01—Abstract
Summary
Summary of the 8-K filed February 15, 2024. Cited figures are marked; the original filing is the authoritative source.
Southern Company (SO) reported fourth-quarter 2023 GAAP net income of $855 milliona, or $0.78 per basic share, versus a loss of $87 million, or $(0.08) per share, in Q4 2022.
For full-year 2023, GAAP net income was $3.976 billionb, or $3.64 per share, up from $3.524 billion, or $3.28 per share, in 2022. Excluding the items the company identifies as non-GAAP adjustments, Q4 2023 earnings were $700 million, or $0.64 per share, versus $0.26 in Q4 2022, and full-year adjusted earnings were $3.982 billion, or $3.65 per share, versus $3.60 in 2022. The adjusted full-year increase was modest (about 1.4% per share), with growth in utility revenues, lower non-fuel O&M, and lower income taxes offset by higher depreciation and interest expense, plus milder-than-normal weather at the regulated electric utilities.
The headline reported figures are flattered by large swing items. Q4 2023 included a $228 millionc pre-tax credit (about $0.29 per share on a reported basis) related to Plant Vogtle Units 3 and 4 estimated losses, while Q4 2022 carried a $201 million charge. Net of other items, the reported Q4 improvement is largely driven by these reversals rather than underlying operations.
Revenue declined sharply, with Q4 operating revenues down 14.2% to $6.0 billiond and full-year revenues down 13.8% to $25.3 billion, primarily because of lower fuel costs passed through to customers. Electric sales volumes fell 4.3% for both the quarter and the year, though weather-adjusted retail sales were roughly flat to modestly down. The key investor takeaways are the completion of Plant Vogtle Unit 3, the first new U.S. nuclear unit in over three decades, and continued cost discipline.
Investors should weigh the ongoing risk of further Vogtle and Kemper-related charges, the Illinois disallowances at Southern Company Gas, and rising depreciation and interest costs as the company's capital program grows. The filing contains no forward-looking guidance changes in the text provided; the company's earnings guidance is referenced in separate slides not included here.
02—Key points
Key Highlights
- Q4 2023 GAAP EPS of $0.78 vs. $(0.08) in Q4 2022; full-year GAAP EPS of $3.64 vs. $3.28, up 11%.
- Q4 2023 EPS excluding items of $0.64 vs. $0.26; full-year EPS excluding items of $3.65 vs. $3.60, a modest 1.4% increase.
- Q4 2023 benefited from a $228 million pre-tax credit (about $0.29 per share) on Plant Vogtle Units 3 and 4 estimated losses, which inflates reported results relative to underlying performance.
- Plant Vogtle Unit 3 was completed, described by management as the first newly constructed nuclear unit in the U.S. in over three decades.
- Operating revenues fell 14.2% in Q4 to $6.0 billion and 13.8% for the year to $25.3 billion, mainly due to lower fuel costs, not weaker demand.
- Electric sales declined 4.3% in both Q4 and full-year 2023; weather-adjusted retail sales were roughly flat, with milder weather a drag on regulated utilities.
- Remaining risks include further estimated losses on Vogtle and Kemper, Illinois Commerce Commission disallowances at Nicor Gas (Q4 charge of $58 million, $0.04 per share), and rising depreciation and interest expense.
03—Questions
Frequently Asked Questions
Did Southern Company's earnings actually improve in 2023?
Yes on a reported basis: full-year GAAP net income rose to $3.976 billion ($3.64 per share) from $3.524 billion ($3.28 per share). On an adjusted basis the improvement was small, with EPS excluding items of $3.65 versus $3.60, because 2022 also included large charges that were excluded from the comparison.
What drove the large swing in fourth-quarter results?
The swing was driven largely by non-recurring or non-operating items. Q4 2023 included a $228 million pre-tax credit tied to Plant Vogtle Units 3 and 4, versus a $201 million charge in Q4 2022. Q4 2022 also included a $119 million goodwill impairment at PowerSecure, which was excluded from adjusted results.
Why did revenues decline so much if demand was relatively stable?
The decline was primarily due to lower fuel costs, which are passed through to customers, and lower natural gas prices reflected in natural gas revenues. Wholesale electric revenues also fell substantially, down about 32% for the full year. Weather-adjusted retail sales were roughly flat to slightly down, so the revenue drop is largely a pricing and pass-through effect rather than a volume collapse.
What are the main remaining risks disclosed in this filing?
The filing notes that further charges may occur on Plant Vogtle Units 3 and 4 and on the Kemper County project, which Mississippi Power expects to incur about $15 million annually through 2025 in dismantlement and related costs. Southern Company Gas also recorded Illinois Commerce Commission disallowance charges tied to Nicor Gas, and further charges could follow. Rising depreciation and interest expense are also weighing on adjusted earnings.
Does the filing change Southern Company's earnings guidance?
The text provided does not include guidance changes. The company states that earnings guidance is included in its fourth-quarter earnings slides, which were not part of this filing's text, so investors should review those slides and the earnings call for forward-looking figures.
04—Continue