PPL Corporation (PPL), a Pennsylvania-based diversified utility company engaged in generating and marketing electricity in the Northeastern and Western U.S., reported third quarter adjusted earnings of 76 cents per share, smoothly sailing past the Zacks Consensus Estimate of 69 cents. Operating results in the quarter also inched up 3% from the year-ago earnings of 74 cents.
On a GAAP basis, the company reported an EPS of 76 cents, which included one-time items that had no impact. This compared to third quarter 2010 GAAP EPS of 51 cents, which included net special items charges of 23 cents per share.
Revenue
Net revenue of $3.120 billion in the quarter was above the Zacks Consensus Estimate of $2.896 billion and the year-ago period revenue of $2.179 billion.
Segment Results
In the third quarter, PPL Corp. saw impressive earnings contributions from each of its segments, with the Supply segment leading the way contributing about 47% of total earnings. Following on were the International Regulated segment (29% contribution), and then the Kentucky Regulated segment (17%) and Pennsylvania Regulated (7%).
Earnings per share from the company’s three segments: Supply, International Regulated and Pennsylvania Regulated were 36 cents, 22 cents and 5 cents, respectively, down 33%, up 83% and down 38%. Kentucky Regulated segment, which came into existence in the first quarter, earned operating earnings of 13 cents per share.
Earnings improvement at the company’s International Regulated segment stemmed mainly from the strong operating results at the newly acquired Midlands businesses and higher delivery revenues at WPD's legacy delivery operations, offset by higher income taxes.
Earnings at the Pennsylvania Regulated segment dipped mainly due to higher operation and maintenance expense, including higher net storm restoration expenses; offset by higher revenue as a result of the January 2011 distribution base rate increase.
Supply segment’s third quarter earnings suffered due to lower energy margins partially offset by higher marketing and trading margins and higher baseload generation.
Financials
As of September 30, 2011, PPL Corp. had cash and cash equivalents of $1.5 billion. Long-term debt at quarter-end was $17.7 billion compared to $12.2 billion at the end of 2010.
Outlook
Looking ahead, PPL Corp. remains highly confident of achieving the projected results from its acquired U.K. business, given the significant progress made on the integration since closing the acquisition. Encouraged by the solid performance of its U.K. operations, including the newly acquired Midlands utilities, the company has raised its earnings guidance for full-year 2011.
PPL Corp. raised the lower end of its 2011 adjusted earnings guidance range to $2.55 to $2.75 per share from the previous range of $2.50 to $2.75. The company also revised its GAAP earnings guidance to the $2.44 to $2.64 range.
Our Take
We maintain our Neutral recommendation on PPL, supported by a short term Zacks #3 Rank (Hold). PPL Corp. primarily competes with FirstEnergy Corp. (FE) and Exelon Corp. (EXC).
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