The primary drivers of PPL’s lower earnings from ongoing operations in 2008 were lower wholesale energy margins and the loss of synfuel-related earnings. Special items contributed less to reported earnings in 2008 than in 2007. The special items that most significantly affected reported earnings during these periods were the 2007 net gains on the sale of the Latin American delivery businesses, a 2007 reduction in the corporate income tax rate in the U.K., and changes in the mark-to-market impacts of energy-related, non-trading economic hedges between the two years.
2008 Earnings Details
Special item charges in 2008, totaling $0.22 per share, were: $0.05 per share related to asset impairments; $0.07 per share related to the impairment of nitrogen oxides emission allowances as a result of a federal court’s initial decision invalidating the Environmental Protection Agency’s Clean Air Interstate Rule; $0.04 per share related to an impairment of nuclear decommissioning trust investments; $0.04 per share in synfuel-related tax adjustments; $0.01 per share related to the sale of PPL’s natural gas distribution and propane businesses; and $0.01 per share related to groundwater litigation at a coal-fired power plant in Montana.
PPL’s 2007 reported earnings reflected net special item credits totaling $0.75 per share.
Reported earnings are calculated in accordance with generally accepted accounting principles (GAAP). Earnings from ongoing operations is a non-GAAP financial measure that excludes special items. Special items include charges or credits that are unusual or nonrecurring. Special items also include the mark-to-market impact of energy-related, non-trading economic hedges and impairments of securities in PPL’s nuclear decommissioning trust funds.
Fourth-quarter 2008 Earnings Results
For the fourth quarter of 2008, PPL announced reported earnings of $277 million, or $0.74 per share. This is a decline of $0.37 per share, or 33%, compared with the same period of 2007. The primary drivers for PPL’s lower earnings from ongoing operations between the two periods were lower wholesale energy margins, the loss of synfuel-related earnings and lower international delivery earnings. Special items contributed less to reported earnings in the fourth quarter of 2008 than in the same period of 2007. The special items that most significantly impacted reported earnings during the two quarters were the 2007 gain on the sale of PPL’s Chilean operations and the change in mark-to-market impacts of energy-related, non-trading economic hedges between the two periods. During the fourth quarter of 2008, the company recorded $0.28 per share in net special item credits, compared with $0.51 per share in net special item credits in the same period of 2007.
Excluding special items, PPL’s earnings from ongoing operations for the fourth quarter of 2008 were $0.46 per share, a decline of $0.14 per share, or 23%, from a year ago. This decline was primarily due to lower wholesale electricity margins, lower international earnings and the loss of synfuel-related earnings.
“Make no mistake about it,” said James H. Miller, PPL’s chairman, president and chief executive officer, “2008 was a difficult year, and we expect this very challenging business environment to continue in 2009. We believe, however, that our portfolio of regulated and competitive businesses positions us to withstand the current environment and to thrive beyond 2009.
“In the near term, we are well-hedged with respect to anticipated fuel needs and power production. In these volatile energy commodity markets, we continue to see the benefits of our active hedging program. Longer term, we have a strong business profile, positioning us well to preserve existing value and to capture new value in a recovering economy,” Miller said.
PPL reaffirmed its 2009 earnings forecast of $1.60 to $1.90 per share and its 2010 earnings forecast of $3.60 to $4.20 per share. “Beyond 2009,” Miller said, “strong fundamentals remain in place for PPL. We have an improving credit profile and cash flow position as well as sufficient credit facilities for our expected needs as we move into 2010 and beyond. In addition, our 2010 earnings forecast is based upon very visible earnings from our supply business and our electricity delivery businesses in Pennsylvania and the U.K.”
