UGI Corporation — Q3 FY2021 Form 10-Q
Reporting period: Three and nine months ended June 30, 2021. UGI operates U.S. and European propane/LPG businesses, regulated gas and electric utilities, and energy marketing and midstream businesses. Amounts below are in millions of dollars except per-share data.
Financial performance and position
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue, 2021 / 2020 | $1,496 / $1,199 | $6,009 / $5,435 |
| Operating income, 2021 / 2020 | $391 / $174 | $1,564 / $913 |
| Net income attributable to UGI, 2021 / 2020 | $150 / $85 | $942 / $523 |
| Diluted EPS, 2021 / 2020 | $0.71 / $0.41 | $4.48 / $2.49 |
| Adjusted net income, 2021 / 2020 | $28 / $16 | $693 / $590 |
| Adjusted diluted EPS, 2021 / 2020 | $0.13 / $0.08 | $3.30 / $2.81 |
GAAP earnings benefited substantially from unrealized commodity and certain foreign-currency derivative gains: management cited gains of $231 million in Q3 2021 versus $110 million in Q3 2020, and $364 million in the 2021 nine-month period versus $1 million in the prior-year period. Adjusted results exclude specified derivative effects and other discrete items; they are non-GAAP measures.
- Cash flow: Nine-month operating cash flow was $1,047 million, compared with $963 million. Capital expenditures were $460 million; cash used in investing activities was $505 million. Cash used in financing activities was $321 million.
- Liquidity: Cash and cash equivalents were $545 million at June 30, 2021, versus $336 million at September 30, 2020. Management reported approximately $2.4 billion of available liquidity, up from $1.5 billion, and compliance with debt covenants.
- Debt: Total debt was $6,054 million at June 30, 2021, versus $6,381 million at September 30, 2020. Long-term debt on the balance sheet was $5,811 million, with $207 million of short-term borrowings. UGI reported no near-term senior-note or term-loan maturities.
- Dividends and equity financing: The quarterly common dividend was raised to $0.345 per share, or $1.38 annualized. In May, UGI issued $220 million of Equity Units and received approximately $213 million net proceeds.
Changes and drivers versus prior year
- Nine-month adjusted net income rose to $693 million from $590 million. Management attributed improvement to contributions across all segments, including stronger LPG volumes and margins at UGI International, higher UGI Utilities base rates, and improved Midstream & Marketing results. Stronger foreign currencies also increased translated results.
- UGI International’s nine-month operating income increased to $322 million from $230 million; UGI Utilities’ increased to $243 million from $229 million; and Midstream & Marketing’s increased to $156 million from $139 million. AmeriGas Propane operating income was essentially flat at $391 million versus $390 million.
- AmeriGas’ nine-month total margin declined $29 million, mainly from lower retail volumes and unit margins. Higher propane commodity prices lifted both revenue and product costs, but did not translate proportionately into margin growth.
- Q3 adjusted earnings improved primarily because colder weather supported UGI International volumes; AmeriGas had lower margins amid warmer comparative weather and customer-mix changes.
- Q3 2021 included a $93 million pretax impairment of the PennEast equity investment. The prior-year comparative included a $52 million pretax impairment of assets held for sale, related to Conemaugh.
Outlook, commentary, and risks
- Guidance: The filing does not provide a consolidated earnings or EPS forecast. UGI says results are seasonal, generally strongest in the first and second fiscal quarters because of heating-season demand.
- Mountaineer acquisition: UGI expects to acquire Mountaineer Gas for a preliminary $540 million, including assumption of about $140 million of debt. The deal, which would add nearly 215,000 customers, remained subject to regulatory and other closing conditions; UGI expected closing in the second half of calendar 2021. A settlement was submitted to the West Virginia PSC in July, but approval timing and outcome remained uncertain.
- Transformation plans: AmeriGas expects more than $140 million of annual benefits by the end of FY2022, with estimated total costs of about $200 million, including roughly $100 million of capital expenditures. UGI International’s Project Alliance targets more than €30 million of annual benefits, with estimated costs of about €55 million. Corporate-services transformation is expected to cost about $40 million and produce more than $15 million of annualized savings by FY2023. These are management expectations, not guarantees.
- Major uncertainties: COVID-19 effects, weather and seasonality, commodity prices and ability to pass through cost increases, foreign exchange, interest rates and collateral needs, regulatory rate recovery, acquisition execution, and legal or environmental exposures. The company also identifies cybersecurity and potential operational disruption as risks.
- Other contingencies: PennEast faced remaining legal and regulatory challenges and expected delays despite a favorable June 2021 U.S. Supreme Court ruling. UGI recorded the impairment using probability-weighted estimates; the project’s ultimate outcome was undetermined. Pennsylvania MGP environmental liabilities were accrued at $49 million and are generally expected to be recoverable through rates. The filing says pending legal matters, including settled propane-cylinder class actions, were not expected to materially affect financial statements.
Most important facts for investors to verify
- How much reported earnings growth reflects recurring operations versus derivative gains, tax items, and the PennEast impairment; review the company’s non-GAAP reconciliation.
- Whether Mountaineer receives final regulatory approval, closes on the expected timetable, and is financed on acceptable terms.
- Whether transformation initiatives deliver stated savings and benefits without material customer-service disruption or customer losses.
- Whether commodity-price, weather, foreign-exchange, and working-capital movements affect margins, cash generation, or collateral requirements.
- Whether PennEast’s remaining approvals and litigation are resolved and whether further investment impairment is required.
- Future debt, equity-unit settlement, and dividend effects, including potential dilution from the 2024 purchase contracts and convertible preferred stock.