PPL Corporation (NYSE: PPL) on Thursday (8/5) reported increases in both second-quarter and first-half earnings for 2010, compared with the same periods of 2009.
PPL’s reported earnings for the second quarter, which include special item charges, were $0.22 per share, compared with a loss of $0.02 per share a year ago. For the first six months of 2010, PPL’s reported earnings were $0.88 per share, compared with $0.62 per share a year ago.
Second-quarter earnings from ongoing operations increased to $0.62 per share, compared with $0.32 per share a year ago. For the first six months of 2010, earnings from ongoing operations were $1.56 per share, compared with $0.91 per share a year ago.
“As expected, supply segment earnings drove the improvement in our financial performance for the current quarter and six-month period,” said James H. Miller, PPL’s chairman, president and chief executive officer. “We remain on target to achieve significantly improved earnings in 2010 as compared with 2009.
“During the quarter, we took significant steps toward closing the acquisition of E.ON U.S. We successfully completed the equity portion of the financing of the acquisition, and we are on schedule for all required regulatory filings, positioning us to close the transaction later this year,” Miller said.
In late June, PPL raised approximately $3.5 billion in net proceeds through the sale of common stock and equity units to finance a major portion of the acquisition.
“We remain confident this acquisition will increase shareowner value in the long term as we grow the size of our regulated businesses, while retaining the upside opportunities from our generation and marketing businesses as energy market fundamentals improve,” Miller said.
The company is adjusting its 2010 earnings forecast solely to reflect dilution associated with its late June offering of common stock and equity units. PPL’s prior 2010 forecast of $3.10 to $3.50 per share in earnings from ongoing operations is being adjusted to $2.70 to $3.05 per share. At the $3.30 per share mid-point of the prior 2010 forecast of earnings from ongoing operations, dilution would be $0.43 per share. The 2010 forecast of reported earnings per share, $2.42 to $2.82, reflecting special items recorded through June 30, 2010, is being adjusted to $2.10 to $2.45 per share.
Second-Quarter 2010 Earnings Details
PPL’s reported earnings in the second quarter of 2010 included total special item charges of $0.40 per share. The special item charges include: a charge of $0.20 per share related to the sale of certain full-requirement sales contracts, generating approximately $156 million in additional cash to finance the E.ON U.S. acquisition; a charge of $0.14 per share for energy-related economic activity; a charge of $0.05 per share related to financing and other costs associated with the pending E.ON U.S. acquisition; and a charge of $0.01 per share related to the impairment of emission allowances. The second quarter of 2009 reflected total special item charges of $0.34 per share.
Reported earnings are calculated in accordance with generally accepted accounting principles (GAAP). Earnings from ongoing operations is a non-GAAP financial measure that is adjusted for special items. Special items include the impact of energy-related economic activity (principally changes in fair value of economic hedges and the ineffective portion of qualifying cash flow hedges), as well as other impacts fully detailed at the end of this news release.
First-Half and Second-Quarter 2010 Earnings by Business Segment
The following chart shows PPL’s earnings by business segment for the second quarter and first half of 2010, compared with the same periods of 2009.
Key Factors Impacting Business Segment Earnings from Ongoing Operations
Supply Segment
PPL’s supply business segment primarily consists of the domestic energy generation and marketing and trading operations of PPL Energy Supply.
Earnings from ongoing operations for PPL’s supply business segment increased in the second quarter of 2010 by $0.34 per share compared with a year ago. This increase resulted primarily from significantly higher Eastern baseload generation pricing compared with prices realized in 2009. Partially offsetting these positive earnings factors were higher operation and maintenance expense and higher depreciation.
Earnings from ongoing operations for PPL’s supply business segment during the first six months of 2010 increased by $0.77 per share compared with a year ago. This increase resulted primarily from the same factors that drove the second-quarter 2010 results, reduced by the effects of a gain recorded in 2009 on a debt repurchase.
Pennsylvania Delivery Segment
PPL’s Pennsylvania delivery business segment includes the regulated electric delivery operations of PPL Electric Utilities.
Earnings from ongoing operations for PPL’s Pennsylvania delivery business segment declined in the second quarter of 2010 by $0.01 per share compared with a year ago. This decline was the result of higher operation and maintenance expense and a redemption premium on PPL Electric Utilities’ preferred stock, partially offset by higher transmission revenue.
Earnings from ongoing operations for PPL’s Pennsylvania delivery business segment declined during the first six months of 2010 by $0.05 per share compared with a year ago. This decline was the result of lower distribution margins compared with a year ago and higher operation and maintenance expenses, partially offset by higher transmission revenue.
International Delivery Segment
PPL’s international delivery business segment primarily includes the U.K. regulated electric delivery operations of Western Power Distribution.
Earnings from ongoing operations for PPL’s international delivery business segment declined in the second quarter of 2010 by $0.03 per share compared with a year ago. This decline was the result of higher financing costs, higher U.K. income taxes, and higher operation and maintenance expenses, partially offset by higher electric delivery revenues and more favorable foreign currency effects, which include the effects of currency exchange rates and foreign currency hedging instruments.
Earnings from ongoing operations for PPL’s international delivery business segment declined during the first six months of 2010 by $0.07 per share compared with a year ago. This decrease resulted primarily from the same factors that drove the second-quarter 2010 results.
Supply Segment
PPL projects higher earnings from its supply business segment in 2010 compared with 2009, due to strong growth in energy margins. The forecast for strong growth in energy margins is based on hedged power and fuel prices, as well as established capacity prices in the PJM Interconnection. These positive factors are expected to be partially offset by higher depreciation, higher financing costs, and higher operation and maintenance expenses.
Pennsylvania Delivery Segment
PPL projects lower earnings from its Pennsylvania delivery business segment in 2010 compared with 2009, primarily driven by higher operation and maintenance expenses, partially offset by lower financing costs.
International Delivery Segment
PPL projects lower earnings from its international delivery business segment in 2010 compared with 2009 as a result of higher income taxes, higher operation and maintenance expenses, and higher financing costs. These negative factors are expected to be partially offset by higher electric delivery revenues and more favorable foreign currency effects, which include the effects of currency exchange rates and foreign currency hedging instruments.
PPL Corporation, headquartered in Allentown, Pa., controls or owns nearly 12,000 megawatts of generating capacity in the United States, sells energy in key U.S. markets and delivers electricity to about 4 million customers in Pennsylvania and the United Kingdom.
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
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(Note: All references to earnings per share in the text and tables of this news release are stated in terms of diluted earnings per share.)
