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PPL’s 2015 Earnings Suffer due to Spin-Off

Vincent Kruger

PPL's Earnings Fall by 12% in 4Q15

Earnings fall in 4Q15

PPL (PPL) reported its 4Q15 results on February 4, 2016. Its earnings fell by 12% in 4Q15 compared to 4Q14. PPL earned $0.43 per share in 4Q15 compared to $0.49 per share in 4Q14. Its 2015 reported earnings stood at $1.01 per share against $2.61 per share in 2014.

The company’s 2015 results were representative of a loss from discontinued operations of $921 million, or $1.36 per share, which accrued due to the spin-off of its competitive business operations. In June 2015, PPL spun off its competitive business and formed Talen Energy (TLN).

Earnings drivers

PPL’s 4Q15 earnings were mainly driven by its UK and Kentucky segments. PPL’s operational areas experienced warmer weather conditions during the quarter, which dampened performance. However, higher earnings due to favorable weather in the first nine months in 2015 partially offset the company’s fall in the earnings due to warmer weather in 4Q15.

PPL’s continued capital investment in its service territories positively impacted its earnings in 4Q15. Periodic rate increases recovered these investments.

PPL raises dividend

PPL announced a dividend increase in its 4Q15 earnings. It raised its dividend from $1.51 per share to $1.52 per share on an annualized basis, marking its 14th dividend increase in 15 years. The company expects to maintain a dividend payout ratio of nearly 65% over the next couple of years. PPL’s management also mentioned its target of increasing its dividend by 4% annually after 2017.

PPL turned into a pure-play regulated entity last year to minimize the business risk associated with its unregulated operations. American Electric Power (AEP) is also considering the divestment of its unregulated business to become a completely regulated utility (JXI).

In 2014, Duke Energy (DUK) sold part of its unregulated business to Dynegy (DYN) to de-risk its business profile.

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