PPL's CEO Discusses Q2 2011 Results - Earnings Call Transcript

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PPL (PPL)

Q2 2011 Earnings Call

August 05, 2011 9:00 am ET

Executives

Paul Farr - Chief Financial Officer and Executive Vice President

James Miller - Chairman, Chief Executive Officer, Chairman of Executive Committee and President of Ppl Energy Supply

Joe Bergstein -

William Spence - President and Chief Operating officer

Analysts

Michael Lapides - Goldman Sachs Group Inc.

Paul Ridzon - KeyBanc Capital Markets Inc.

Paul Patterson - Glenrock Associates

Ameet Thakkar - BofA Merrill Lynch

Ivana Ergovic - Jefferies & Company, Inc.

Lauren Duke - Deutsche Bank AG

Marc de Croisset - FBR Capital Markets & Co.

Reza Hatefi - Polygon Investment Partners

Julien Dumoulin-Smith - UBS Investment Bank

Greg Gordon - Citigroup

Tom O'Neil

Daniele Seitz - Dahlman Rose

Presentation

Operator

Good morning, ladies and gentlemen. My name is Sean, and I will be your conference operator today. At this time, I would like to welcome everyone to the PPL Corporation Second Quarter Conference Call. [Operator Instructions] Mr. Joe Bergstein, Director of Investor Relations, you may begin your conference call.

Joe Bergstein

Thank you. Good morning. Thank you for joining the PPL conference call on second quarter results and our general business outlook. We are providing slides of this presentation on our website at www.pplweb.com. Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the appendix to this presentation and in the company's SEC filings.

At this time, I'd like to turn the call over to Jim Miller, PPL Chairman and CEO.

James Miller

Okay. Thank you, Joe. Good morning, everyone. And with me today, as usual, I have Bill Spence, now President and COO; and Paul Farr, our Chief Financial Officer. And a quick congratulations to Bill as we've expanded the company. Bill will certainly be busy with working with the 2 new acquisitions in Kentucky and in the U.K., and we look forward to really driving significant value out of these 2 businesses as we've grown the company.

Always, we'll cover some brief remarks by myself. Paul Farr will go through our detailed financials, and Bill will go through the operational aspects, and then we'll go to Q&A. So with that, as you've seen by now in the announcement this morning, reported earnings of $0.35 per share, up from $0.22 a year ago. For the first half of the year, our reported earnings were $1.14 per share compared to $0.88 for the same period last year. Ongoing earnings for the second quarter were $0.45 per share versus $0.62 in the second quarter last year. And ongoing earnings for the first half of 2011 were $1.26 per share compared to $1.56 in 2010.

The 2011 earnings performance was driven by the contribution of our Kentucky-regulated segment, strong International segment performance and by the PPL Electric Utilities distribution and rate increase that took effect January 1 this year. These improvements, however, we're more than offset by lower energy margins in our Supply segment, driven by higher-priced hedges rolling off, as well as unplanned outages to replace turbine blades at our Susquehanna nuclear units and dilution from the equity issued to finance our 2 large regulated utility acquisitions.

During the second quarter, we did successfully complete the permanent financing for the Midlands acquisition, and the integration of this business is proceeding according to plan. While the integration is still at a relatively early stage, we've already seen positive movement in key operational metrics and financial results in the first 4 months of ownership.

For example, prior to our acquisition, fewer than 65% of Midlands' customers had power restored in under 60 minutes following a high-voltage outage. By June, we'd restored power following such an outage to more than 75% of customers in less than 60 minutes. This is only one statistic, but it's representative of the value our U.K. team is already delivering to the customers in the U.K.

Moving to Slide 5. Today, we are reaffirming our 2011 forecast of $2.50 to $2.75 per share in earnings for ongoing operations. I feel very good about our prospects for the year as we expect to largely mitigate the $60 million to $65 million earnings impact of the Susquehanna outages with strong performance from our U.K. business and positive results in other aspects of our competitive supply business.

Our ability to absorb the impact of such a significant unplanned event illustrates the value of our larger business platform. And we expect the planned significant regulated infrastructure investment will lead to sustained growth in each of our regulated businesses for years to come.

Our compound annual growth rate in the consolidated regulated asset base is about 9% over the next 5 years. And more than 2/3 of our planned capital spend will be made under structures that allow for near-realtime recovery of those expenditures.

Beyond the attractive growth in our regulated businesses, Supply segment remains well-positioned for the eventual rebound of competitive wholesale capacity and power prices. We now believe this rebound could even occur sooner than we previously expected. The recent finalization of cross-state air pollution rules, the firming spark spreads and the potential for a recovering economy point to higher power prices beginning in late 2013 or early 2014.

So before turning it over to Paul, let me say that I'm very optimistic about the short- and long-term prospects for PPL. We've completed the 2 major acquisitions that allowed us to reposition our portfolio, and we've created a larger, stronger enterprise. So I look forward to the questions after we hear from Paul and Bill on the operational side. Now, I'll turn the call over to Paul.

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