Q4 2024 Earnings Summary
- Significant Growth Opportunities from Data Centers and Large Industrial Customers: Southern Company is experiencing robust economic development activities, with data centers and large manufacturers adding significant capacity opportunities in Alabama and Mississippi. They have signed contracts to serve data centers totaling over 1,000 megawatts in these states, and they see this migration of activity across their territory as adding excitement and opportunities for future growth.
- Strong Position in Nuclear Energy Development: The company believes that nuclear energy is the best long-term fit for the industry's growth needs. Southern Company's successful experience with Vogtle Units 3 and 4 demonstrates their capability in nuclear development, and they are committed to advocating for more nuclear investments, which could position them to benefit from future nuclear projects.
- Diversified Portfolio Supporting Earnings Durability: Southern Company's complementary businesses, such as Southern Power, provide greater durability and opportunities in the marketplace. They believe that these businesses support their earnings growth path and long-term durability, reinforcing confidence in achieving their projected 5% to 7% adjusted EPS growth rate.
- Southern Company faces higher interest expenses due to refinancing $9 billion of parent debt over the next three years at rates that are 150 to 200 basis points higher.
- There may be a delay in improving the FFO to debt ratio to 17% because storm cost recoveries are lagging and increased capital needs, potentially impacting credit metrics.
- The increase in capital expenditures by $13 billion may require more equity financing, which could lead to dilution or slower dividend growth, as the company explores financing options including equity issuance and tax credit monetization.
| Metric | YoY Change | Reason |
|---|---|---|
Net Income | –86% (from $3.81 billion in Q4 2023 to $0.53 billion in Q4 2024) | Net Income declined dramatically due to significant operational challenges that overwhelmed prior support from higher utility revenues. This sharp drop reflects the cumulative effect of adverse factors—including higher expense items and non‐cash adjustments—that were less pronounced in the prior period. |
Earnings Per Share (EPS) | Lower EPS in Q4 2024 (basic EPS: $0.49; diluted EPS: $0.48) | EPS fell in line with the net income decline. Although previous periods had benefited from revenue gains and favorable rate adjustments, the severe drop in earnings in Q4 2024 directly depressed both basic and diluted EPS. |
Non-Cash Adjustments – Depreciation & Amortization | Reversal from +$1.287 billion in Q4 2023 to –$1.836 billion in Q4 2024 | Depreciation and amortization swung drastically. In earlier periods, capital investments and higher depreciation rates led to elevated expense recognition. In Q4 2024, however, accounting reversals—possibly due to adjustments in the timing of asset write-ups and compliance-related investments—resulted in a negative adjustment, indicating a major change in asset accounting. |
Non-Cash Adjustments – Deferred Income Taxes | Reversed from +$115 million in Q4 2023 to –$151 million in Q4 2024 | Deferred income taxes shifted substantially. Previously favorable tax adjustments driven by regulatory tax credit utilization and timing differences turned adverse in Q4 2024, reflecting changes in tax-related estimates and increased timing differences between book and tax treatments. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EPS (Quarterly) | Q4 2024 | $0.49 | no current guidance | no current guidance |
Adjusted EPS (Annual) | FY 2024 | $4.05 | no current guidance | no current guidance |
Sales Growth | FY 2024 | “Potential upside; no specific figures provided” | no current guidance | no current guidance |
CapEx | FY 2024 | “Expectation of increased CapEx; specifics not provided” | no current guidance | no current guidance |
Long-term Load Growth | FY 2024 | “Over 36 GW potential load addition by mid‑2030s, with 8 GW committed” | no current guidance | no current guidance |
Incremental Capital Plan | FY 2024 | “Several billion dollars expected; plus a previously disclosed $3B relative to a $48B plan” | no current guidance | no current guidance |
Adjusted EPS (Annual) | FY 2025 | no prior guidance | “Guidance range $4.20–$4.30, midpoint $4.25 (represents 6% growth from 2024 midpoint)” | no prior guidance |
Long-term Adjusted EPS Growth Rate | FY 2025 | no prior guidance | “5% to 7% (remains unchanged from 2024 guidance)” | no prior guidance |
Retail Electricity Sales Growth | FY 2025 | no prior guidance | “Approximately 2%–3% for 2025; longer‑term average annual sales growth of 8% (2025–2029)” | no prior guidance |
Georgia Power's Total Retail Electric Sales Growth | FY 2025 | no prior guidance | “Approximately 12% growth from 2025 to 2029” | no prior guidance |
Commercial Segment Growth | FY 2025 | no prior guidance | “Projected to grow an average of 18% from 2025 to 2029” | no prior guidance |
Base Capital Investment Forecast | FY 2025 | no prior guidance | “Forecast of $63 billion over the next 5 years (with 95% at state‑regulated utilities)” | no prior guidance |
