PPL Corporation’s (PPL) fourth quarter earnings of 70 cents per share were 8 cents higher than the Zacks Consensus Estimate of 62 cents but fell short of the year-ago results of 83 cents.
GAAP earnings during the quarter were 69 cents versus 73 cents in the year-ago quarter. The difference between GAAP and operating earnings of 1 cent was due to the net effect of a 12 cent charge in the international regulated business and a gain of 11 cents from the supply business.
For the full-year 2011, PPL reported operating earnings of $2.72 per share, outperforming the Zacks Consensus Estimate of $2.65 but falling short of last year’s earnings of $2.65 per share.
The company reported strong results across all its business segments. However, PPL Corp. pointed out that the company’s full-year earnings were impacted by 75 cents due to issuance of shares in June 2010 and April 2011. The new shares were issued to fund the acquisitions of regulated utility operations in Kentucky and the United Kingdom.
Revenue
The quarterly total revenue of $4.2 billion surpassed the Zacks Consensus Estimate of $3.4 billion and was substantially higher than $1.8 billion reported in the year-ago period.
Full-year revenue was $12.74 billion, which surpassed both the Zacks Consensus Estimate of $11.5 billion and $8.5 billion of revenues generated in 2010.
Segment Results
In the fourth quarter, earnings from the Kentucky Regulated segment were 6 cents which included the diluted impact of 1 cent from share issuance.
In the reported quarter, earnings per share from PPL’s Pennsylvania Regulated segment rose by 5 cents from the year-ago period. The results were driven by the 2011 distribution base rate increase and a reduction in operating and maintenance expenses.
In the reported quarter, earnings from the International Regulated segment improved by 21 cents from the comparable period last year. The year-over-year growth was attributable to the strong results of the Midlands businesses and higher delivery revenues at WPD's legacy delivery operations.
In the reported quarter, earnings from the Supply segment fell by 38 cents from the year-ago quarter. The year-over-year decline was due to lower coal generation, Susquehanna turbine blade-replacement outages and lower Eastern energy margins as a result of lower energy and capacity prices.
Operational Update
Operating expenses in the reported quarter were $3.35 billion versus $1.22 billion in the year-ago quarter.
Despite an increase in expenses, the higher revenue during the quarter benefited the operating margin of the company. Operating income was $859 million compared with $642 million in the year-ago quarter.
Interest expenses for 2011 were $912 million versus $593 million in 2010. The increase in expenses was attributable to the higher debt level.
Financial Update
As of December 31, 2011, the company had cash and cash equivalents of $1,202 million versus $925 million as of December 31, 2010.
Long-term debt at year end was $17.99 billion compared with $12.16 billion at the end of 2010.
Cash from operating activities in 2011 was $2,507 million versus $2,033 million in 2010.
Outlook
PPL Corp. projected full-year 2012 earnings to come in the range of $2.15 – $2.45 per share, with a midpoint of $2.30. The company expects 70% of the earnings to be generated from its regulated business, up from a 58% contribution in 2011.
Earnings this year are expected to decline from the 2011 level of $2.72 affected by lower margins from the company’s competitive business.
Individually, the company expects the Supply, International Regulated, Pennsylvania Regulated and Kentucky Regulated businesses to contribute 71 cents, $1.04, 21 cents and 34 cents, respectively, to 2012 projected earnings.
Peer Comps
Exelon Corporation (EXC), which competes with PPL Corp., announced operating earnings for the fourth quarter 2011 of 82 per share versus 96 cents per share in the year-ago quarter. Earnings missed the Zacks Consensus Estimate of 88 cents by 6 cents.
2011 operating earnings of the company were $4.16 per share compared with $4.06 per share in 2010. The results also missed the Zacks Consensus Estimate of $4.20.
Our View
We appreciate the initiatives taken by the company to increase shareholder value by increasing the quarterly dividend. The company decided to hike the quarterly dividend by 1 cent to 36 cents, payable on April 2, 2012, to shareowners of record as of March 9, 2012.
Though PPL Corp. beat our expectation for both the quarter and the fiscal, we are worried about the performance of the company’s Supply segment in 2012. This segment dragged down the overall results in 2011 prompting the company to take a more cautious stand for 2012.
Based in Allentown, Pennsylvania, PPL Corp. generates and delivers electricity and natural gas to nearly 5.2 million consumers in the United States and United Kingdom. PPL Corp. retains a Zacks #3 Rank which translates into a short-term Hold rating.
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