PPL Corp. (PPL), today, posted fourth quarter and full-year 2010 earnings from continuing operations, which showed profound improvement compared to the respective year-ago periods and the Zacks Estimates.
PPL Corp.’s fourth quarter earnings of 83 cents per share was 43% (positive surprise) above the Zacks Consensus Estimate of 58 cents and nearly 60% above the year-ago earnings of 52 cents.
For the full-year 2010, PPL reported operating earnings of $3.13, outperforming the Zacks Consensus Estimate of $2.87 and also exceeding last year’s earnings of $1.95. Full-year earnings also outplayed the company’s latest 2010 guidance.
The improvement in the company’s earnings for both the periods was driven by the robust performance at the Supply segment and additional earnings contribution from the Kentucky regulated segment. However, PPL Corp. pointed out that the company’s earnings for the quarter and full-year were impacted by dilution of shares in June 2010 on offering of common stock and equity units in connection to the acquisition of E.ON U.S., owner of Louisville Gas and Electric Company and Kentucky Utilities Company.
Revenue
Net revenues of $1.9 billion in the quarter dipped versus the Zacks Consensus Estimate of $2.9 billion but rose 8.9% from $1.7 billion in the year-ago period. Full-year revenue was $8.5 billion, which was below the $9.4 billion Zacks Consensus Estimate but above the $7.4 billion revenues earned in 2009.
Segment Results
In the fourth quarter, PPL Corp. included a new segment called Kentucky Regulated. The company has also renamed its former International Delivery and Pennsylvania Delivery segments to International Regulated and Pennsylvania Regulated segments. However, the Supply segment retains its prior name.
In the reported quarter, earnings per share from PPL’s Supply segment improved by 36 cents (up 156% year over year), earnings from Pennsylvania Regulated rose by 4 cents (down 44%) and earnings at the International Regulated declined 11 cents compared to last year. Earnings from the Kentucky Regulated segment over the period of two months (November- December 2010) summed to 7 cents.
For the full-year, earnings at the company’s three segments: Supply, International Regulated and Pennsylvania Regulated were up 158%, down by 23% and 26%, respectively. Kentucky Regulated earnings for full-year was 6 cents, after adjusting the interest expense associated with the equity units issued in June 2010 related to the acquisition of E.ON U.S
Earnings improvement at the company’s Supply segment was primarily due to significantly higher base-load generation pricing for the eastern region and a lower effective income tax rate.
However, Pennsylvania Regulated earnings suffered due to higher operation and maintenance expense and lower distribution revenue, while the International Regulated earnings slumped due to higher financing costs, higher pension expense and higher income taxes.
Financials
As on December 31, 2010, the company had cash and cash equivalents of $925 million and short-term investments of $163 million. Long-term debt at year end was $12.2 compared to $7.1 billion at the end of 2009.
Outlook
For 2011 and beyond, PPL expects its growing regulated businesses to contribute a large share of its earnings, reducing its relative exposure to commodity market swings. In addition, the company believes its competitive supply segment is well-positioned to benefit from wholesale electricity markets rebound.
PPL Corp. projected full-year 2011 earnings to come in the range of $2.40 – $2.60 per share, with a midpoint of $2.50. Individually, the company expects the Supply, International Regulated, Pennsylvania Regulated and Kentucky Regulated business to contribute $1.25, 47 cents, 31 cents and 47 cents, respectively, to the 2011 projected earnings.
Our Take
PPL Corp.’s fourth quarter and fiscal 2010 results witnessed significant growth in the Supply segment earnings while saw large downside in its International and Pennsylvania Regulated segments. However, the overall earnings recorded solid growth beating the estimates.
PPL Corp. remains hopeful about earnings contribution from its regulated businesses in 2011 and ahead. We see great potential in the company’s Kentucky assets and also expect to see growth from the other regulated segments in 2011.
We maintain our ‘Neutral’ recommendation on PPL shares. However, PPL Corp. currently has a short term Zacks #4 Rank (Sell).
Allentown, Pennsylvania-based PPL Corporation is a diversified utility company, primarily generating and marketing electricity in two key markets − the northeastern and western U.S. The company primarily competes with FirstEnergy Corp. (FE) and Exelon Corp. (EXC).
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