State‑regulated Average Annual Rate Base Growth | FY 2025 | no prior guidance | “Approximately 7% projected long‑term” | no prior guidance |
Dividend Payout Ratio | FY 2025 | no prior guidance | “Expected to lower into the low‑to‑mid‑60% range” | no prior guidance |
FFO to Debt Target | FY 2025 | no prior guidance | “Target of approximately 17% FFO to debt” | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Adjusted EPS | Q4 2024 | $0.49 | $0.49 | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Data Center Growth and Load Demand | Q1 discussed 12% year‑over‑year sales growth with a mix of new and existing centers. Q2 featured a 17% increase and pipeline growth. Q3 mentioned continued strength with a 10% increase. | Q4 emphasized robust growth, geographic expansion into Alabama and Mississippi, a 17% boost in commercial sales, and advanced contracting strategies. | Consistent growth with increased investment and geographic expansion. |
Industrial Customer and Economic Development Opportunities | Q1 highlighted strong economic development activity and industrial sales recovery. Q2 described a pipeline of nearly 200 projects and over 30 gigawatts potential load. Q3 noted 42 companies expanding operations with significant job creation. | Q4 reported over 150 company announcements supporting 20,000+ new jobs and an incremental load pipeline of over 50,000 megawatts. | Steady bullish sentiment with consistently strong economic development momentum. |
Nuclear Energy Development and Vogtle Program Success | Q1 lauded the successful completion of Vogtle Units 3 and 4 and stressed the future need for nuclear energy. Q2 discussed nuclear opportunities and referenced the Vogtle program’s performance despite minor issues. Q3 covered SMR research and lessons from Vogtle. | Q4 did not mention nuclear energy development or the Vogtle program. | Previously prominent, now dropped in Q4 indicating a shift in focus. |
Capital Expenditures and Equity Financing Risks | Q1 noted an incremental CapEx opportunity of $500 million to $1 billion managed via at‑the‑market equity offerings. Q2 and Q3 had limited discussion on this topic. | Q4 detailed a $14 billion increase in the 5‑year capital investment forecast to $63 billion and emphasized risk management and tax credit strategies. | Recurring topic with an increased focus on aggressive investment and detailed financing strategies. |
Debt Refinancing and Rising Interest Rate Challenges | Earlier periods (Q1–Q3) did not provide significant coverage of rising interest rates or refinancing challenges. | Q4 highlighted that refinancing roughly $9 billion of parent company debt will occur at rates 150–200 basis points higher than current levels, describing this as a near‑term headwind. | Newly emergent topic with a cautionary note regarding short‑term financial headwinds. |
Credit Metrics and FFO-to-Debt Ratio Concerns | Q1 expected improvement from 14‑15% to 17% FFO-to‑debt with planned equity issuance. Q2 maintained a similar trajectory. | Q4 reiterated the target of 17% but cautioned that storm cost recovery delays would flatten performance in 2025. | Recurring focus with slightly more cautious sentiment due to anticipated delays in storm cost recovery. |
Regulatory Risks Including Georgia Rate Case and Environmental Uncertainties | Q1 addressed these risks by linking affordability measures and IRP outcomes. Q2 discussed the Georgia Rate Case and ROE/equity ratio adjustments. Q3 made general references to regulatory processes and environmental factors. | Q4 did not feature any specific discussion on regulatory risks or environmental uncertainties. | Once a key discussion point, now diminished/omitted in Q4. |
Storm-Related Cost Recovery Challenges | Q3 provided a detailed discussion of recovery challenges, citing an estimate of $1.1 billion, deferrals, and historical recovery lags. Q1 and Q2 did not cover this topic. | Q4 mentioned that storm cost recovery is unlikely to begin in 2025, resulting in a “flattish” FFO-to‑debt trend. | Consistent challenge recognized across periods with persistent concerns over delayed cost recovery. |
Supply Chain Disruptions Impacting Project Timelines | Q3 described proactive measures such as queuing for long‑lead equipment and managing longer transformer lead times. Q1 and Q2 did not detail this topic. | Q4 acknowledged supply chain disruptions but stressed a diversified supplier base and active supplier engagement to maintain project timelines. | Ongoing concern now addressed with improved mitigation strategies and proactive management. |
Overall Operational and Financial Performance Resilience | Q1 showcased strong operational performance, including successful nuclear projects and improved EPS. Q2 noted resilience during record‑setting weather and strong customer additions. Q3 emphasized recovery after a historic storm, crediting team dedication. | Q4 reported 11% EPS growth, increased retail electricity sales, significant customer growth, and an ambitious long‑term growth outlook supported by a strong capital investment plan. | Consistent strong resilience with uniform positive sentiment across all periods. |
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Earnings Growth Outlook
Q: Can you elaborate on reaching the higher end of the 5%-7% growth range?
