PPL Corporation’s (PPL) first quarter adjusted earnings of 84 cents per share comfortably beat the Zacks Consensus Estimate of 73 cents (15% positive surprise). However, operating results for the first quarter were significantly below the year-ago earnings of 94 cents.
PPL Corporation’s earnings in the first quarter compared with the year-ago period were mainly impacted by the company’s June 2010 issuance of common stock to fund the November 2010 acquisitions of Louisville Gas and Electric Company and Kentucky Utilities Company.
Revenue
Net revenue of $2.9 billion in the quarter was higher than the Zacks Consensus Estimate of $2.6 billion but declined 3% from $3.0 billion in the year-ago period.
Segment Results
In the first quarter, PPL’s newly added segment, Kentucky Regulated, earned operating earnings of 15 cents per share. Earnings per share from the company’s other three segments: Supply, International Regulated and Pennsylvania Regulated were 42 cents, 16 cents and 11 cents, respectively, down 34% and down 20% and up 10%.
Earnings improvement at the company’s Pennsylvania Regulated segment was primarily due to higher distribution revenue as a result of the distribution base rate increase effective January 1, 2011, partially offset by higher operation and maintenance expenses.
However, Supply segment’s earnings suffered due to lower energy margins as a result of lower Eastern energy and capacity prices and a dilution of 12 cents per share, while the International Regulated earnings were flat compared to last year after adjusting for a dilution of 4 cents. In the International Regulated segment, higher delivery revenues were offset by higher financing costs and higher income taxes.
Financials
As on March 31, 2011, PPL Corp. had cash and cash equivalents of $1.2 billion. Long-term debt at quarter-end was $12.24 billion compared to $12.16 billion at the end of 2010.
Outlook
Based on PPL’s strong first-quarter results and the Kentucky and U.K. acquisitions, the company believes it is on track to achieve its targeted 2011 adjusted earnings forecast of $2.50 to $2.75 per share. PPL’s reported earnings forecast for 2011 is $2.48 to $2.73 per share, including one-time items recorded in the first quarter, but excluding subsequently incurred transaction-related costs for the WPD Midlands acquisition.
Individually, the company expects the Supply, International Regulated, Pennsylvania Regulated and Kentucky Regulated business to contribute $1.09, 86 cents, 27 cents and 41 cents, respectively, to 2011 projected earnings.
Our Take
Going forward, we believe a full year of earnings from the Kentucky Regulated segment and a partial year of earnings from the U.K. acquisition are the largest positive contributors to PPL’s 2011 projected earnings, offset by dilution related to its June 2010 and April 2011 issuances of common stock, as well as expected lower wholesale energy margins.
We maintain our ‘Neutral’ recommendation on PPL shares, supported by a short term Zacks #3 Rank (Hold).
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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