PPL Corporation Reports 2017 Earnings

ALLENTOWN, Pa., Feb. 22, 2018 /PRNewswire/ -- PPL Corporation (NYSE: PPL) on Thursday (2/22) announced 2017 reported earnings (GAAP) of $1.13 billion, or $1.64 per share, compared with $1.90 billion, or $2.79 per share, in 2016.

The company's results for 2017 reflect a loss of $321 million, or $0.47 per share, due to the impacts of U.S. tax reform legislation enacted in December 2017.

Adjusting for special items, including tax reform impacts, earnings from ongoing operations were $1.55 billion, or $2.25 per share, compared with earnings from ongoing operations of $1.67 billion, or $2.45 per share, in 2016. The decrease in ongoing earnings for 2017 compared to 2016 was driven primarily by lower foreign currency exchange rates, lower sales volumes, and higher depreciation and interest expense due to additional capital investments, partially offset by an April 1, 2016 price increase in the U.K., lower operation and maintenance expense primarily from higher pension income in the U.K., higher base electricity and gas rates effective July 1, 2017, in Kentucky and higher transmission earnings in Pennsylvania due to additional capital investments.

The company delivered at the high end of its earnings from ongoing operations forecast range, or $2.25 per share, exceeding its prior midpoint guidance of $2.18 per share due primarily to lower operation and maintenance expense in the U.S. and U.K. and favorable U.S. weather in the fourth quarter. This marks the eighth consecutive year PPL has exceeded the midpoint of its ongoing earnings forecast.

"Once again in 2017, we demonstrated strong execution across our U.S. and U.K. businesses," said William H. Spence, PPL's chairman, president and Chief Executive Officer. "We delivered on our earnings commitments, invested $3.5 billion in infrastructure improvements, provided award-winning customer service, strengthened reliability for our customers and increased our dividend for shareowners."

Looking forward, Spence said the company is well-positioned to deliver competitive earnings growth and dividends as it continues to invest in the future. In addition, he said the company has updated its long-range business plans to reflect the impact of U.S. tax reform on PPL's earnings and cash flow.

Based on these updates, PPL announced a 2018 earnings forecast range of $2.20 to $2.40 per share, with a midpoint of $2.30 per share. The company set a new growth projection of 5 to 6 percent compound annual earnings growth per share from 2018 through 2020 off of its 2018 midpoint. Establishing 2018 as the new baseline coincides with the effective date of tax reform, and the duration of the growth rate coincides with the company's foreign currency hedging program.

PPL's 2018 forecast includes the full impact of tax reform, which is expected to negatively impact earnings by about 3 cents per share and result in reduced utility cash flows. To mitigate the effects on PPL's corporate credit ratings, the company said it plans to issue about $1 billion in equity in 2018, compared with prior guidance for equity issuances of $350 million. The equity needs beyond 2018 will be dependent on a number of factors, with an objective of maintaining PPL's current credit ratings. Spence said the company is confident it can still achieve 5 to 6 percent earnings per share growth from 2018 through 2020 even with the additional planned equity issuances.

Backed by the expected growth of its utilities, PPL announced that it is increasing its common stock dividend to $0.41 per share on a quarterly basis, raising the annualized dividend about 4 percent from $1.58 per share to $1.64 per share. The increased dividend will be payable April 2 to shareowners of record as of March 9. The change marks PPL's 16th dividend increase in 17 years.

"PPL's dividend is secure, and we remain committed to continued dividend growth," Spence said.

PPL also provided an update on its planned infrastructure investment, announcing that the company plans to invest more than $15 billion across its U.S. and U.K. businesses from 2018 to 2022 to make the grid smarter, more reliable and more resilient and to advance a cleaner energy future.

