Southern beat its earnings forecast. How will it fund more growth?
The utility raised its profit outlook and identified an $85 billion investment plan. A comparison with July shows how much more equity funding is still to be arranged.
Southern Company, the electric and gas utility group, expected to earn $1.65 a share on an adjusted basis in the third quarter. It delivered $1.94, then raised its full-year outlook to $4.70. Stronger electricity use, warmer weather and higher revenue from large customers supported the increase.
The next step requires more investment. Southern now identifies about $85 billion of capital spending through 2030, above its $81 billion base plan. About $2 billion of equity funding remains to be arranged over that period.
A higher earnings target
The original quarterly estimate appeared in Southern's July earnings presentation. At that point, management expected annual adjusted earnings near or at the top of its $4.50–$4.60 range. The November outlook moves above that range.
Southern's fourth-quarter estimate is 30 cents a share. These adjusted figures exclude charges from replacing equipment at wind farms and costs tied to retiring debt. Reported third-quarter basic earnings were $1.77 a share, up from $1.55 a year earlier.
Growth extends beyond the weather
Retail electricity sales grew 3.5% after adjusting for weather, compared with 2.3% growth in the second quarter. Residential and industrial sales strengthened. Commercial growth remained strong at 7.3%, although that was slightly below the previous quarter's 7.4%.
Data centers are an important part of the demand picture. Southern says their electricity use rose 59% from a year earlier in the third quarter. Agreements with large power users cover about 21 gigawatts of eventual demand, up from 17 gigawatts in July. The figure includes customer agreements still under regulatory review.
Warmer weather contributed 15 cents to the 34-cent year-over-year rise in adjusted earnings per share, according to Southern. Higher operating costs and a larger share count offset part of the gains.
More investment needs more funding
The roughly $4 billion identified above the base capital plan includes power-plant upgrades and a gas-pipeline expansion. Some of those projects were previously disclosed. Southern also sees opportunities that could eventually push the plan toward $100 billion, depending on further projects.
Research by Ticker Byline shows that Southern's equity funding still to arrange through 2030 has risen from about $1.1 billion in July to about $2 billion in November. The July calculation included the base plan and previously announced Southern Power gas upgrades; the November figure covers the broader $85 billion identified plan.
Management expects to fund incremental capital investment with roughly 40% equity. Its funding plan combines ordinary share sales, securities that convert into shares and debt that rating agencies partly count as equity.
The cash accounts show the scale of construction already underway. In the first nine months, operating cash flow rose to $7.88 billion from $7.21 billion, while cash property additions increased to $10.20 billion from $8.70 billion. Southern separately received $559 million of contributions toward construction, recorded as an investing cash inflow.
Common-stock issuance brought in $3.84 billion of cash during those nine months. Southern says the larger share count offset 9 cents of the year-over-year increase in quarterly adjusted earnings per share.
The Southern Company profile follows its earnings, investment plans, cash flow and financing.