UGI Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2021; filed May 6, 2021. Amounts are in millions of dollars except per-share data. UGI operates domestic and European propane businesses, regulated gas and electric utilities, and energy marketing and midstream businesses.
Financial performance and position
| Metric | Three months ended March 31, 2021 | Prior year | Six months ended March 31, 2021 | Prior year |
|---|---|---|---|---|
| Revenue | $2,581 | $2,229 | $4,513 | $4,236 |
| Operating income | $671 | $362 | $1,173 | $739 |
| Net income attributable to UGI | $489 | $226 | $792 | $438 |
| Diluted EPS | $2.33 | $1.07 | $3.77 | $2.08 |
| Adjusted net income (non-GAAP) | $418 | $328 | $665 | $574 |
| Adjusted diluted EPS (non-GAAP) | $1.99 | $1.56 | $3.17 | $2.73 |
- Six-month operating cash flow was $646, versus $562 a year earlier. Cash flow before working-capital changes was $1,082, while working capital used $436, reflecting in part higher commodity prices and increased receivables and inventory.
- Six-month capital expenditures were $304, compared with $342. Investing cash outflow was $357; financing cash outflow was $174. Cash, cash equivalents and restricted cash increased $115 to $472.
- At March 31, total debt was $6,344, including $340 of short-term borrowings; long-term debt on the balance sheet was $5,953. Cash and cash equivalents were $444. Management reported total available liquidity of approximately $1.6 billion and compliance with debt covenants.
- Six-month interest expense declined to $156 from $167. The filing does not provide a consolidated operating-margin percentage; operating income was $1,173 on revenue of $4,513 for the six-month period.
Material changes versus the prior comparable period
- Second-quarter adjusted net income rose to $418 from $328, with improvement across all four reportable segments. Management attributed gains principally to colder weather than in the prior-year quarter, improved LPG margins and higher utility rates.
- For the six-month period, adjusted net income increased to $665 from $574. UGI International and Midstream & Marketing posted higher adjusted earnings; AmeriGas and UGI Utilities also improved modestly. COVID-19 effects, lower AmeriGas volumes and previously divested Midstream & Marketing assets were offsets.
- Reported GAAP results also benefited from changes in unrealized commodity and foreign-currency derivative values, which are excluded from adjusted results. A $23 tax benefit from an Italian tax-law election further increased reported earnings; it provided an increased tax basis deductible in future periods.
- Reported revenue growth partly reflects higher energy commodity prices and currency translation, not solely volume or underlying demand. Stronger euro and sterling translation contributed to UGI International results.
Outlook, commentary and risks
- No consolidated full-year earnings or EPS guidance is stated in the supplied filing text. UGI expected its acquisition of Mountaineer Gas, for a preliminary purchase price of $540 including approximately $140 of assumed debt, to close in the second half of calendar 2021, subject to regulatory and other approvals. Financing was expected through debt and/or equity-linked securities and existing liquidity.
- Management expected more than $140 of annual benefits from AmeriGas transformation initiatives by the end of fiscal 2022, with estimated total costs of approximately $200, including about $100 of capital expenditures. UGI International’s Project Alliance was expected to generate over €30 of annual benefits, with estimated cumulative costs of approximately €55. A corporate-services transformation was expected to cost approximately $40 over two to three years and deliver more than $15 of annualized savings by fiscal 2023. These are management expectations, not guaranteed outcomes.
- The board approved a quarterly dividend increase from $0.33 to $0.345 per share, effective for the dividend payable July 1, 2021. A May 4, 2021 credit-facility amendment extended a $300 term loan to May 2025 and added a new $300 term-loan commitment.
- COVID-19 impacts remained uncertain, including possible effects on customer credit and collections, demand, asset impairments, projects, liquidity and cash flows. The filing also highlights weather and seasonality, commodity supply and pricing, regulatory cost recovery, foreign exchange, interest rates, litigation, environmental liabilities, cyber and operational risks, and execution of acquisitions and transformation plans.
- The PennEast pipeline faced litigation over eminent-domain authority; the U.S. Supreme Court granted review and heard argument in April 2021. An adverse outcome could delay or prevent the project and impair some or all of UGI’s investment. UGI Utilities’ Pennsylvania MGP remediation liabilities were estimated at $50, with recovery expected through regulated rates. The remaining propane-cylinder antitrust class claims received final settlement approval on March 30, 2021; management believed pending matters would not materially affect the financial statements.
- Electric Utility’s request for a $9 annual base-revenue increase was suspended for review. Gas Utility’s approved rate settlement provides phased increases and a distribution-system improvement charge effective April 1, 2021.
Important facts for investors to verify
- Reconcile GAAP earnings growth with adjusted earnings, particularly derivative gains and the $23 Italian tax benefit; assess how much operating improvement is recurring.
- Track working-capital needs, commodity-price exposure, available liquidity and debt levels, especially alongside the proposed Mountaineer acquisition and its financing.
- Monitor regulatory approval and closing terms for Mountaineer, as well as the PennEast litigation outcome and potential investment impairment.
- Compare transformation costs, capital spending, customer-service effects and realized savings with management’s targets.
- Review the full-year outlook when provided; this filing emphasizes seasonal results and does not state a clear consolidated earnings forecast.