PPL reported earnings last week, missing sales but squeaking past earnings expectations. The corporation's regulated utilities are rocking, but a bad bet on hedge prices kept this dividend stock's quarterly earnings on thin ice. Here's what you need to know.

Number crunching
Sales stumbled significantly for Q1 2013. Not only did revenue clock in at $2.46 billion, 40% below 2012's first quarter, but they also missed analyst expectations by nearly 30%.

But sales have been suffering across the sector, and PPL still delivered where it matters most for investors. The utility reported adjusted EPS of $0.71, one cent above both analyst expectations and last year's Q1.


Looking ahead, the company dropped its fiscal 2013 earnings guidance range from $2.25-$2.50 per share to $2.15-$2.40 per share as a result of an ahead of schedule share dilution. Although short-term investors might be miffed, the guidance doesn't affect ongoing EPS and will equalize earnings for long-term dividend stock investors in the next couple years.

PPL's power problem
If PPL's subsidiaries were children, its competitive division would unequivocally take the title of black sheep. After accounting for more than a third of PPL's ongoing earnings in Q1 2012, its generation unit's EPS fell $0.16 to make up just 15% of total ongoing EPS. Investors need look no further than trimmed hedged wholesale power prices for the culprit behind the cash drop.

With 21% nuclear generating capacity, PPL's not alone in hedging itself against cheap natural gas prices. Exelon took a $235 million in its Q1 earnings as a result of overly defensive positioning.

Luckily for the two utilities, a recent rise in natural gas prices should Exelon and PPL up for more competitive energy portfolios, even if they had to bite the bullet this quarter.

Steady sales are important for dividend stocks, and PPL's regulated divisions bear good news this quarter. The company's U.K. division continues to pour in profits; ongoing earnings are up 19% and currently account for just over half of PPL's total adjusted EPS. National Grid also pulls 67% of its profit from our British brethren, and its stock has more than doubled since its 2005 recommendation on The Motley Fool's Income Investor newsletter.

Speaking of more than doubling, new base rates helped push its Kentucky division's earnings  up 133% to $0.14 EPS. New rates and higher sales also pushed its Pennsylvania earnings up $0.04 to $0.10 for Q1 2013.

Not all utilities are so lucky. TECO Energy's Tampa Electric utility is in the midst of a rate request to elevate its outdated earnings. If rejected, Tampa Electric's 2014 return on equity would clock in at just 6.74%, well below the 11% ROE that its regional competitor NextEra Energy's Florida Power & Light currently enjoys.

Dividends and cash cows
With a 4.5% yield, PPL has earned its title as a dividend stock. The company has consistently upped its payouts, but investors should keep a close watch on PPL's books. With $1.77 billion negative free cash flow expected for 2013, debt could become an issue if the utility encounters any unexpected charges.

In an increasingly competitive marketplace, it's a relief to see PPL pumping up its regulated division, all the while winning crucial rate increases. Although its generation unit took a hit, rising natural gas prices should prove a net benefit to PPL's nuclear and coal assets over the coming quarters.

Foolish bottom line
Despite less than stellar books, PPL's Q1 results reaffirm the utility's steady earnings. With a solid dividend and an increasingly competitive generation fleet, things are looking up for PPL's profits.

As natural gas prices head higher and the nation moves increasingly toward clean energy, Exelon is perfectly positioned to capitalize on having the largest nuclear fleet in North America. This strength, combined with an increased focus on balance sheet health and its recent merger with Constellation, places Exelon and its resized dividend on a short list of the top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.

The article PPL Earnings: 1 Dividend Stock Rocking Regulated Revenues originally appeared on Fool.com.

Motley Fool contributor Justin Loiseau has no position in any stocks mentioned, but he does use electricity. You can follow him on Twitter @TMFJLo and on Motley Fool CAPS @TMFJLo. The Motley Fool recommends Exelon and National Grid plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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