Southern Co Earnings Call Nuggets: 2013 Earnings Guidance and CapEx Details

Southern Co (NYSE:SO) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

2013 Earnings Guidance

Greg Gordon – ISI Group: First question is on sort of near-term, long-term earnings aspiration. I know that you guys expect GDP growth to be better in the second half what can/would you do if we get into the deep into the third quarter and we are still seeing economic conditions sort of below your expectations? Do you have the ability to manage your cost profile such that we could still be comfortable with this year’s earnings guidance?

Art P. Beattie – EVP and CFO: Greg, we kind of looked at the sensitivities around that. Of course, weather in the first half was less than what we expected to be and we flexed around O&M to offset some of that. As we look at the end of the year, if I were to assume that we would get (no loan) growth through the remainder of this year. The O&M flex is actually less than what the O&M flex would be last year in terms of our ability to move around that.

Thomas A. Fanning – Chairman, President and CEO: Last year we made up $0.11 of negative weather I think.

Art P. Beattie – EVP and CFO: About 7.5% reduction in on-field O&M from what we had planned.

Thomas A. Fanning – Chairman, President and CEO: So, we feel confident…

Greg Gordon – ISI Group: And then longer term is there a reason why your earnings per share growth rate slide is not in this deck as it was in the first quarter where you are targeting 4% to 6% long-term growth off 2013?

Thomas A. Fanning – Chairman, President and CEO: Not really. Let’s just kind of lay out what we do know. So, if you lay out the equity issuances, that Art described, kind of year-by-year dilutive impact of that this year is like $0.015, next year is like $0.025 and the third year is $0.02 cumulatively that $0.015, ($0.04, $0.06). That’s our best guess at this point. Outside of that we’ve got all of these – as I described in detail we have all of these regulatory proceedings going and you know that the outcome of the Georgia hearings are really important to our forward earnings forecast. So, we are very confident and our forecast for the year, earnings range we described, and as has been our practice and everything else, once we get a little more clarity on these regulatory issues, we will cover long-term guidance and we always, do in our January call.

Greg Gordon – ISI Group: So, when I look at the financing in the CapEx plans, which you’ve alluded to here were $1 billion higher over the next three years relative to the deck that you showed us on the Q4 call. It looks like the majority of that is in generation and I’m presuming that the vast majority of that’s Kemper?

Thomas A. Fanning – Chairman, President and CEO: That’s correct.

Greg Gordon – ISI Group: But you are also somewhat higher on T&D, which obviously gives rate base growth so that’s positive, and there were some other small things. But it looks like the vast majority is the generation, right?

Thomas A. Fanning – Chairman, President and CEO: And the other swing factors will be how active we are at Southern Power.

Greg Gordon – ISI Group: Right, yeah, that was my last part of the question was then those Southern Power numbers are to some degree placeholders for opportunistic, transactions to either build or require assets. Is that right?

Thomas A. Fanning – Chairman, President and CEO: Perfect. That’s it.

CapEx Details

Michael Lapides – Goldman Sachs: Tom, real quickly. Following a little bit on Greg’s question about Southern Power, how much of that CapEx 2.4 billion or so is actually spoken for at this point?

Art P. Beattie – EVP and CFO: Well, we’ve got – we just closed the deal early, I guess, in the first quarter on Campo Verde and the amount of total investment there is about $450 million. So, there will be some equity allocated to that. But the rest are still placeholders and we’re actively working on other projects, but we’re not in position to make any statements at this time.

Thomas A. Fanning – Chairman, President and CEO: You know our practice is to only announce stuff when it’s basically done. We’re closed on some things, but we’ll only announce that when we have clarity…

Michael Lapides – Goldman Sachs: Understood. But – it’s an area where if you wanted to – if projects didn’t meet the return hurdles compared to some of the regulated businesses you can alternatively invest in, you could ratchet down CapEx from this number at Southern Power pretty quickly?

Art P. Beattie – EVP and CFO: Sure. The other issue is, as with all of our companies we have maintenance requirements, which requires capital et cetera. But you’re right, to the extent, we want to ratchet back capital at Southern Power that is absolutely at our discretion.

Michael Lapides – Goldman Sachs: Is there anything in the incremental CapEx in the new generation line, incremental related to Vogtle?

Art P. Beattie – EVP and CFO: No.