UPDATE: PPL Net Down 34%; Foresees Flat Demand At Utilities
February 04 2009 - 11:23AM
Dow Jones News
PPL Corp. (PPL) reported a 34% drop in fourth-quarter net income
due to lower margins and weaker international results, while
reaffirming its earnings forecast for the year amid slumping demand
for electricity.
The Allentown, Pa., seller of electricity to about four million
customers in Pennsylvania and the U.K. posted net income of $277
million, or 74 cents a share, down from $418 million, or $1.12 a
share, a year earlier. Excluding gains, operating earnings fell to
46 cents from 60 cents.
Revenue jumped 36% to $2.51 billion as the company recorded
another $695 million in revenue from unrealized economic activity
such as fuel hedging. In the third quarter, the top line was also
boosted by $1.16 billion in similar revenue.
Analysts polled by Thomson Reuters expected earnings of 46 cents
on revenue of $1.48 billion.
Earnings in PPL's supply business segment dropped 28% on lower
wholesale energy margin amid higher average fuel prices from a year
earlier. Generation did increase, though. Profit at the
Pennsylvania delivery business rose 10% but dropped 1%
internationally.
Shares of PPL traded recently at $30.84, up 30 cents, or 1%.
Challenges Ahead: Lower Power Prices, Flat Demand
The economic downturn and slumping demand are forcing power
providers to cut spending and to ask regulators to allow rates
increases. Utilities are especially vulnerable to changes in demand
as they base their rates on the expectation that energy sales will
increase.
PPL reaffirmed its earnings forecast for the year at $1.60 to
$1.90 a share. The company expects earnings to rise at its
generation business on higher margins from its power plants and
marketing and trading activities. However, PPL forecasts lower
earnings from its Pennsylvania utilities business amid slumping
power demand and higher operation costs.
Executives during a conference call Wednesday said they expect
power demand at the utilities to range from a 0.5% decline to flat
for the year on a weather-adjusted basis. Residential electricity
demand is expected to increase, offset by declines in industrial
demand.
PPL will consider filing a rate case this year amid
lower-than-expected sales and continued capital spending, but it's
more likely to come in 2010, the company said.
At its power generation business, PPL said 95% of its
electricity sales are hedged for the year. Although PPL will
benefit from the expiration of rate cap in Pennsylvania next year,
the company is expecting earnings to fall to the lower end of its
2010 guidance of $3.60 to $4.20 a share because of a drop in power
prices.
PPL executives said Standard & Poor's recent downgrade of
its outlook on the company to negative from stable won't have a
material effect on borrowing cost or liquidity. The credit-rating
agency's decision was in response to a deterioration of cash flow
from higher-than-expected coal prices and a loss from proprietary
trading activities.
-By Mark Peters, Dow Jones Newswires; 201-938-4604;
mark.peters@dowjones.com
(Kerry E. Grace contributed to this report.)
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