In addition to announcing its year-end earnings results, PPL reported fourth-quarter earnings of $78 million, or $0.11 per share, compared with reported earnings of $465 million, or $0.68 per share, in 2016. The company's 2017 fourth-quarter reported earnings reflect a loss of $321 million, or $0.47 per share, due to adjusting deferred tax assets and liabilities resulting from U.S. tax reform. Adjusting for special items, including the tax reform impacts, fourth-quarter earnings from ongoing operations were $384 million, or $0.55 per share, compared with $409 million, or $0.60 per share, in 2016.  

Fourth-Quarter and Year-to-Date Earnings Details

PPL's reported earnings for 2017 included net special-item after-tax charges of $425 million, or $0.61 per share, due primarily to a $321 million loss in the fourth quarter, or $0.47 per share, as a result of U.S. tax reform, and a $111 million loss, or $0.15 per share, due to foreign currency economic hedges. Reported earnings for 2016 included net special-item after-tax benefits of $228 million, or $0.34 per share, due to foreign currency economic hedges and a reduction in the U.K. corporate income tax rate.

PPL's reported earnings for the fourth quarter of 2017 included net special-item after-tax charges of $306 million, or $0.44 per share, due primarily to the impact of U.S. tax reform, partially offset by a benefit due to foreign currency economic hedges. Reported earnings for the fourth quarter of 2016 included net special-item after-tax benefits of $56 million, or $0.08 per share, from foreign currency economic hedges.

As discussed in this news release, reported earnings are calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP). "Earnings from ongoing operations" is a non-GAAP financial measure that is adjusted for special items. See the tables at the end of this news release for a reconciliation of reported earnings to earnings from ongoing operations, including an itemization of special items.

Key Factors Impacting Earnings

U.K. Regulated Segment 
PPL's U.K. Regulated segment primarily consists of the regulated electricity delivery operations of Western Power Distribution (WPD), serving Southwest and Central England and South Wales.

Reported earnings in 2017, which reflect the impact of U.S. tax reform and lower foreign currency exchange rates, decreased by $0.88 per share compared with a year ago. Excluding special items, earnings from ongoing operations in 2017 decreased by $0.21 per share. Factors driving earnings results primarily included $0.27 from lower foreign currency exchange rates; lower sales volumes; higher interest expense and higher depreciation expense, partially offset by higher prices from an April 1, 2016 price increase; lower operation and maintenance expense, primarily from higher pension income; and lower income taxes. The lower income taxes resulted from lower U.K. income taxes and a 2017 U.S. tax benefit from accelerated pension contributions, partially offset by a 2016 U.S. tax benefit recorded for the carryforward of foreign tax credits.

Reported earnings in the fourth quarter of 2017,which reflect the impact of U.S. tax reform and lower foreign currency exchange rates, decreased by $0.35 per share compared to a year ago. Excluding special items, earnings from ongoing operations in the fourth quarter of 2017 decreased by $0.11 per share. Factors driving earnings results primarily included higher U.S. income taxes due to a fourth-quarter 2016 benefit recorded for the carryforward of foreign tax credits, lower foreign currency exchange rates in 2017 and lower sales volumes, partially offset by lower operation and maintenance expense, primarily from higher pension income.

Kentucky Regulated Segment
PPL's Kentucky Regulated segment primarily consists of the regulated electricity and natural gas operations of Louisville Gas and Electric Company and the regulated electricity operations of Kentucky Utilities Company.

Reported earnings in 2017, which reflect the impact of U.S. tax reform, decreased by $0.16 per share compared with a year ago. Excluding special items, earnings from ongoing operations in 2017 decreased by $0.01 per share, driven primarily by lower sales volumes due to unfavorable weather and higher depreciation expense, partially offset by higher base electricity and gas rates effective July 1, 2017.

Reported earnings in the fourth quarter of 2017, which reflect the impact of U.S. tax reform, decreased by $0.13 cents per share compared to a year ago, resulting in a $0.01 loss. Excluding special items, earnings from ongoing operations in the fourth quarter of 2017 increased by $0.02 per share, driven primarily by higher base electricity and gas rates effective July 1, 2017, and higher sales volumes due to favorable weather, partially offset by higher depreciation expense.           

