PPL Corporation Reports Second-Quarter Earnings

ALLENTOWN, Pa., Aug. 5, 2011 /PRNewswire/ -- PPL Corporation (NYSE: PPL) on Friday (8/5) announced second-quarter reported earnings of $196 million, or $0.35 per share, up from $85 million, or $0.22 per share, a year ago. For the first six months of 2011, PPL's reported earnings were $597 million, or $1.14 per share, compared with $335 million, or $0.88 per share, a year ago.  

Adjusting for special items, PPL's earnings from ongoing operations for the second quarter were $253 million, or $0.45 per share, compared with $239 million, or $0.62 per share a year ago. For the first six months of 2011, earnings from ongoing operations were $660 million, or $1.26 per share, compared with $596 million, or $1.56 per share a year ago.

PPL's per share earnings from ongoing operations were lower primarily due to the June 2010 and April 2011 issuances of common stock to fund the acquisitions of regulated utility operations in Kentucky and the United Kingdom. The common stock issuances reduced PPL's earnings from ongoing operations for the second quarter of 2011 by $0.21 per share and the first half of the year by $0.47 per share.

"We're on track to achieve our forecasted 2011 earnings from ongoing operations despite extended unplanned outages to replace turbine blades at both of our Susquehanna nuclear units," said James H. Miller, PPL's chairman and chief executive officer. "We expect to mitigate the impact of the Susquehanna outages with strong performance from our U.K. business and positive results in other aspects of our competitive supply business," Miller said.

PPL reaffirmed its 2011 forecast of $2.50 to $2.75 per share in earnings from ongoing operations, including projected after-tax earnings impacts of between $60 million and $65 million for the unplanned nuclear plant outages. PPL's 2011 forecast of reported earnings is $2.38 to $2.63 per share, reflecting special items recorded through the first six months of 2011.

"We've completed two high-quality acquisitions to enhance the regulated portion of PPL's business portfolio," Miller said. "This larger, growing, more stable mix of businesses allows us to better face the challenges in the energy sector.

"Through these acquisitions, we've more than doubled our number of regulated utility customers, while increasing our generation capacity by more than 70 percent and our total assets by 80 percent. Our prime focus now is execution, to deliver on the financial performance objectives that we've established," Miller said.

Second-Quarter 2011 Earnings Details

PPL's reported earnings in the second quarter of 2011 included net special item charges of $0.10 per share, primarily for U.K. acquisition-related costs, partially offset by a credit from a settlement of litigation with the U.S. Department of Energy over spent nuclear fuel storage costs. The second quarter of 2010 reflected total special item charges of $0.40 per share.

Reported earnings are calculated in accordance with generally accepted accounting principles (GAAP) in the U.S. Earnings from ongoing operations is a non-GAAP financial measure that is adjusted for special items. Special items include acquisition-related costs and 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.  

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

Second-Quarter and First-Half 2011 Earnings by Business Segment

The following chart shows PPL's earnings by business segment for the second quarter and first half of 2011, compared with the same periods of 2010.

(For more details and a breakout of special items by segment, see the reconciliation tables at the end of this news release.)

Key Factors Impacting Business Segment Earnings from Ongoing Operations

Kentucky Regulated Segment

PPL's Kentucky regulated segment primarily includes the regulated electricity and natural gas delivery operations and the regulated electricity generation of Louisville Gas and Electric and Kentucky Utilities.

PPL acquired the Kentucky businesses on Nov. 1, 2010. Earnings from ongoing operations of $0.06 per share in the second quarter of 2011 and $0.20 per share in the first six months of 2011 include operating results for these periods, interest expense associated with the equity units issued in June 2010 in connection with the acquisition of these businesses, and dilution of $0.02 and $0.08 per share, respectively, for the quarter and the year-to-date periods.

International Regulated Segment

PPL's international regulated segment includes the U.K. regulated electricity delivery operations of Western Power Distribution, serving Southwest England and South Wales and, effective April 1, 2011, the Midlands region of England.

Earnings from ongoing operations for this segment increased in the second quarter of 2011 by $0.06 per share compared with a year ago. This increase was the net result of the operating results of the newly acquired Midlands businesses, which include interest expense associated with the equity units issued in April 2011 and the bridge facility established to finance the acquisition of these businesses; higher delivery revenues at WPD's legacy delivery operations; and dilution of $0.10 per share.  

Earnings from ongoing operations for this segment increased during the first six months of 2011 by $0.02 per share compared with a year ago. This increase primarily resulted from the same factors that drove second-quarter 2011 results. Dilution for this period was $0.14 per share.

Pennsylvania Regulated Segment

PPL's Pennsylvania regulated segment includes the regulated electric delivery operations of PPL Electric Utilities.

Earnings from ongoing operations for this segment increased in the second quarter of 2011 by $0.02 per share compared with a year ago. This increase was the net result of increased revenue from the Jan. 1, 2011, distribution base rate increase, lower operation and maintenance expenses and dilution of $0.03 per share.

Earnings from ongoing operations for this segment increased during the first six months of 2011 by $0.03 per share compared with a year ago. This increase was the net result of higher distribution revenue, lower income taxes and dilution of $0.06 per share.

Supply Segment

PPL's supply segment primarily consists of the domestic energy generation and marketing operations of PPL Energy Supply.

Earnings from ongoing operations for this segment declined in the second quarter of 2011 by $0.31 per share compared with a year ago. This decline was primarily due to lower energy margins and higher operation and maintenance expenses associated with the timing of the Susquehanna planned nuclear refueling and uprate outage and the unplanned turbine blade-replacement outages. Dilution for this period was $0.06 per share.  

