Why Is Southern Co. (SO) Down 33.6% Since Last Earnings Report?

It has been about a month since the last earnings report for Southern Co. (SO). Shares have lost about 33.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Southern Co. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Southern Company (NYSE:SO) Beats on Q4 Earnings, Sales Miss Mark

Power supplier Southern Company reported fourth-quarter 2019 earnings per share (excluding certain one-time items) of 27 cents, surpassing the Zacks Consensus Estimate of 26 cents and the year-ago profit of 25 cents. The robust performance primarily stemmed from positive effects of rates and pricing changes, as well as lower operating expenses.

Leveraging the demographics of its operating territories (as in healthy population and job growth), the firm has been able to consistently expand its regulated business customer base. As part of that plan, Southern Company has added 41,000 residential electric and 30,000 residential gas customers in 2019, underpinning growth.

The Atlanta-based utility’s quarterly revenue – at $4.9 billion – missed the Zacks Consensus Estimate of $5 billion and was 7.9% lower than fourth-quarter 2018 sales on account of loss of revenues from asset dispositions.

Vogtle Updates

Per Southern Company’s latest earnings presentation, it continues to progress toward completing the Units 3 and 4 of the Vogtle nuclear project by the November 2021 and November 2022 regulatory approved in-service dates. The utility also expects no change in the project’s total estimated costs.

Overall Sales Breakup

Southern Company’s wholesale power sales increased 3.2%. However, this was more than offset by a steep fall in retail electricity demand amid strategic sale of certain assets.

Consequently, there was a downward movement in overall electricity sales and usage. In fact, total electricity sales during the fourth quarter were down 6.8% from the same period last year.

Southern Company’s total retail sales decreased 9.8%, with residential and commercial sales going down by 13.9% and 8.3%, respectively. Moreover, industrial sales declined 7.2%.

Expenses Summary

The power supplier’s operations and maintenance cost edged up 2.4% to $1.7 billion, but the utility’s total operating expense for the period – at $4.2 billion – was down 11.2% from the prior-year level. The reduction was primarily on account of lower fuel and purchased power cost, as well as gain on asset sales.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Southern Co. has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Southern Co. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.