UPDATE: PPL Net Down 34%; Foresees Flat Demand At Utilities

PPL Corp. (PPL) reported a 34% drop in fourth-quarter net income due to lower margins and weaker international results, while reaffirming its earnings forecast for the year amid slumping demand for electricity.

The Allentown, Pa., seller of electricity to about four million customers in Pennsylvania and the U.K. posted net income of $277 million, or 74 cents a share, down from $418 million, or $1.12 a share, a year earlier. Excluding gains, operating earnings fell to 46 cents from 60 cents.

Revenue jumped 36% to $2.51 billion as the company recorded another $695 million in revenue from unrealized economic activity such as fuel hedging. In the third quarter, the top line was also boosted by $1.16 billion in similar revenue.

Analysts polled by Thomson Reuters expected earnings of 46 cents on revenue of $1.48 billion.

Earnings in PPL's supply business segment dropped 28% on lower wholesale energy margin amid higher average fuel prices from a year earlier. Generation did increase, though. Profit at the Pennsylvania delivery business rose 10% but dropped 1% internationally.

Shares of PPL traded recently at $30.84, up 30 cents, or 1%.

Challenges Ahead: Lower Power Prices, Flat Demand

The economic downturn and slumping demand are forcing power providers to cut spending and to ask regulators to allow rates increases. Utilities are especially vulnerable to changes in demand as they base their rates on the expectation that energy sales will increase.

PPL reaffirmed its earnings forecast for the year at $1.60 to $1.90 a share. The company expects earnings to rise at its generation business on higher margins from its power plants and marketing and trading activities. However, PPL forecasts lower earnings from its Pennsylvania utilities business amid slumping power demand and higher operation costs.

Executives during a conference call Wednesday said they expect power demand at the utilities to range from a 0.5% decline to flat for the year on a weather-adjusted basis. Residential electricity demand is expected to increase, offset by declines in industrial demand.

PPL will consider filing a rate case this year amid lower-than-expected sales and continued capital spending, but it's more likely to come in 2010, the company said.

At its power generation business, PPL said 95% of its electricity sales are hedged for the year. Although PPL will benefit from the expiration of rate cap in Pennsylvania next year, the company is expecting earnings to fall to the lower end of its 2010 guidance of $3.60 to $4.20 a share because of a drop in power prices.

PPL executives said Standard & Poor's recent downgrade of its outlook on the company to negative from stable won't have a material effect on borrowing cost or liquidity. The credit-rating agency's decision was in response to a deterioration of cash flow from higher-than-expected coal prices and a loss from proprietary trading activities.

-By Mark Peters, Dow Jones Newswires; 201-938-4604; [e-mail]

(Kerry E. Grace contributed to this report.)

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