Southern Company’s Q2 Outlook: Navigating Near-Term Headwinds for Long-Term Growth

Southern Company (NYSE: SO) has outlined its strategic priorities for 2025, but investors should look past the Q2 2025 EPS guidance of $0.85 to see the bigger picture. While this figure reflects short-term challenges, the utility giant is positioning itself for sustained growth through data center demand, regulatory projects, and a resilient Southeast economy.

Ask Aime: What's Southern Company's 2025 growth plan?

Q1 2025 Results: A Strong Start

Southern Company kicked off the year with robust performance, posting adjusted EPS of $1.23 in Q1, a $0.02 increase over Q1 2024. Revenue hit $7.78 billion, exceeding expectations by $470 million. This beat was driven by colder-than-normal weather in the first quarter, boosting residential electricity sales. However, the company tempered optimism for Q2, citing weather normalization and one-time factors from 2024.

Ask Aime: Southern Company's strategic 2025 priorities and Q1 2025 results reveal a strong start despite short-term challenges.

Q2 2025 Guidance: Headwinds, Not Weakness

The Q2 2025 EPS estimate of $0.85 is 13% lower than the prior-year quarter, but management insists this reflects external factors, not operational decline. Key reasons include:
- Weather Impact: Q2 2024 saw unusually warm temperatures, which inflated electricity demand. This year’s forecast assumes “normal” weather, reducing year-over-year comparisons.
- Timing-Related Gains: A $200 million one-time transaction in Georgia’s transmission system boosted Q2 2024 results, but no equivalent event is expected in 2025.

Growth Drivers to Watch

1. Data Center Boom:
   Southern Company’s pipeline of 50+ gigawatts of potential load through the mid-2030s remains intact. Q1 data center sales surged 11% year-over-year, with projects like the Hyundai Meta plant in Georgia driving industrial demand. This sector is critical to the company’s 5-7% long-term EPS growth target, which could be revised upward by 2027 as projects materialize.

2. Georgia Power’s Regulatory Momentum:
   The 2025 Integrated Resource Plan (IRP) aims to modernize infrastructure, including extending plant life at nuclear and natural gas facilities. A 13-gigawatt RFP process for renewable energy projects is also advancing, with bids expected by mid-2025. These initiatives could unlock new capital projects and regulatory approvals that boost future EPS.

3. Southeast Economic Strength:
   The region’s economy is thriving, with $11 billion in capital investments and 4,000 new jobs announced in Q1 alone. Unemployment in Southern Company’s service areas remains below the national average, supporting stable retail sales growth.

Risks and Mitigation Strategies

• Tariff-Related Costs: Potential increases of 1-3% are being managed via supplier diversification and contractual safeguards.
• Regulatory Delays: Georgia’s IRP and RFP outcomes could affect timelines, but management has a history of navigating such processes successfully.

Financial Resilience and Dividend Strength

Southern Company’s balance sheet remains a pillar of stability. The company has issued $2.2 billion in long-term debt and raised $2.4 billion through junior subordinated notes, supporting its $4 billion 5-year equity plan. Dividend strength is also a highlight: the 8-cent per share increase in Q1 2025 extends its 78-year streak of annual dividend hikes, with a current yield of 3.22%.

Conclusion: A Temporary Dip, Not a Decline

While Q2 2025’s $0.85 EPS reflects short-term headwinds, Southern Company’s long-term narrative remains compelling. The data center pipeline, regulatory tailwinds, and Southeast economic resilience position it to outperform peers. Key catalysts in 2025 include:
- Finalizing the Georgia Power IRP by mid-year.
- Securing RFP awards for 13 gigawatts of new energy resources.
- Maintaining its 5-7% EPS growth target through disciplined capital allocation.

Investors should focus on the 50-gigawatt load pipeline and the company’s $17 billion capital plan for 2025-2027, which include projects like plant upgrades and grid modernization. With a track record of 78 consecutive years of dividend growth, Southern Company is a utility stock built for the long haul, even as it navigates temporary weather and regulatory headwinds.

In a sector where stability is prized, Southern Company’s blend of regulated earnings, growth projects, and dividend discipline makes it a top pick for income investors—and a company to watch as the U.S. energy landscape evolves.