Pennsylvania Regulated Segment 
PPL's Pennsylvania Regulated segment consists of the regulated electricity transmission and distribution operations of PPL Electric Utilities.

Reported earnings in 2017, which reflect the impact of U.S. tax reform, increased by $0.02 per share compared with a year ago. Excluding special items, earnings from ongoing operations in 2017 increased by $0.01 per share, driven primarily by lower operation and maintenance expense and higher transmission earnings due to additional capital investments, partially offset by a lower PPL zonal peak load billing factor, lower distribution sales volumes due to unfavorable weather, higher depreciation expense and higher interest expense.

Reported earnings in the fourth quarter of 2017, which reflect the impact of U.S. tax reform, increased by $0.04 compared to a year ago. Excluding special items, earnings from ongoing operations in the fourth quarter of 2017 increased by $0.03 per share, driven primarily by lower operation and maintenance expense and higher transmission earnings due to additional capital investments.

Corporate and Other 
PPL's Corporate and Other category primarily includes unallocated corporate-level financing and other costs.

The loss for 2017 increased by $0.13 per share compared with a year ago for reported earnings, reflecting the impact of U.S. tax reform. Excluding special items, the loss decreased by $0.01 per share for earnings from ongoing operations.

The loss for the fourth quarter of 2017 increased by $0.13 per share compared to a year ago for reported earnings, reflecting the impact of U.S. tax reform. Excluding special items, the loss decreased by $0.01 per share for earnings from ongoing operations.

(See the tables at the end of this news release for a reconciliation of 2017 reported earnings to earnings from ongoing operations.)

U.K. Regulated Segment 
PPL projects higher segment earnings in 2018 compared with 2017. The increase in reported earnings reflects the 2017 unfavorable impact of U.S. tax reform and unrealized losses on foreign currency economic hedges. Excluding these 2017 special items, the increase is expected to be driven primarily by higher foreign currency exchange rates and higher pension income, partially offset by higher taxes and the effect of share dilution.

The remaining 2018 foreign currency exposure for this segment is 100 percent hedged at an average rate of $1.34 per pound, compared to an average rate of $1.20 per pound in 2017.

Kentucky Regulated Segment 
PPL projects higher reported segment earnings in 2018 compared with 2017, which reflects the 2017 unfavorable impact of U.S. tax reform. Excluding this 2017 special item, earnings in 2018 compared with 2017 are projected to be lower, driven primarily by higher operation and maintenance expense, higher depreciation expense, higher interest expense, a lower tax shield on holding company interest and expenses, and the effect of share dilution, partially offset by an assumed return to normal weather and higher base electricity and gas rates effective July 1, 2017.

Pennsylvania Regulated Segment 
PPL projects higher segment earnings in 2018 compared to 2017, driven primarily by higher transmission earnings and lower operation and maintenance expense, partially offset by higher depreciation expense, higher interest expense and the effect of share dilution.

Corporate and Other 
PPL projects lower reported costs in 2018 compared with 2017, which reflects the 2017 unfavorable impact of U.S. tax reform. Excluding this 2017 special item, PPL projects costs to be flat in this category in 2018 compared to 2017 with a lower tax shield on holding company interest expense offset by lower financing costs.

Headquartered in Allentown, Pa., PPL Corporation (NYSE: PPL) is one of the largest companies in the U.S. utility sector. PPL's seven high-performing, award-winning utilities serve 10 million customers in the U.S. and United Kingdom. With more than 12,000 employees, the company is dedicated to providing exceptional customer service and reliability and delivering superior value for shareowners. To learn more, visit www.pplweb.com.

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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 unless otherwise noted.)

