capital costs, which has been charged to income. The future of the project also hinges on a crucial 90% vote from Vogtle owners to continue construction, with potential cancellation having material adverse impacts.

The Tax Cuts and Jobs Act has generally led to lower income tax expenses for Southern Company and its subsidiaries due to the reduction in the federal corporate income tax rate. Many subsidiaries are benefiting from the flowback of excess deferred income taxes, which are being used to offset under-recovered fuel costs or refunded to customers through bill credits. Regulatory bodies have approved adjustments to rate structures and equity ratios for some subsidiaries, like Alabama Power and Georgia Power, to mitigate the financial impacts of the legislation and support credit quality.

Mississippi Power has significantly reduced charges related to the Kemper IGCC project. In Q2 2018, the company recorded immaterial charges for abandonment and closure activities, a substantial decrease from prior periods. The company is also filing a Reserve Margin Plan with the Mississippi PSC that proposes accelerated retirements of certain units to lower operating costs, which are not expected to have an adverse impact on customer rates if approved.

Yes, Southern Company announced the sale of Gulf Power to NextEra Energy for $5.75 billion, with an expected closing in the first half of 2019. Additionally, Southern Company Gas completed the sale of Pivotal Home Solutions and is in the process of selling Elizabethtown Gas, Elkton Gas, and Florida City Gas. Southern Power is also pursuing the sale of a noncontrolling interest in a portfolio of wind facilities.