PPL Corporation Reports Third-Quarter Earnings

ALLENTOWN, Pa., Nov. 1, 2017 /PRNewswire/ -- PPL Corporation (NYSE: PPL) on Wednesday (11/1) announced third-quarter 2017 reported earnings (GAAP) of $355 million, or $0.51 per share, a decrease from third-quarter 2016 reported earnings of $473 million, or $0.69 per share.

Reported earnings for the first nine months of 2017 were $1.05 billion, or $1.53 per share, a decrease from $1.44 billion, or $2.11 per share, for the first nine months of 2016.

Adjusting for special items, third-quarter 2017 earnings from ongoing operations (non-GAAP) were $388 million, or $0.56 per share, compared with $427 million, or $0.63 per share, a year ago. Earnings from ongoing operations for the first nine months of 2017 were $1.17 billion, or $1.70 per share, compared with $1.27 billion, or $1.86 per share, for the first nine months of 2016.

The decreases in ongoing earnings in the third quarter and for the first nine months of 2017 were driven primarily by lower foreign currency exchange rates and unfavorable domestic weather, partially offset by higher base electricity and gas rates effective July 1, 2017, in Kentucky. For the first nine months, an additional offsetting factor was higher prices from an April 1, 2016 price increase in the United Kingdom.

"As a result of stronger than expected earnings in the U.K., we are raising the midpoint of our 2017 ongoing earnings guidance despite the unfavorable effects of weather in Kentucky and Pennsylvania," said William H. Spence, PPL chairman, president and Chief Executive Officer.

With the effect of special items recorded through the third quarter, the company's forecast range for 2017 reported earnings is $1.93 to $2.08 per share.

PPL's new forecast range for 2017 earnings from ongoing operations is $2.10 to $2.25 per share, with a midpoint of $2.18 per share, an increase from the previous forecast of $2.05 to $2.25 per share, with a midpoint of $2.15 per share.

The company reaffirmed expectations for 5 to 6 percent compound annual earnings growth per share from 2017 through 2020, measured against its original 2017 ongoing earnings forecast midpoint of $2.15 per share. In addition, the company continues to target dividend growth of about 4 percent a year through 2020.

Across its utilities, PPL is investing in infrastructure as it works to build a more resilient, reliable and efficient energy grid. Overall, the company plans to invest more than $16 billion in its energy infrastructure through 2021.

Third-Quarter and Year-to-Date Earnings Details

PPL's reported earnings for the third quarter of 2017 included net special-item after-tax charges of $33 million, or $0.05 per share, primarily from foreign currency economic hedges. Reported earnings for the third quarter of 2016 included net special-item after-tax benefits of $46 million, or $0.06 per share, primarily from a further reduction in the U.K. corporate income tax rate to become effective April 1, 2020.

PPL's reported earnings for the first nine months of 2017 included net special-item after-tax charges of $119 million, or $0.17 per share, primarily from foreign currency economic hedges. Reported earnings for the first nine months of 2016 included net special-item after-tax benefits of $172 million, or $0.25 per share, primarily from foreign currency economic hedges and the reduction in the U.K. income tax rate that becomes effective April 1, 2020.

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), which serves Southwest and Central England and South Wales.

Reported earnings in the third quarter of 2017 decreased by $0.23 per share compared to a year ago. Earnings from ongoing operations in the third quarter of 2017 decreased by $0.11 per share. Excluding special items, factors driving earnings results primarily include $0.07 from lower foreign currency exchange rates, lower sales volumes, higher interest expense and higher income taxes, partially offset by lower operation and maintenance expense, including pension expense.

Reported earnings for the first nine months of 2017 decreased by $0.53 per share compared with a year ago, and earnings from ongoing operations for the first nine months of 2017 decreased by $0.10 per share. Excluding special items, factors driving earnings results primarily include $0.24 from lower foreign currency exchange rates, lower sales volumes and higher interest expense, partially offset by higher prices from an April 1, 2016 price increase; lower operation and maintenance expense, including pension expense; and lower income taxes, including the tax benefits of accelerated pension contributions.

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 and earnings from ongoing operations in the third quarter of 2017 were flat compared to a year ago. Higher base electricity and gas rates effective July 1, 2017, were offset by lower sales volumes due to unfavorable weather and higher depreciation expense.

Reported earnings and earnings from ongoing operations for the first nine months of 2017 decreased by $0.02 per share compared with a year ago, 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.           

Pennsylvania Regulated Segment

PPL's Pennsylvania Regulated segment consists of the regulated electricity delivery operations of PPL Electric Utilities.

Reported earnings and earnings from ongoing operations in the third quarter of 2017 were flat compared to a year ago. Higher transmission earnings due to additional capital investments and lower operation and maintenance expense were offset by lower sales volumes due to unfavorable weather and higher depreciation expense.

Reported earnings and earnings from ongoing operations for the first nine months of 2017 decreased by $0.02 per share compared with a year ago, driven primarily by higher depreciation expense, a lower PPL zonal peak load billing factor, lower sales volumes due to unfavorable weather and higher interest expense, partially offset by 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.

Reported earnings in the third quarter of 2017 were $0.02 per share compared with a loss of $0.03 per share a year ago. Earnings from ongoing operations in the third quarter of 2017 were $0.01 per share compared with a loss of $0.03 per share a year ago. Excluding special items, the favorable change was driven primarily by the timing impact of recording annual estimated taxes.

The loss for the first nine months of the year increased by $0.01 per share for reported earnings and $0.02 per share for earnings from ongoing operations compared to a year ago. Excluding special items, the changes resulted primarily from the timing impact of recording annual estimated taxes. This impact is expected to continue to reverse through the remainder of the year.

U.K. Regulated Segment

PPL projects lower segment earnings in 2017 compared with 2016, primarily driven by a lower assumed 2017 foreign currency exchange rate, lower true-up mechanisms, lower incentive revenues, higher interest expense and higher depreciation expense, partially offset by lower operation and maintenance expense, including pension expense, and higher base revenue from the April 1, 2017 price reset.

The remaining 2017 foreign currency exposure for this segment is 100 percent hedged at an average rate of $1.22 per pound.

Kentucky Regulated Segment

PPL projects lower segment earnings in 2017 compared with 2016, primarily driven by lower electricity sales volumes due to unfavorable weather in 2017 and higher depreciation expense, partially offset by electricity and gas base rate increases.

Pennsylvania Regulated Segment

PPL projects relatively flat segment earnings in 2017 compared with 2016, primarily driven by higher transmission earnings and lower operation and maintenance expense, offset by higher depreciation expense and higher interest expense.

Corporate and Other

PPL projects costs to be relatively flat in this category in 2017 compared with 2016.

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 about 13,000 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 third-quarter 2017 financial results at 8:30 a.m. Eastern time on Wednesday, Nov 1. 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 1-888-346-8683. International participants should call 1-412-902-4270. Participants will need to enter the following "Elite Entry" number in order to join the conference: 3769426.

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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).
• 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 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 PPL Corporation's Form 10-K and other reports on file with the Securities and Exchange Commission.

Note to Editors: Visit our media website at www.pplnewsroom.com for additional news and background about PPL Corporation.