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PPL Corporation to Take a Hit in 4Q15 Results due to Mild Weather

Vincent Kruger

11 ‘Buys,’ 11 ‘Holds’ on PPL ahead of 4Q15 Earnings

Management’s guidance

PPL Corporation (PPL) will report its 4Q15 earnings on February 4, 2016. Wall Street analysts estimate PPL’s earnings per share for 4Q15 to come in at $0.44. For the comparable period last year, PPL reported $0.57 per share. PPL’s management narrowed its 2015 earnings guidance range from $2.05–$2.25 per share to $2.15–$2.25 per share in 3Q15. In the first nine months of fiscal 2015, PPL Corporation earned $1.79 per share.

Performance drivers

PPL’s service territories were warmer in 4Q15 than in 4Q14. Its principal operational zones of Kentucky and Pennsylvania recorded higher temperatures in 4Q15. This may impact PPL’s earnings negatively due to lower electricity usage. However, positive economic conditions drive PPL’s customer base growth, which will impact earnings in 4Q15.

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Focus on regulated operations

PPL turned into a pure-play regulated entity after spinning off its competitive power generation business, which joined with Riverstone Holdings’ competitive power generation business to form Talen Energy Corporation (TLN) in June 2015. PPL’s management expects earnings to grow by 6% annually through 2017. According to management, the accelerated growth will be driven by regulated operations with an earnings growth of 1%–2% from the UK segment. PPL serves nearly 7.8 million customers in the United Kingdom. PPL Corporation aims for 12%–14% earnings growth from domestic operations in the next couple of years.

Utilities (IDU) are growing their regulated operations as they tend to offer stable cash flows and a better risk profile. Earnings from unregulated operations are mostly volatile due to volatile merchant power prices. American Electric Power (AEP) is also considering divesting its merchant power operations and becoming a pure-play regulated entity. Duke Energy Corporation (DUK) also sold part of its unregulated segment to Dynegy (DYN) last year.

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