PPL Corp. expects to close its acquisition of Rhode Island utility Narragansett Electric Co. by March, but executives cautioned there is "no guarantee" they will receive final regulatory approval by a Feb. 25 target date.
The update on the acquisition came as shares of the Pennsylvania investor-owned utility were down more than 7% in midafternoon trading Feb. 18 with analysts highlighting disappointing earnings results and a slashed dividend.
PPL and London-headquartered National Grid PLC entered into an asset swap agreement in March 2021 through which PPL completed the sale of Western Power Distribution PLC to National Grid for £7.8 billion in cash in June 2021. In turn, management has earmarked a portion of the $10.4 billion in net proceeds for PPL's $5.3 billion acquisition of National Grid's Narragansett Electric.
PPL and National Grid have achieved four of the five regulatory approvals needed to close the Rhode Island utility sale. The companies await a decision by the Rhode Island Division of Public Utilities and Carriers.
"We think we've clearly met the standard for approval in the state with what we bring to the table in terms of our operating experience, the financial strength of our company and, of course, commitments that we've made throughout the process there," PPL President and CEO Vincent Sorgi said on the company's fourth-quarter 2021 earnings call. "We and National Grid are very focused on getting to closing."
While there has been no change in the Feb. 25 target decision date, Sorgi said PPL is "just trying to be realistic that there is no guarantee that we're going to get into." PPL also announced a first-quarter dividend of 20 cents per share payable April 1, down from 41.5 cents per quarter in 2021.
"The updated quarterly dividend aligns with our earnings projections for PPL's current businesses and a targeted payout ratio of 60% to 65%," Joseph Bergstein, PPL executive vice president and CFO, said on the call.
Bergstein said PPL plans to provide an updated annualized dividend rate and growth projections during an investor day expected to be held after the Narragansett sale clears regulatory approvals.
"Since we haven't completed the Narragansett regulatory review process, we wanted to be transparent today by providing clarity on the dividend reset following the sale of [Western Power Distribution]," Bergstein said.
However, analysts and investors questioned why the company announced its quarterly dividend before the utility sale closed.
"While it's certainly possible that we'll receive the decision as early as next week from the division, we're not certain in that, and we are still in the middle of the regulatory approval process," Sorgi said. "And as we discussed on the third-quarter call, we did want to reduce the uncertainty related to the anticipated reset of the dividend following the U.K. sale."
With regard to PPL's strategic plans, Sorgi said the company would not comment on speculation that it is looking to sell its Safari Energy LLC subsidiary.
Results
PPL on Feb. 18 reported a net loss of $1.48 billion, or $1.93 per share, for full year 2021 compared with reported earnings of $1.47 billion, or $1.91 per share, in 2020.
Adjusting for special items, PPL reported 2021 ongoing earnings of $806 million, or $1.05 per share, compared with full-year 2020 earnings of $774 million, or $1.00 per share. The S&P Capital IQ consensus normalized EPS estimate was $1.17.
The company reported fourth-quarter 2021 ongoing earnings of $163 million, or 22 cents per share, compared with fourth-quarter 2020 earnings from ongoing operations of $181 million, or 23 cents per share. The S&P Capital IQ consensus normalized EPS estimate for PPL in the fourth quarter was 32 cents.
"Special items for 2021 were $2.98 per share, primarily due to discontinued operations associated with the U.K. utility business, a U.K. tax rate change prior to the sale and a loss on the early extinguishment of debt," Bergstein said.
However, CreditSights analysts said PPL's fourth-quarter 2021 earnings were "well-below consensus EPS" of about 32 cents per share and missed full-year consensus estimates by about 10%.
Higher operations and maintenance costs at PPL's utilities in Pennsylvania and Kentucky, as well as increased storm costs, were among the key earnings drivers for the quarter.
