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Key Factors That Could Drive PPL’s 2Q17 Earnings

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PPL’s earnings

According to Wall Street analyst estimates, PPL Corporation (PPL) is expected to report earnings per share (or EPS) of $0.48 for 2Q17. In 2Q16, the utility earned $0.56 per share.

PPL’s management issued a lower annual earnings guidance for 2017. It is expected to earn $2.05–$2.25 per share this year against its EPS of $2.45 in 2016. That trend implies a fall of more than 12% from the guidance midpoint.

PPL eps

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Earnings drivers

PPL management is expecting a significant decline in its earnings from its 2017 operations in the United Kingdom. Its cash flows from the UK could have an ongoing negative impact due to currency fluctuations after the Brexit referendum.

PPL has hedged 100% of its cash flows in 2017. According to PPL’s management, its hedging strategy can hedge 100% of its earnings through 2020. It is still expected to achieve 5%–6% earnings per share, even if the dollar–British pound exchange rate falls below $1.05.

PPL’s targeted 5%–6% earnings per share growth falls well within the expected industry (XLU) average earnings growth for the next few years.

Segments

PPL management expects its US segment to grow its earnings 4%–6% while its UK segment is projected to grow 6%–8% through 2020.

PPL experiences a favorable regulatory environment in the United Kingdom. It generally sets eight-year base revenues that are adjusted for inflation. For PPL, these base revenues would be effective through 2023.

PPL’s peer Duke Energy (DUK) had a significant presence in the merchant generation segment in Latin America, but it sold the segment in 2016. AES Corporation (AES) is the most internationally diversified utility in the country, with nearly 70% of its earnings coming from overseas.

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