Sign in

    SOUTHERN (SO)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$74.52Last close (May 1, 2024)
    Post-Earnings Price$75.01Open (May 2, 2024)
    Price Change
    $0.49(+0.66%)
    • Data center sales growth increased by 12% in the quarter compared to last year, driven by both existing data centers ramping up usage (about 75%) and new data centers (25%), contributing significantly to earnings with a 1% change in sales equating to $20 million to $40 million.
    • Expansion opportunities in other jurisdictions, such as Alabama and Mississippi, where a 200 MW facility was announced by Meta in Alabama, and supportive legislation in Mississippi for data centers and hyperscalers; these projects are not yet included in forecasts, indicating potential upside.
    • Upward bias in earnings due to increased capital investments from strong growth and demand, including the successful operation of Vogtle Units 3 and 4, potentially leading to growth above current expectations.
    • Southern Company plans significant capital expenditures, including transmission and gas infrastructure, which could pressure cash flows and returns.
    • The company expects to issue equity to finance increased capital expenditures, potentially diluting existing shareholders.
    • Despite increased investments, management does not expect to change its growth rate guidance, suggesting that the capital investments may not translate into higher earnings growth.
    1. Earnings Growth Outlook
      Q: Could you update on potential earnings growth upside?
      A: Management indicated that continued momentum in investments and sales growth adds an upward bias to earnings, potentially leading to growth off a higher base in the future, though not necessarily changing the 5%–7% growth rate. They plan any updates for the fourth quarter call if significant developments occur.

    2. Data Center Load Impact
      Q: How does data center growth affect earnings and load?
      A: Data centers are driving substantial load growth, with 12% sales growth from this sector. Approximately three-fourths of this growth comes from existing data centers ramping up usage, and one-fourth from new facilities. Each 1% change in overall sales equates to $20 million to $40 million in earnings impact.

    3. Incremental CapEx from Georgia IRP
      Q: Are there incremental capital needs from the Georgia IRP approval?
      A: Yes, the Georgia Commission approved 500 megawatts of owned storage, more than double the company's initial assumption. This results in additional CapEx of above $500 million, up to nearly $1 billion, not included in the previous forecast. They'll update their forecast formally later.

    4. Impact of EPA Rules on Coal Plants
      Q: Will new EPA rules accelerate coal plant retirements?
      A: The company is evaluating the impractical new EPA rules, which may require accelerating coal plant retirements. All options are on the table, including extending existing generation and considering new resources, while assessing the feasibility of these rules.

    5. Financing and Credit Metrics
      Q: How will incremental CapEx affect credit metrics?
      A: The company plans to issue sufficient equity, likely via an ATM program, to maintain credit metrics as previously projected, with FFO to debt ramping from 14% to 17% over the plan period. Despite the additional CapEx, these investments are expected to be accretive to earnings.

    6. Customer Preference for Low-Carbon Energy
      Q: Are customers requiring low-carbon resources?
      A: Initially, data center customers requested 24/7 carbon-free energy, but now they primarily ask for available power. The company continues to build carbon-free resources and is transparent about its transition plans, offering customers the opportunity to align with their decarbonization efforts.

    7. T&D Investment Upside
      Q: Is there upside for transmission and distribution investment?
      A: Yes, load growth and resource additions necessitate increased T&D investments. The company's capital plan includes $5 billion of increased CapEx, with a significant portion allocated to transmission, along with potential gas infrastructure build-out to support new generation resources.

    8. Risk Management in Data Center Commitments
      Q: How do you assess the risk of data centers not choosing you?
      A: The company employs conservative forecasting, not counting on customers who are still considering multiple locations. They only include commitments where there's firm bilateral agreement, possibly adjusting for risk due to high activity levels.

    9. Legislative Developments in Georgia
      Q: Any updates on Georgia's legislative changes affecting you?
      A: A consumer advocacy group bill was not passed, but legislation providing certainty around the election cycle for commissioners was passed, ensuring the current commission will oversee key regulatory reviews through 2028. House Bill 1192, concerning sales tax exemptions for data centers, awaits the governor's decision, and could impact competitive economic development.

    10. Future Nuclear Considerations
      Q: Any thoughts on more nuclear projects?
      A: While acknowledging the country's need for more nuclear to support growing demand, the company plans to celebrate the completion of Vogtle Units 3 and 4 before considering additional nuclear projects. They encourage federal leadership to incentivize nuclear development.

    Research analysts covering SOUTHERN.