Earnings Preview: PPL Corporation

PPL Corporation (PPL - Analyst Report), a diversified utility holding company, is scheduled to report its third-quarter 2012 financial results before the market opens on November 8, 2012.

Second-Quarter Snapshot

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.

In the reported quarter, the company’s total revenue was $2,549.0 million compared with $2,489.0 million in the prior-year quarter. The quarterly revenue surpassed the Zacks Consensus Estimate of $2,094.0 million. The year-over-year 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.

Zacks Consensus

The Zacks Consensus Estimate for third-quarter 2012 earnings per share is 68 cents, down from 76 cents in the year-ago quarter. Currently, the Zacks Consensus Estimate for the company’s earnings per share ranges between 60 cents and 83 cents.

For full-year 2012, the Zacks Consensus Estimate for earnings per share stands at $2.36, lower than the prior-year earnings of $2.73 per share. The current Zacks Consensus Estimate for full-year 2012 earnings per share ranges from $2.30 to $2.48 per share.

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.

The company expects its full-year 2012 earnings to lower than 2011 earnings due to a decline in energy margins in supply segment; partially offset by full-year earnings from the Midlands operations in the UK.

In addition, PPL Corporation reported the mid-point of its full-year 2012 pro forma earnings from different segments. Kentucky Regulated, UK 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 its earlier projections of 40 cents, 87 cents, 31 cents and $1.15, respectively.

In 2012, the company’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 an improvement in UK Regulated segment earnings due to a rise in electricity delivery revenue and four extra months of earnings from the Midlands operations.

Estimate Revisions Trend

Agreement

For third-quarter 2012, we have observed that none of the estimates have moved either upward or downward direction in the last 7 days. However, we have witnessed 2 upward as well as downward movements in the last 30 days.

For full-year 2012, we have observed no estimate revisions in the last 7 days. For the last 30 days, 4 estimates have moved upward whereas none of the estimates went in the downward direction.

Magnitude

In the last 30 days, the Zacks Consensus Estimate for third-quarter 2012 earnings per share remained unchanged at 68 cents.

For full-year 2012, the Zacks Consensus Estimate for earnings per share remained unchanged at $2.36 in the last 7 days whereas the Zacks Consensus Estimate for earnings per share increased by a penny to $2.36 in the last 30 days.

Surprise History

With respect to earnings surprises, PPL Corporation has topped the Zacks Consensus Estimate in each of the last four quarters. Over the last four quarters, the surprise ranges from 2.94% to 27.50% with an average of 13.37%.

Our Recommendation

We view PPL Corporation as an organization with well diversified asset portfolio following smart business models, which are adaptable to a wide range of market coverage. The company’s diverse generation mix positions it to benefit from proposed Environmental Protection Agency (“EPA”) regulations.

In addition, PPL Corporation expects to achieve stable, long-term growth from its regulated electricity delivery businesses through efficient operations, and strong customer-base and regulatory relations.

However, we are skeptical about impacts of natural calamity and higher operating expenses, which might negatively impact the company’s near-term results.

PPL Corporation currently has short-term Zacks #3 Rank (Hold rating).

Allentown, Pennsylvania-based PPL Corporation generates and delivers electricity and natural gas to more than 10 million customers in the U.S. and UK. With a market capitalization of $16.73 billion, the company has 17,722 full time employees. PPL Corporation competes with The AES Corporation (AES - Analyst Report).