UGI Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2014. UGI distributes and markets energy products and services, including U.S. propane, regulated gas and electric utilities, midstream and energy marketing, and international LPG. Unless noted otherwise, amounts are in millions of dollars. Comparative 2013 figures were revised for an accounting error involving commodity derivatives.
Financial performance and condition
| Metric | Three months ended June 30, 2014 | 2013 comparable | Nine months ended June 30, 2014 | 2013 comparable |
|---|---|---|---|---|
| Revenue | $1,486.7 | $1,374.3 | $6,965.9 | $5,935.7 |
| Operating income | $62.7 | $41.5 | $1,015.0 | $843.4 |
| Net income (loss), consolidated | $(12.7) | $(22.8) | $592.6 | $486.7 |
| Net income attributable to UGI | $20.6 | $9.1 | $357.0 | $292.3 |
| Diluted EPS attributable to UGI | $0.18 | $0.08 | $3.06 | $2.54 |
| Operating cash flow | Not presented for the quarter | $858.1 | $686.4 |
- Margins and segments: For the quarter, AmeriGas Partnership EBITDA was $55.0 versus $56.3; its total margin was $272.4 versus $276.0. Midstream & Marketing total margin increased to $49.1 from $25.9, while UGI International’s fell to $136.7 from $148.3. For nine months, AmeriGas Partnership EBITDA rose to $616.5 from $557.1; Midstream & Marketing total margin rose to $251.6 from $134.0. Partnership EBITDA and segment total margin are management measures, not GAAP measures.
- Cash investment and financing: Nine-month capital spending was $325.5; acquisitions used $23.3. Investing cash outflow was $337.4 and financing cash outflow was $475.4. Cash and cash equivalents were $438.4 at June 30, 2014, up from $389.3 at September 30, 2013.
- Debt and liquidity: Total debt was $3,652.7, down from $3,837.3 at September 30, 2013. This includes $3,477.8 of long-term debt, $78.4 of current maturities, and $96.5 of bank loans. Management said business units had sufficient liquidity for anticipated fiscal 2014 needs, while cautioning that future capital-market financing may not be available on acceptable terms.
Material changes and management commentary
- Nine-month UGI-attributable income increased $64.7. Management cited colder U.S. winter weather and strong Midstream & Marketing performance, partly offset by unusually warm European weather and lower international LPG earnings.
- Midstream & Marketing benefited from extreme cold in the Northeast and Mid-Atlantic, which increased demand and prices for pipeline capacity, storage, and peaking services; higher electricity generation also contributed. The Auburn pipeline extension entered service in fiscal 2014.
- Gas Utility nine-month operating income rose to $233.7 from $189.7, principally on colder-weather volumes. AmeriGas operating income rose to $471.7 from $407.5, despite winter supply and transportation constraints that limited some sales and increased distribution costs.
- UGI International nine-month operating income declined to $127.5 from $160.5, mainly because of warm weather and weaker volumes at Antargaz, partly offset by the BP Poland acquisition at Flaga.
- For the quarter, UGI reported a consolidated net loss but positive income attributable to UGI because of the allocation to noncontrolling interests, principally AmeriGas Partners.
Outlook, risks, and unusual items
- The filing provides no specific full-year earnings guidance. Management emphasized weather sensitivity and seasonality: earnings are generally higher in the first and second fiscal quarters, during the heating season.
- UGI’s adjusted nine-month net income was $362.7, versus $287.6, and adjusted diluted EPS was $3.11 versus $2.49. These non-GAAP figures exclude specified commodity-derivative gains or losses and the $5.7 retroactive French tax-law charge; they are not substitutes for GAAP results.
- Effective April 1, 2014, AmeriGas stopped electing cash-flow hedge accounting for new commodity derivative transactions. Their fair-value changes now affect income, potentially increasing period-to-period volatility. Midstream & Marketing also records certain commodity derivative changes in earnings.
- Comparative 2013 statements were revised after UGI identified incorrect hedge accounting for certain Midstream & Marketing commodity derivatives. The filing also describes other immaterial corrections. Investors should use the revised comparatives.
- UGI and AmeriGas face an FTC administrative complaint concerning alleged coordination over propane cylinder fill levels; the complaint seeks no monetary remedy. More than 25 related putative class actions seek treble damages and other relief. UGI says it has defenses but cannot reasonably estimate the impact.
- Other key risks include weather, LPG and natural gas supply and price volatility, transportation constraints, utility rate recovery, competition, environmental exposure, foreign exchange and interest rates, counterparty defaults, and operational or catastrophic events.
- Subsequent events: UGI approved a 3-for-2 stock split and an approximately 10.6% increase in its quarterly dividend to $0.32625 per pre-split share ($0.2175 post-split), effective with the October 2014 payment. AmeriGas approved a quarterly distribution of $0.88 per unit.
Important facts for investors to verify
- How much of the nine-month earnings improvement is sustainable if weather and Midstream capacity-market conditions normalize.
- The effects of the revised derivative accounting and AmeriGas’s post-April 1, 2014 accounting policy on earnings volatility.
- Developments and potential exposure in the FTC proceeding and related class-action litigation; the filing provides no estimable loss range.
- Renewal or extension of Energy Services’ receivables facility, scheduled to expire in October 2014, and Flaga’s working-capital facilities scheduled to expire in September 2014.
- Execution of the stock split and dividend increase, and the effect of the higher distribution on cash requirements.