PPL Corporation (PPL) Q2 Earnings: Stock To Disappoint?

Diversified utility PPL Corporation (NYSE:PPL) is scheduled to report second-quarter results on Aug 9, before the market opens. Last quarter, the company’s earnings witnessed a negative earnings surprise of 10.67%. Let’s see how things are shaping up for this quarter.

Factors to Consider

The RIIO-ED1 price control spanning from 2015–2023 has set limits on the revenues that utilities can collect in the UK, while mandating installation of pollution control technologies at the power stations. This will likely hurt PPL Corporation’s margins in the second quarter by 10 cents a share. However, this decrease should be partially offset by the rate increase approved under RIIO-ED1, which will add 5 cents per share to the bottom line.

A portion of the 10 megawatt E.W. Brown solar plant in Kentucky started operations in April this year, thereby expanding its renewable generation fleet and this is expected to positively impact results in the second quarter. The plant is expected to be fully operational in the second half of 2016.

Moreover, above-average temperatures in its service territories in the U.S are expected to drive its topline.

Earnings Whispers

Our proven model does not conclusively show that PPL Corporation will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.89%. This is because the Most Accurate estimate stands at 52 cents, while the Zacks Consensus Estimate is pegged higher at 53 cents.

Zacks Rank: Though PPL Corporation’s Zacks Rank #3 increases the predictive power of ESP, its negative ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Ranks #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Peer Releases

NiSource Inc. (NYSE:NI) reported second-quarter 2016 operating earnings of 8 cents per share, surpassing the Zacks Consensus Estimate of 7 cents by 14.3%.

FirstEnergy Corp. (NYSE:FE) announced second-quarter 2016 operating earnings of 56 cents per share, beating the Zacks Consensus Estimate of 53 cents by 5.7%.

NextEra Energy, Inc. (NYSE:NEE) reported second-quarter 2016 adjusted earnings of $1.67 per share, outpacing the Zacks Consensus Estimate of $1.58 by 5.7%.