01—Abstract
Summary
Summary of the 8-K filed August 1, 2024. Cited figures are marked; the original filing is the authoritative source.
Southern Company (SO) reported second-quarter 2024 GAAP net income attributable to the company of $1.2 billiona, or $1.10 per basic share, up from $838 million, or $0.77 per share, in the second quarter of 2023.
For the six months ended June 30, 2024, GAAP earnings were $2.3 billionb, or $2.13 per share, versus $1.7 billion, or $1.56 per share, a year earlier. Excluding the non-GAAP items the company identifies (primarily a $21 million pre-tax credit on Plant Vogtle Units 3 and 4 offset by a $14 million tax charge, plus Kemper-related costs), adjusted EPS was $1.10 for the quarter, up from $0.79 in 2023, and $2.13 year-to-date, up from $1.59. Note that the 2023 comparison excludes a $38 million pre-tax charge at Southern Company Gas tied to an Illinois Commerce Commission disallowance, so the reported and adjusted comparisons differ.
Top-line growth was strong. Second-quarter operating revenues rose 12.4% to $6.5 billionc, driven largely by a 5.8% increase in retail kilowatt-hour sales (weather-adjusted retail sales were up only 0.6%, indicating weather was a major contributor) and higher retail revenue impacts from rate and customer factors. Retail customers grew 1.2% at the traditional electric operating companies and 0.4% at Southern Company Gas.
Management attributed the quarter's performance to strong economic development and customer growth in the Southeastern service footprint. Quarterly EPS growth of $0.33d was driven mainly by the traditional electric operating companies (+$0.34), partially offset by higher parent-level costs (-$0.03). Earnings quality warrants attention.
Year-to-date EPS growth was partly supported by Southern Company Gas, whose net income rose 31.6% to $517 million, and by lower operating expenses. However, interest expense rose $84 million in the quarter and $166 million year-to-date, and income taxes increased sharply, which weighed on the traditional utilities' earnings. Investors should also note that the company explicitly warned that further charges or credits related to Vogtle and Kemper may occur, with uncertain timing and amount, and that Kemper will incur roughly $15 million of additional pre-tax costs annually through 2025.
02—Key points
Key Highlights
- Q2 2024 GAAP EPS of $1.10 vs. $0.77 in Q2 2023 (+43%); year-to-date GAAP EPS of $2.13 vs. $1.56 (+37%)
- Q2 2024 adjusted EPS (excluding items) of $1.10 vs. $0.79 in Q2 2023; YTD adjusted EPS of $2.13 vs. $1.59
- Operating revenues of $6.5 billion in Q2 (+12.4%) and $13.1 billion YTD (+7.2%), led by higher retail non-fuel revenues
- Retail kWh sales up 5.8% in Q2 but only 0.6% weather-adjusted, indicating weather was a major driver of the quarter's growth
- Traditional electric operating companies contributed +$0.34 of the $0.33 quarterly EPS increase; Southern Company Gas added $0.02 and parent/other drag was -$0.03
- Southern Company Gas YTD net income up 31.6% to $517 million, aided by higher earnings before taxes
- Interest expense rose $84 million in Q2 (to $694 million) and $166 million YTD, plus income taxes rose $192 million in Q2, pressuring margins
03—Questions
Frequently Asked Questions
Did Southern Company's earnings improve on a GAAP basis in Q2 2024?
Yes. GAAP net income attributable to Southern Company rose to $1.2 billion ($1.10 per basic share) from $838 million ($0.77 per share) in Q2 2023, an increase of about 44% in net income and 43% in EPS.
What are the non-GAAP adjustments, and do they change the picture materially?
In Q2 2024 the only adjustment was a $21 million pre-tax credit (about $16 million after tax) related to Plant Vogtle Units 3 and 4, partly offset by a $14 million tax charge, netting to roughly $1 million of income. The Q2 2023 comparison excluded a $38 million pre-tax Southern Company Gas charge, so adjusted 2023 EPS was $0.79 versus $0.77 reported. Adjustments are small in 2024 and do not change the overall trend.
What drove revenue growth and is it sustainable?
Revenue growth came mainly from higher retail non-fuel revenues (up $572 million in Q2) and weather-driven demand, with retail kWh sales up 5.8%. Weather-adjusted retail sales grew only 0.6%, and residential sales were down 1.0% on a weather-adjusted basis, so part of the growth may not persist. Customer growth of about 1.2% at the electric utilities and continued economic development in the Southeast support the underlying trend.
What risks remain related to Vogtle and Kemper?
The company noted that further charges or credits related to Plant Vogtle Units 3 and 4 may occur, with uncertain amounts and timing. Mississippi Power expects roughly $15 million of additional pre-tax costs annually through 2025 to dismantle and restore the abandoned Kemper gasifier facility. These items can create volatility in reported earnings.
Why did EPS growth lag net income growth in some periods, and what pressures should investors monitor?
Share count rose modestly (1,096 million vs. 1,092 million average shares), which slightly dilutes per-share growth. Investors should monitor rising interest expense (up $166 million YTD) and higher income tax expense (up $319 million YTD), which together offset much of the operating revenue gains at the electric utilities.
04—Continue