UGI Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2023. Amounts are in U.S. dollars; financial statement figures are in millions unless stated otherwise. UGI operates propane distribution, regulated gas and electric utilities, energy marketing, and midstream businesses in the U.S. and Europe.
Financial performance and position
| Metric | Three months ended March 31, 2023 | Six months ended March 31, 2023 |
|---|---|---|
| Revenue | $3,106; down from $3,466 | $5,865; down from $6,139 |
| Operating income (loss) | $255; down from $1,332 | $(949); versus $1,264 income |
| Net income (loss) attributable to UGI | $110; versus $933 | $(844); versus $836 income |
| Diluted EPS | $0.51; versus $4.32 | $(4.02); versus $3.87 |
| Adjusted net income and diluted EPS (non-GAAP) | $363 and $1.68; versus $413 and $1.91 | $609 and $2.82; versus $614 and $2.84 |
Results were heavily affected by fair-value changes in commodity and certain foreign-currency derivatives not designated as accounting hedges. UGI reported net losses from changes in these instruments of $242 million in the quarter and $1.270 billion for six months, compared with gains of $535 million and $247 million in the prior-year periods. Management says these instruments economically hedge anticipated future transactions and expects much of the volatility to be offset over time; the timing and amount of any offset are uncertain.
Cash flow and liquidity: Six-month operating cash flow was $424 million, versus $400 million; operating cash flow before working-capital changes was $1.089 billion, while working-capital changes used $665 million, including significant derivative collateral payments. Investing cash outflow was $473 million, including $414 million of property, plant and equipment expenditures. Financing cash outflow was $46 million. Cash and cash equivalents were $321 million at March 31, 2023 ($403 million including restricted cash). Available liquidity, including cash and revolving capacity, was approximately $1.9 billion.
Debt and capital: Total debt was $7.217 billion at March 31, 2023, versus $7.000 billion at September 30, 2022; long-term debt on the balance sheet was $6.702 billion. Interest expense rose to $93 million for the quarter and $185 million for six months, from $82 million and $163 million. UGI reported no senior-note or term-loan maturities in the following twelve months. The board raised the quarterly common dividend from $0.36 to $0.375 per share, effective with the July 2023 payment.
Changes versus prior comparable periods
- Quarterly adjusted net income declined $50 million, mainly because of weaker AmeriGas Propane results; higher Midstream & Marketing, Utilities, and UGI International contributions partly offset the decline.
- Six-month adjusted net income was nearly flat, down $5 million. Lower AmeriGas and UGI International earnings were largely offset by improvement in Midstream & Marketing and Utilities.
- AmeriGas retail propane gallons sold declined 15% in the quarter and 10% for six months. Management cited warm weather, staffing constraints, customer attrition, and conservation, alongside higher operating expenses.
- Midstream & Marketing and Utilities posted higher six-month operating income, supported by natural-gas marketing and acquired gathering assets, and by utility rate changes. UGI International six-month results faced lower LPG volumes and weaker euro and sterling translation.
- UGI sold its U.K. energy marketing business for net cash proceeds of $19 million and recorded a $215 million pre-tax loss ($151 million after tax), principally from transferring commodity derivatives. It also recorded a $19 million pre-tax impairment related to its Netherlands energy marketing business.
Outlook, risks, and contingencies
- No quantified full-year earnings guidance is provided in the filing. Management says available liquidity is expected to support operations and long-term commitments, while noting uncertainty around commodity prices, inflation, collateral needs, interest rates, and capital-market access.
- AmeriGas OLP breached leverage and interest-coverage covenants at March 31. UGI contributed $20 million on March 31 and a further $11 million on April 24 under an equity cure; UGI also issued an irrevocable letter of support on May 4. Management expects covenant compliance over the succeeding twelve months based on support and projected EBITDA.
- UGI International refinanced its facilities with a five-year agreement maturing in 2028. Energy Services amended and increased its term loan to $800 million, extended maturity to 2030, and entered into an interest-rate swap. These facilities and floating-rate borrowing expose the company to financing and rate risks.
- The company continues to pursue a sale of its French energy marketing business and a wind-down of its Belgium and Netherlands energy marketing businesses; the French sale was not considered probable within one year at March 31.
- A March 24 explosion in West Reading, Pennsylvania caused seven fatalities, injuries, and property damage. Investigations are ongoing, the cause had not been determined, and UGI reported claims and lawsuits. The company believes covered third-party claims above its deductible are recoverable through insurance but cannot predict the outcome.
- Other stated risks include weather and seasonality, energy-price and supply volatility, customer demand and conservation, regulatory cost recovery, foreign exchange, environmental claims, counterparty performance, and the ability to meet debt covenants. UGI Utilities’ $11 million annual electric distribution revenue increase request and Mountaineer’s rate case were suspended for review.
Most important facts for investors to verify
- Whether derivative mark-to-market losses reverse or are offset by results on the underlying commodity transactions, and how much of the reported volatility recurs.
- AmeriGas OLP’s post-cure covenant headroom, future operating performance, and any further support required from UGI.
- Cash collateral requirements and working-capital demands as commodity prices change, and whether the stated $1.9 billion liquidity remains available.
- Progress and potential costs of the European energy marketing exits, including the proposed French sale and the Belgium and Netherlands wind-downs.
- Developments in the West Reading investigation, litigation, insurance coverage, and any resulting financial exposure.
- Regulatory outcomes and timing for the Electric Utility and Mountaineer rate cases, and whether rate increases offset operating-cost pressures.