How Does PPL Corporation Look ahead of Its 4Q16 Earnings?

According to analysts’ estimates, PPL Corporation (PPL) is estimated to report earnings per share (or EPS) of $0.49 in 4Q16. It earned $0.43 per share in 4Q15.

PPL’s management modified its fiscal 2016 earnings guidance when it posted better-than-expected earnings in 3Q16. The guidance was modified from $2.25–$2.45 per share to $2.30–$2.45 per share. That increased the midpoint to $2.38 per share from the prior forecast of $2.35 per share.

PPL projects earnings growth of 6%–8% annually for US utilities for the next few years, while its UK segment’s earnings are expected to be driven by the movement of the British pound. There was downward pressure on the pound after the Brexit vote. As a result, its UK segment’s profit is likely to result in fewer US dollars. Because the UK contributes more than half to the company’s total earnings, PPL’s overall profitability could be hurt.

PPL’s geographic diversification could present a strategic advantage for it once these Brexit blues are over and the pound stabilizes. Until then, PPL’s hedges may provide earnings stability against the depreciating pound while its US utilities may continue to grow at above-normal rates in the next few years.

The right mix of UK and US operations offers PPL regulatory as well as customer diversification. A healthy regulatory framework in the UK provides a higher return on equity to PPL than the US average.

PPL’s transmission infrastructure in Kentucky and Pennsylvania also brings higher returns on equity. PPL expects both utilities to be growth drivers in the future due to their capital investments in transmission and distribution infrastructure.