PPL Corporation Form 10-Q Summary
Reporting period: Three months ended March 31, 2021; unaudited. Amounts are in U.S. dollars. The combined filing also reports separately for PPL Electric Utilities, LG&E and KU.
Business context and key financial metrics
PPL operates regulated electric and gas utilities in the United States and, until the announced sale, the U.K. utility business. PPL agreed to sell its U.K. business and acquire Rhode Island utility The Narragansett Electric Company, repositioning the company toward U.S. regulated utilities.
| PPL consolidated | Q1 2021 | Q1 2020 |
|---|---|---|
| Operating revenue | $1.498 billion | $1.440 billion |
| Operating income | $415 million | $424 million |
| Income from continuing operations | $203 million | $204 million |
| Continuing-operations diluted EPS | $0.26 | $0.27 |
| Net income (loss) | $(1.840) billion | $554 million |
| Management’s non-GAAP earnings from ongoing operations | $219 million | $206 million |
| Cash from continuing operating activities | $396 million | $413 million |
| Continuing-operations capital expenditures | $471 million | $616 million |
Operating margin was approximately 27.7%, compared with 29.4% a year earlier. The reported net loss reflects discontinued operations, not a comparable deterioration in continuing earnings. PPL’s Q1 2021 net loss from discontinued operations was $2.043 billion.
Among the regulated subsidiaries, PPL Electric net income was $113 million versus $118 million; LKE was $146 million versus $135 million; LG&E was $75 million versus $73 million; and KU was $86 million versus $80 million.
Liquidity, debt and cash flow
At March 31, PPL reported cash and cash equivalents of $421 million. Short-term debt was $1.547 billion, long-term debt due within one year was $976 million, and long-term debt was $13.715 billion. These reported debt categories total $16.238 billion, excluding U.K. debt classified as held for sale; held-for-sale liabilities included $9.109 billion of short- and long-term debt. PPL had $1.502 billion of unused U.S. credit-facility capacity. Its continuing operations generated $396 million of operating cash and used $472 million in investing activities.
PPL paid $320 million in common-stock dividends during the quarter; the declared quarterly dividend was $0.415 per share. Cash flows and liquidity should be viewed in light of the pending U.K. sale and Narragansett acquisition.
Material changes, outlook and risks
- U.K. sale: On March 17, PPL agreed to sell its U.K. utility business to a National Grid subsidiary for £7.8 billion in cash, plus specified potential additional consideration. The transaction was expected to close by the end of July 2021, subject to approvals. The filing reported the business as discontinued operations and held for sale, with an estimated $1.647 billion pre-tax loss on sale. A $689 million federal tax expense was recorded for the expected realization of the investment’s outside book-tax basis difference.
- Narragansett acquisition: PPL agreed to acquire The Narragansett Electric Company for approximately $3.8 billion in cash, expected to be funded with proceeds from the U.K. sale. Closing was expected by March 2022, subject to the sale closing and U.S. regulatory approvals.
- Operating trends: Revenue rose 4%, while operating income declined. Management attributed much of the increase in U.S. utility sales to favorable weather. PPL’s $219 million of ongoing earnings, a non-GAAP measure, increased from $206 million.
- Regulatory matters: PPL Electric recorded a $19 million after-tax reserve relating to a challenge to its transmission return on equity; further revenue earned from May 21, 2020 through resolution may be subject to refund. In April 2021, LG&E and KU reached an agreement with intervening parties proposing $217 million in annual revenue increases, a 9.55% authorized ROE, and a one-year customer billing credit of approximately $53 million. KPSC approval remained pending, as did resolution of net-metering issues.
- Risks and contingencies: The filing identifies uncertainty from transaction approvals, rate and refund proceedings, COVID-19, weather and demand, environmental compliance and remediation, litigation, foreign-exchange movements, and access to capital. Management reported no material COVID-19 impact to operations, financial condition, liquidity or supply chain to date. The filing gives no clear full-year earnings guidance.
Important facts for investors to verify
- Progress and final proceeds, approvals, timing and tax consequences of the U.K. sale, and whether the expected closing conditions are met.
- Funding, regulatory approvals, purchase accounting and expected returns for the Narragansett acquisition.
- Final outcomes of the PPL Electric transmission ROE challenge and the Kentucky rate-case and net-metering proceedings, including possible refunds or rate changes.
- Continuing-business earnings and cash generation separately from discontinued U.K. operations, including the basis for management’s non-GAAP ongoing-earnings measure.
- Potential costs and recovery of environmental obligations, including coal-combustion-residual closures and pending environmental claims.