PPL PPL Corporation

ALLENTOWN, Pa., Aug. 9, 2016 /PRNewswire/ -- PPL Corporation (NYSE: PPL) on Tuesday (8/9) announced second-quarter 2016 reported earnings (GAAP) of $483 million, or $0.71 per share, compared with a second-quarter 2015 loss of $757 million, or $1.13 per share. Second-quarter 2015 results reflected a $1 billion loss, or $1.50 per share, from discontinued operations associated with the June 1, 2015 spinoff of PPL's competitive supply business.

Reported earnings for the first six months of 2016 were $964 million, or $1.41 per share. This compares with a loss of $110 million, or $0.17 per share, for the first six months of 2015, which included a loss from discontinued operations of $912 million, or $1.36 per share.

Adjusting for special items, second-quarter 2016 earnings from ongoing operations (non-GAAP) were $380 million, or $0.56 per share, an increase of about 16 percent compared with $329 million, or $0.49 per share, a year ago. Earnings from ongoing operations for the first half of 2016 were $838 million, or $1.23 per share, compared with $848 million, or $1.26 per share, for the first six months of 2015.

"Higher than expected results in all of our business units so far this year give us a high degree of confidence in our ability to meet our 2016 earnings forecast," said William H. Spence, PPL's chairman, president and Chief Executive Officer. "We continue to execute our plans for sustainable growth across our seven high-performing utilities, while delivering award-winning customer service, strengthening reliability and improving efficiency."

With the effect of special items recorded through the second quarter, the company's forecast range for 2016 reported earnings is $2.43 to $2.63 per share.

PPL is reaffirming its 2016 forecast range for earnings from ongoing operations of $2.25 to $2.45 per share, with a midpoint of $2.35 per share.

Looking beyond 2016, PPL said the fundamentals of the business remain strong and intact despite the June 23 U.K. vote to withdraw from the European Union and the resulting weakening of the British pound sterling exchange rate. The company has updated its earnings projection from the prior long-term forecast to reflect current market conditions and currency impacts of the U.K. vote.

"We have established 2017 earnings guidance of $2.05 to $2.25 per share, with a midpoint of $2.15 per share, and now expect per-share compound annual earnings growth of 5 to 6 percent from 2017 to 2020," Spence said.

Spence said declines in the exchange rate since the June 23 vote drove PPL's existing foreign currency hedges to be about $450 million in the money. He said the company recently settled its 2017 and 2018 foreign currency hedges, capturing approximately $310 million in value. These gains, in addition to the higher than expected gains on the remaining 2016 hedges, will offset lower expected cash repatriation amounts from the U.K. resulting from the lower expected exchange rate and will support the company's future dividend growth.

PPL is now targeting dividend growth of about 4 percent annually through the end of the decade.

"Moving forward, we will continue to maintain a strong balance sheet, investment-grade credit ratings, strong cash flow and a competitive dividend," Spence said.

PPL's growth plans include investing more than $15 billion in infrastructure improvements from 2016 through 2020, with near real-time recovery available for more than three-quarters of that investment. This includes investments to make the energy grid smarter, more reliable and more resilient. In addition, it includes environmental improvements in Kentucky, where PPL's Louisville Gas and Electric and Kentucky Utilities subsidiaries generate power.

Second-Quarter and Year-to-Date Earnings Details

PPL's reported earnings for the second quarter of 2016 included net special-item after-tax benefits of $103 million, or $0.15 per share, primarily due to foreign currency-related economic hedges. Reported earnings for the second quarter of 2015 included net special-item after-tax charges of $1.09 billion, or $1.62 per share, primarily due to the June 1, 2015 spinoff of the company's former Supply segment.

PPL's reported earnings for the first six months of 2016 included net special-item after-tax benefits of $126 million, or $0.18 per share, primarily due to foreign currency-related economic hedges. Reported earnings for the first six months of 2015 included net special-item after-tax charges of $1 billion, or $1.43 per share, primarily due to the June 1, 2015 spinoff of the company's former Supply segment.

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, including for 2015 the former Supply segment's earnings and the loss associated with the Supply segment spinoff. See the tables at the end of this news release for a reconciliation of reported earnings (loss) to earnings from ongoing operations, including an itemization of special items.

Second-Quarter and Year-to-Date Earnings by Segment

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 the second quarter of 2016 increased by $0.23 per share compared to a year ago, and earnings from ongoing operations in the second quarter of 2016 were the same as a year ago. Excluding special items, earnings results primarily reflect an April 1, 2016 price increase, offset by the unfavorable impact of lower British pound sterling exchange rates and other factors.

