Earnings Scorecard: PPL Corp. – Analyst Blog

Electric utility PPL Corp. (PPL) reported robust first quarter 2010 earnings on April 29, 2010, based on stronger performance of its Supply business. Driven by expectations of significantly higher energy margins primarily based on hedge power and fuel prices, the company reaffirmed its 2010 earnings guidance of $3.10−$3.50 per share. As a result, the estimates of analysts covering the stock remain relatively stable, following the earnings release.

 

 

PPL Corp. reported first quarter 2010 earnings from continuing operations of 94 cents per share, beating the Zacks Consensus Estimate of 90 cents and last year’s profit of 60 cents. Revenues in the quarter decreased 29% year over year to $3,033 million.

 

The better-than-expected earnings during the quarter were due to higher wholesale electricity margins in the company’s energy supply business. However, weaker performances at both Pennsylvania and International Delivery segments hurt earnings slightly.

 

We have discussed the quarterly results at length here: PPL Soars, Reaffirms Outlook

 

 

The overall trend in annual estimates remains mostly stable, with no upside revisions for 2010 in the last 7 and 30 days periods. However, out of 10 analysts, 3 and 5 analysts have lowered their estimates in the last 7 and 30 days, respectively.

 

For 2011, there were no upward revisions in the last 7 days, while 1 out of 9 analysts raised estimates in the last 30 days. Nevertheless, 2 and 4 analysts moved estimates in the opposite direction in the last 7 and 30 days, respectively.

 

The upward revisions in analyst estimates may be attributed to the company’s strong results, positive outlook for the Supply segment and contracted forward hedges. Conversely, the negative estimate revisions are centered round poor performance of the Pennsylvania and International Delivery segments, which were driven by higher operating & maintenance expenses in the quarter.

 

 

Given the number of negative revisions, earnings estimate for fiscal 2010 has fallen by 3 cents over the past month and by 2 cents compared with a week ago. Earnings estimates for fiscal 2011 also show a similar trend, except for the magnitude of decline in estimates. Estimates over the month showed a fall of 6 cents, while the downside was 3 cents from the last week. The current Zacks Consensus Estimates are $3.31 and $3.13 for 2010 and 2011, respectively. The Consensus estimate for 2010 lies with in the company’s guidance range.

 

 

The major positives for PPL Corp. are its attractive location and diverse generation fleet, robust regulated business, strong hedge position and improved credit and cash flow profile, as well as projected dividend hikes.

 

Moreover, PPL’s outlook mostly centers on the proposed acquisition of E.ON US LLC, the parent company of Kentucky Utilities and Louisville Gas & Electric. PPL views its proposed acquisition of E.ON’s utilities as transformative. We expect the acquisition to lower the company’s risk profile, improve revenues, diversify its earnings stream, and reduce commodity sensitivity. The company expects to close the acquisition by year-end, based on regulatory approvals.

 

Additionally, PPL’s fully hedged position for 2010 provides greater earnings and cash flow predictability. The company’s Supply business is likely to be a primary beneficiary of these hedges, which locks higher wholesale energy prices compared to the current forward prices.

 

Looking forward, the Supply segment’s energy margins are expected to expand substantially, while higher depreciation & amortization, higher financing costs, and higher operation & maintenance costs at the Pennsylvania and International Delivery segments are expected to be a drag on 2010 earnings. Considering these factors, the company expects 74% of 2010 earnings to come from the Supply segment, 17% from International and 9% from Pennsylvania Delivery.

 

Furthermore, the timely approval for the company’s purchase of E.ON US utilities continues to be suspect, which could impact PPL’s share price largely. Consequently, we remain on the sidelines with a Zacks #3 Rank (Hold) and maintain our Neutral recommendation like its peers DTE Energy Co. (DTE), CPFL Energia S.A. (CPL) and Cleco Corp. (CNL).