PPL Corp. :PPL-US: Earnings Analysis: Q1, 2017 By the Numbers : May 8, 2017

PPL Corp. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of PPL Corp. – FirstEnergy Corp., Entergy Corporation, Exelon Corporation, American Electric Power Company, Inc., Consolidated Edison, Inc., Avangrid, Inc., Southern Company and NextEra Energy, Inc. (FE-US, ETR-US, EXC-US, AEP-US, ED-US, AGR-US, SO-US and NEE-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1951 million, Net Earnings of USD 402 million.
  • Gross margins narrowed from 44.85% to 44.64% compared to the same period last year, operating (EBITDA) margins now 54.64% from 53.51%.
  • Year-on-year change in operating cash flow of -75.76% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 1951 1832 1889 1785 2011
Revenue Growth (%YOY) -2.98 2.92 0.59 0.22 -41.74
Earnings (mil) 402 463 472 482 479
Earnings Growth (%YOY) -16.08 14.6 19.8 93.57 -25.62
Net Margin (%) 20.6 25.27 24.99 27 23.82
EPS 0.59 0.68 0.69 0.71 0.71
Return on Equity (%) 16.07 18.64 18.6 19.2 19.47
Return on Assets (%) 4.16 4.85 4.87 4.93 4.91

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Market Share Versus Profits

Revenues History
Earnings History

PPL-US‘s change in revenue this period compared to the same period last year of -2.98% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that PPL-US is holding onto its market share. Also, for comparison purposes, revenues changed by 6.50% and earnings by -13.17% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline was driven by the drop in gross margins from 44.85% to 44.64%. This drop in earnings would have been worse were in not for operational cost control activities, which helped the operating margins (EBITDA margins) improve from 53.51% to 54.64%. For comparison purposes, gross margins were 42.90% and EBITDA margins were 53.38% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

PPL-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to -88.60 days from -58.44 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

PPL-US‘s change in operating cash flow of -75.76% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 40.92% to 40.80% and (2) one-time items that contributed to a decrease in pretax margins from 32.82% to 27.27%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

PPL Corp. is a holding company, which engages in the generation, transmission, and distribution of electricity and sale of gas. It operates through the following segments: U.K. Regulated, Kentucky Regulated, and Pennsylvania Regulated. The U.K. regulated segment includes electricity distribution operations. The Kentucky Regulated segment owns and operates regulated public utilities engaged in the generation, transmission, distribution, and sale of electricity and distribution and sale of natural gas. The Pennsylvania Regulated segment consists of the distribution and transmission of electricity. The company was founded in 1920 and is headquartered in Allentown, PA.

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