If there is one sector immune to all the fear around China and commodity prices, it is utilities, right? The market thinks so: They are the best performing sector in the S&P 500 so far this year and one of only two in positive territory.
Which makes Southern Co.'s latest quarterly results a bit troubling.
It isn't the actual earnings, which beat expectations, nor the company's lowered guidance, which it blamed on Washington's extension of bonus depreciation reducing its rate base. It's this:
About a third of Southern's retail electricity sales go to industrial customers. These fell by 2.74 percent, year over year, in the fourth quarter, the biggest such decline since the last recession.
Growth in Southern's industrial electricity sales has been slowing or negative for the past five quarters. On Wednesday's call with analysts, the company said that while all the main industrial segments it tracks looked good heading into 2015, seven of them had turned negative by the fourth quarter. Southern singled out the chemicals, primary metals and paper industries as having lower demand.
And what were the factors behind this? A stronger dollar, China's struggles and lower commodity prices -- not exactly what you'd expect to hear about from a company that makes its money selling electricity in places like Georgia and Alabama.
Blaming the economy, especially that nebulous global one, is an old standby for executives when numbers turn red. But Southern isn't alone.
On the same day, Exelon reported weather-adjusted declines for large commercial and industrial power sales in two of its large utilities, ComEd and PECO, of 4 percent and 1.8 percent, respectively.
American Electric Power, with service territories stretching from Michigan to Texas, last week reported a similar trend for industrial customers outside of the oil and gas sectors, with the latter having held up surprisingly well, while primary metals producers and exporters have suffered.
From a longer-term perspective, there is clearly a worrying trend in sales of electricity to U.S. industrial customers across the board. The chart below shows how these have moved, year over year, using rolling three-month volumes:
Granted, the latest decline isn't the deepest. But it certainly bears an unsightly resemblance to all the other recessionary cyclical downturns seen over the past thirty-odd years.
Southern says it expects its industrial sales to stabilize and rise by 1 percent this year. It's also seeing favorable trends in its commercial business due to the proliferation of power-hungry server farms and other wonders of the digital age.
Yet for any investors worried about weakening global economic trends and how they may spill into the U.S., utility earnings season is proving to be a surprising source of concern.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Liam Denning in San Francisco at firstname.lastname@example.org
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