Reported earnings for the first six months of 2016 increased by $0.09 per share compared with a year ago, and earnings from ongoing operations for the first six months of 2016 decreased by $0.12 per share. Excluding special items, factors driving earnings results included an April 1, 2015 price decrease due to the beginning of the new eight-year price control period (RIIO-ED1), lower sales volumes due to unfavorable weather, and the unfavorable impact of lower British pound sterling exchange rates, partially offset by an April 1, 2016 price increase and lower operation and maintenance expense, including pension expense.

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 the second quarter of 2016 increased by $0.04 per share compared with a year ago, and earnings from ongoing operations in the second quarter of 2016 increased by $0.02 per share. Excluding special items, the increase was primarily driven by higher base electricity rates effective July 1, 2015, and lower operation and maintenance expense, partially offset by higher interest expense.

Reported earnings for the first six months of 2016 increased by $0.05 per share compared with a year ago, and earnings from ongoing operations for the first six months of 2016 increased by $0.03 per share. Excluding special items, the increase was primarily driven by higher base electricity rates effective July 1, 2015, and lower operation and maintenance expense, partially offset by lower sales volumes, due to unfavorable weather, and higher interest expense.                

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 second quarter of 2016 increased by $0.04 per share compared with a year ago, driven primarily by higher base electricity rates for distribution effective Jan.1, 2016, and higher transmission earnings from additional capital investments.

Reported earnings and earnings from ongoing operations for the first six months of 2016 increased by $0.05 per share compared with a year ago, driven primarily by higher base electricity rates for distribution effective Jan.1, 2016, and higher transmission earnings, partially offset by lower sales volumes due to unfavorable weather.

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

The reported loss in the second quarter and for the first six months of the year decreased by $0.03 per share compared to a year ago, and earnings from ongoing operations in the second quarter of 2016 and for the first six months of the year were relatively flat.

Earnings Forecast

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

The increase in forecasted reported earnings from 2015 to 2016 is almost exclusively attributable to the results of the 2015 spinoff of the Supply segment.

The midpoint of PPL's 2016 forecast range for earnings from ongoing operations is $2.35 per share, which represents an increase of more than 6 percent compared to 2015 earnings from ongoing operations. This increase is primarily attributable to increases in the Pennsylvania Regulated and Kentucky Regulated segments.

U.K. Regulated Segment       
PPL projects a decrease in segment reported earnings in 2016 compared to 2015 primarily driven by tax gains recorded in 2015.  Earnings from ongoing operations are projected to be slightly lower in 2016 compared with 2015 due to higher interest expense, depreciation, the unfavorable impact of lower British pound sterling exchange rates and income taxes, partially offset by higher revenues and lower operation and maintenance expense, including pension expense. 

The remaining 2016 foreign currency exposure for this segment is 87 percent hedged at an average rate of $1.60 per pound, compared to an average hedged rate of $1.57 per pound in 2015.

Kentucky Regulated Segment 
PPL projects higher segment reported earnings and earnings from ongoing operations in 2016 compared with 2015, primarily driven by electric and gas base rate increases effective July 1, 2015, higher returns on additional environmental capital investments, and lower operation and maintenance expense, partially offset by higher depreciation and higher interest expense.

Pennsylvania Regulated Segment 
PPL projects higher segment reported earnings and earnings from ongoing operations in 2016 compared with 2015, primarily driven by higher base electricity rates for distribution effective Jan. 1, 2016, and higher transmission earnings, partially offset by higher depreciation and a benefit received in 2015 from the release of a gross receipts tax reserve.

Corporate and Other
PPL projects relatively flat costs in this category in 2016 compared with 2015.

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. The company and its 13,000 employees are dedicated to providing exceptional customer service and reliability and delivering superior value for shareowners. To learn more, visit 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 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 second-quarter 2016 financial results at 8:30 a.m. Eastern Daylight Time on Tuesday, Aug. 9. The call will be webcast live, in audio format, along 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 30 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 in Canada should call 1-866-284-3684. Participants will need to enter the following "Elite Entry" number in order to join the conference: 2697886.

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-related economic hedges (as discussed below).
• Supply segment discontinued operations.
• Gains and losses on sales of assets not in the ordinary course of business.
• Impairment charges.
• 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.