A: Management reaffirmed the long-term earnings growth outlook of 5%-7%, noting that incremental fundamentals are adding durability to the profile. With potential incremental capital, they are solidly within the range and could sustain near the top. By 2027, they might start the growth rate from a higher sustained point due to ramped-up capital spending and revenues from large load customers, once interest cost headwinds subside. -
Incremental CapEx Opportunities
Q: How should we think about the $10-$15 billion investment opportunities above the plan?
A: The additional $10-$15 billion in capital investments is substantially all at Georgia Power, with up to $14 billion associated with it. Regulatory processes are ongoing, and clarity is expected around July. The likelihood of needing to build new capacity is greater due to tighter excess capacity availability, increasing potential capital expenditures. -
Southern Power's Earnings Contribution
Q: What is Southern Power's earnings trajectory and potential impact on growth?
A: Southern Power's assets are largely under long-term contracts through the end of the decade, contributing to earnings durability. Opportunities for recontracting, building new brownfield gas plants, and repowering projects could add value into the next decade. While Southern Power will remain a steady contributor, these opportunities support the 5%-7% growth trajectory over the long term. -
Interest Cost and Refinancing Impact
Q: Why is 2027 significant for potential rebasing, and how do interest costs affect this?
A: The year 2027 is significant because capital spending ramps up, and revenues from large load customers materialize, while interest cost headwinds from refinancing debt at higher rates diminish. Early years are weighted down by refinancing existing securities at rates 150 to 200 basis points higher. Once past this, opportunities become more tangible, supporting potential rebasing of growth rates. -
Data Center Contracting Changes
Q: What changes have been made in contracting with data centers in Georgia?
A: The Georgia Public Service Commission approved new rules requiring large load customers (over 100 megawatts) to share risks and costs, including credit requirements, longer-term contracts (5 to 15 years), minimum billing, and site-specific costs paid by customers. These changes weed out speculative projects, ensuring focus on more certain, committed customers. -
New Nuclear Opportunities
Q: What are your thoughts on building new nuclear plants?
A: Management emphasized that the country needs more nuclear energy, as it's the best long-term fit for industry growth. While acknowledging the risks, they plan to advocate for nuclear expansion by highlighting the successful operation of Vogtle Units 3 and 4, efficiency gains, and the value provided by nuclear in supporting growth. Risks must be mitigated, possibly through federal support or private participation. -
CapEx Increase and Equity Needs
Q: How does the CapEx increase relate to equity requirements?
A: The increase in CapEx by $13 billion leads to an equity need of roughly 20% of the capital increase. Management attributes this lower percentage to cash flow improvements, tax credit monetization, and a pragmatic long-term approach to objectives. There's no need to react hastily to hit specific numbers annually as long as long-term objectives and discipline remain intact. -
Gas Turbine Availability
Q: What is the current access to gas turbines for new projects?
A: Despite heavy demand and supply chain challenges, the company feels confident in its access to gas turbines due to diversified suppliers and strong relationships with OEMs. They are paying reservation fees to secure equipment and are engaging in ongoing conversations to meet their future needs. Similar efforts are being made with EPC providers. -
Generation vs. Transmission CapEx
Q: Why is there a lower generation CapEx and higher transmission CapEx in 2028-2029?
A: The company has better visibility on transmission investments, which can't be outsourced in their vertically integrated market. Generation investments carry optionality and are subject to resource determination processes. The potential $10-$15 billion in capital includes significant generation resources, which will align with transmission investments once they materialize, explaining the current disparity in CapEx allocation.
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