Conference Call and Webcast

PPL invites interested parties to listen to a live Internet webcast of management's teleconference with financial analysts about fourth-quarter 2017 financial results at 8:30 a.m. Eastern time on Thursday, Feb. 22. The call will be webcast live, in audio format, together with slides of the presentation. For those who are unable to listen to the live webcast, a replay with slides will be accessible at www.pplweb.com/investors for 90 days after the call. Interested individuals can access the live conference call via telephone at 1-888-317-6003. International participants should call 1-412-317-6061. Participants will need to enter the following "Elite Entry" number in order to join the conference: 3204926. Callers can access the webcast link at http://pplweb.investorroom.com/ under "Events."

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Management utilizes "Earnings from Ongoing Operations" as a non-GAAP financial measure that should not be considered as an alternative to reported earnings, or net income, an indicator of operating performance determined in accordance with GAAP. PPL believes that Earnings from Ongoing Operations is useful and meaningful to investors because it provides management's view of PPL's earnings performance as another criterion in making investment decisions. In addition, PPL's management uses Earnings from Ongoing Operations in measuring achievement of certain corporate performance goals, including targets for certain executive incentive compensation. Other companies may use different measures to present financial performance.

Earnings from Ongoing Operations is adjusted for the impact of special items. Special items are presented in the financial tables on an after-tax basis with the related income taxes on special items separately disclosed. Income taxes on special items, when applicable, are calculated based on the effective tax rate of the entity where the activity is recorded. Special items include:

• Unrealized gains or losses on foreign currency economic hedges (as discussed below).
• Spinoff of the Supply segment.
• Gains and losses on sales of assets not in the ordinary course of business.
• Impairment charges.
• Significant workforce reduction and other restructuring effects.
• Acquisition and divestiture-related adjustments.
• Other charges or credits that are, in management's view, non-recurring or otherwise not reflective of the company's ongoing operations.

Unrealized gains or losses on foreign currency economic hedges include the changes in fair value of foreign currency contracts used to hedge British-pound-sterling-denominated anticipated earnings. The changes in fair value of these contracts are recognized immediately within GAAP earnings. Management believes that excluding these amounts from Earnings from Ongoing Operations until settlement of the contracts provides a better matching of the financial impacts of those contracts with the economic value of PPL's underlying hedged earnings.

Statements contained in this news release, including statements with respect to future earnings, cash flows, dividends, financing, regulation and corporate strategy, are "forward-looking statements" within the meaning of the federal securities laws. Although PPL Corporation believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, these statements are subject to a number of risks and uncertainties, and actual results may differ materially from the results discussed in the statements. The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: market demand for energy in our U.S. service territories; weather conditions affecting customer energy usage and operating costs; the effect of any business or industry restructuring; the profitability and liquidity of PPL Corporation and its subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operating performance of our facilities; the length of scheduled and unscheduled outages at our generating plants; environmental conditions and requirements and the related costs of compliance; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; asset or business acquisitions and dispositions; any impact of severe weather on our business; receipt of necessary government permits, approvals, rate relief and regulatory cost recovery; capital market conditions and decisions regarding capital structure; the impact of state, federal or foreign investigations applicable to PPL Corporation and its subsidiaries; the outcome of litigation against PPL Corporation and its subsidiaries; stock price performance; the market prices of equity securities and the impact on pension income and resultant cash funding requirements for defined benefit pension plans; the securities and credit ratings of PPL Corporation and its subsidiaries; political, regulatory or economic conditions in states, regions or countries where PPL Corporation or its subsidiaries conduct business, including any potential effects of threatened or actual terrorism or war or other hostilities; British pound sterling to U.S. dollar exchange rates; new state, federal or foreign legislation, including new tax legislation; and the commitments and liabilities of PPL Corporation and its subsidiaries. Any such forward-looking statements should be considered in light of such important factors and in conjunction with factors and other matters discussed in PPL Corporation's Form 10-K and other reports on file with the Securities and Exchange Commission.