Earnings from ongoing operations for this segment during the first six months of 2011 declined by $0.55 per share compared with a year ago. This decline was primarily due to lower Eastern energy margins as a result of lower energy and capacity prices, the Susquehanna turbine blade-replacement outages, and lower coal and hydro generation. Also contributing to this decline were higher operation and maintenance expenses, primarily at the Susquehanna nuclear plant, and dilution of $0.19 per share.

2011 Earnings from Ongoing Operations Forecast by Business Segment

* The 2010 earnings for the Kentucky regulated segment only include results for November and December.

A full year of earnings from the Kentucky regulated segment and a partial year of earnings from the recently acquired U.K. businesses are the largest positive drivers of PPL's 2011 projected earnings. Offsetting these benefits is dilution of $0.74 per share associated with PPL's June 2010 and April 2011 issuances of common stock, expected lower wholesale energy margins and the financial impact of the unplanned turbine-blade replacement outages at Susquehanna.

Kentucky Regulated Segment

The projected 2011 segment earnings represent a full year of earnings versus two months in 2010. This segment's 2011 earnings are expected generally to be driven by the results of electricity and natural gas base rate increases that became effective Aug. 1, 2010. Dilution for 2011 is expected to be $0.12 per share.

International Regulated Segment

PPL projects higher segment earnings in 2011 compared with 2010. This increase is primarily due to the partial year of earnings from the newly acquired U.K. businesses. In addition, PPL expects higher earnings from its legacy WPD business compared with 2010, primarily due to higher electricity delivery revenue and a more favorable currency exchange rate, partially offset by higher income taxes, higher depreciation and higher financing costs. Dilution for 2011 is expected to be $0.24 per share.  

Pennsylvania Regulated Segment

PPL projects higher segment earnings compared with 2010, as a result of higher distribution revenues from a Jan. 1, 2011, distribution base rate increase, offset by dilution of $0.08 per share.

Supply Segment

PPL expects lower segment earnings compared with 2010 as a result of lower energy margins driven by lower Eastern energy and capacity prices, higher average fuel costs and the turbine blade replacement at the Susquehanna nuclear plant, as well as higher income taxes and higher operation and maintenance expense. Dilution for 2011 is expected to be $0.30 per share.

PPL Corporation, headquartered in Allentown, Pa., owns or controls about 19,000 megawatts of generating capacity in the United States, sells energy in key U.S. markets, and delivers electricity and natural gas to about 10 million customers in the United States and the United Kingdom. More information is available at www.pplweb.com.

(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.)

Conference Call and Webcast

PPL invites interested parties to listen to the live webcast of management's teleconference with financial analysts about second-quarter 2011 financial results at 9 a.m. EDT Friday, Aug. 5. The meeting is available online live, in audio format, along with slides of the presentation, on PPL's website: www.pplweb.com. The webcast will be available for replay on the PPL website for 30 days. Interested individuals also can access the live conference call via telephone at 702-696-4769 (ID# 86974802).

"Earnings from ongoing operations" should not be considered as an alternative to reported earnings, or net income attributable to PPL, which is an indicator of operating performance determined in accordance with generally accepted accounting principles (GAAP). PPL believes that "earnings from ongoing operations," although a non-GAAP financial measure, is also useful and meaningful to investors because it provides management's view of PPL's fundamental earnings performance as another criterion in making investment decisions. PPL's management also uses "earnings from ongoing operations" in measuring certain corporate performance goals. Other companies may use different measures to present financial performance.

"Earnings from ongoing operations" is adjusted for the impact of special items. Special items include:

• Energy-related economic activity (as discussed below).
• Foreign currency-related economic hedges.
• Gains and losses on sales of assets not in the ordinary course of business.
• Impairment charges (including impairments of securities in the company's nuclear decommissioning trust funds).
• Workforce reduction and other restructuring impacts.
• Acquisition-related costs and charges.
• Other charges or credits that are, in management's view, not reflective of the company's ongoing operations.

Energy-related economic activity includes the changes in fair value of positions used economically to hedge a portion of the economic value of PPL's generation assets, full-requirement sales contracts and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power) prior to the delivery period that was hedged. Also included in energy-related economic activity is the ineffective portion of qualifying cash flow hedges, the monetization of certain full-requirement sales contracts and premium amortization associated with options. This economic activity is deferred, with the exception of the full-requirement sales contracts that were monetized, and included in earnings from ongoing operations over the delivery period of the item that was hedged or upon realization. Management believes that adjusting for such amounts provides a better matching of earnings from ongoing operations to the actual amounts settled for PPL's underlying hedged assets. Please refer to the Notes to the Consolidated Financial Statements and MD&A in PPL Corporation's periodic filings with the Securities and Exchange Commission for additional information on energy-related economic activity.

Statements contained in this news release, including statements with respect to future earnings, cash flows, 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 and prices for energy, capacity and fuel; weather conditions affecting customer energy usage and operating costs; competition in power markets; 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 plants and other facilities; the length of scheduled and unscheduled outages at our plants; environmental conditions and requirements and the related costs of compliance, including environmental capital expenditures and emission allowance and other expenses; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; asset or business acquisitions and dispositions, and PPL Corporation's ability to realize the expected benefits from acquired businesses, including the 2010 acquisition of Louisville Gas and Electric Company and Kentucky Utilities Company and the 2011 acquisition of the Central Networks electricity distribution businesses in the U.K.; any impact of hurricanes or other severe weather on our business, including any impact on fuel prices; 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; foreign 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 PPL Corporation's Form 10-K and other reports on file with the Securities and Exchange Commission.

SOURCE PPL Corporation