PPL Corporation
(
PPL
) reported second-quarter 2012 pro forma earnings per share of 51
cents, beating the Zacks Consensus Estimate of 40 cents and the
year-ago earnings of 45 cents per share.
GAAP earnings during the quarter were 46 cents versus 35 cents
in the year-ago quarter. The difference of 5 cents between GAAP and
pro forma earnings was due to a charge of 5 cents for
energy-related economic activities, 1 cent charge for acquisition
related adjustments, 1 cent charge related to discontinued
operations, and coal contract modification related charge of 1
cent.
This was partially offset by a gain of 2 cents associated with
foreign currency-based economic hedges and 1 cent gain for
acquisition-related adjustments.
Revenue
In the reported quarter, the company's total revenue was $2,549
million compared with $2,489 million in the prior-year quarter. The
growth in revenue was driven by higher utility, realized wholesale
energy marketing and energy-related businesses revenues, partially
offset by lower unregulated retail electric and gas revenue.
The quarterly revenue surpassed the Zacks Consensus Estimate of
$2,094 million.
Segment Results
Kentucky
Regulated Segment:
In second-quarter 2012, earnings from this segment came in at 7
cents compared with 6 cents in the year-ago quarter. This
year-over-year increase was driven by warmer weather and retail
volume growth due to production-level increase by few of the
company's larger industrial clients.
U.K.
Regulated Segment:
In the reported quarter, earnings from this segment were 31 cents
compared with 21 cents in the year-ago quarter. This year-over-year
rise was primarily driven by decline in financing costs and income
taxes, additional operating performance from the Western Power
Distribution ("WPD") Midlands businesses, and increase in delivery
revenues at WPD Southwest and South Wales.
These positives were partially offset by higher operation and
maintenance expenses, rise in U.S. income taxes, unfavorable
currency exchange rate and dilution of a penny per share.
Pennsylvania
Regulated Segment:
In second-quarter 2012, earnings from this segment were 5 cents
compared with 6 cents in the year-ago quarter. This year-over-year
decline was due to rise in operation and maintenance expenses.
Supply Segment:
In the reported quarter, earnings from this segment were 8 cents
compared with 12 cents in the year-ago quarter. The year-over-year
decline was due to higher depreciation charges, lower Eastern and
Western energy margins, higher operation and maintenance expense
mainly at the Susquehanna nuclear power plant, and dilution of 4
cents per share.
Operational Update
Total operating expenses in the reported quarter were $2 billion
versus $1.9 billion in the year-ago quarter.
In second-quarter 2012, the company's operating income was $572
million compared with $595 million in the prior-year quarter.
Interest expenses were $236 million in second-quarter 2012
versus $264 million in the year-ago quarter.
Financial Update
Cash and cash equivalents as of June 30, 2012 were $981 million
compared with $1,202 million as of December 31, 2011.
As of June 30, 2012, long-term debt was $18.7 billion versus $18
billion as of December 31, 2011.
In six months, the company generated cash from operating
activities of $947 million compared with $814 million in the
prior-year quarter.
Full-Year 2012 Guidance
For full-year 2012, PPL Corporation reiterated its pro forma
earnings guidance in the range of $2.15-$2.45 per share and GAAP
earnings guidance in the band of $2.33 -$2.63 per share.
PPL expects full-year 2012 earnings will lower than 2011
earnings due to decline in energy margins in supply segment,
partially offset by full-year earnings from the Midlands operations
in the UK.
The company reported its mid-point pro forma earnings in
full-year 2012 from different segments. Kentucky Regulated, U.K.
Regulated, Pennsylvania Regulated and Supply segments are expected
to generate pro forma earnings of 33 cents, $1.07, 20 cents and 70
cents, respectively, compared with 40 cents, 87 cents, 31 cents and
$1.15, respectively.
In 2012, PPL's earnings from Kentucky Regulated, Pennsylvania
Regulated and Supply segments are expected to decline due to higher
operation and maintenance expenses, an increase in depreciation
charges, lower capacity prices and energy margins, and a rise in
fuel charges. These were partially offset by improve in U.K.
Regulated segment earnings due to rise in electricity delivery
revenue and four extra months of earnings from the Midlands
operations.
At the Peer
The AES Corporation
(
AES
), which competes with PPL Corporation, announced its
second-quarter 2012 adjusted earnings of 18 cents per share versus
29 cents per share in the year-ago quarter. This decline was
primarily due to higher effective tax rate, lower plant
availability in Chile, unfavorable movements in foreign exchange
rates and the final impact of July 2011 tariff reset at Eletropaulo
in Brazil.
These negatives were partially offset by the contributions of
new businesses in the U.S., Bulgaria, and Latin America. Quarterly
earnings missed the Zacks Consensus Estimate of 26 cents.
In the reported quarter, AES Corporation's revenue decreased
$243 million year over year to $4,192 million. Top line also fell
short of the Zacks Consensus Estimate by $500 million.
Our View
PPL Corporation's results in second-quarter 2012 surpassed our
expectations on the back of strong contribution from its utility,
realized wholesale energy marketing and energy-related
operations.
PPL Corporation has diverse asset portfolio, which are adaptable
to a wide range of market scenarios. In addition, PPL continues to
follow steady acquisitions program. We believe the company's
inorganic growth strategy along with development of existing assets
will strengthen PPL's overall portfolio. These initiatives will
subsequently improve the company's financial position by increasing
proportionate size of its regulated business.
However, we are skeptical about the company's performance in
Kentucky Regulated, Pennsylvania Regulated and Supply segments in
2012. These segments are continually dragging down the company's
overall result. In addition, unpredictable weather patterns and
strict federal regulations are also matters of concern.
Allentown, Pennsylvania-based PPL Corporation generates and
delivers electricity and natural gas to more than 10 million
customers in the U.S. and UK. PPL Corporation currently retains a
Zacks #3 Rank, which translates into a short-term Hold rating.
AES CORP (AES): Free Stock Analysis Report
PPL CORP (PPL): Free Stock Analysis Report
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