UGI Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2013; comparative quarter ended December 31, 2012. Unaudited results. UGI distributes and markets energy products and services through propane, utility, international LPG, and midstream and marketing businesses. Results are seasonal, typically strongest in the first and second fiscal quarters.
Financial results and position
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Revenue | $2,315.9 million | $2,018.7 million |
| Operating income | $363.7 million | $294.2 million |
| Net income | $217.5 million | $167.8 million |
| Net income attributable to UGI | $122.0 million | $102.5 million |
| Diluted EPS attributable to UGI | $1.05 | $0.90 |
| Operating cash flow | $72.9 million | $31.1 million |
| Capital expenditures | $133.1 million | $91.3 million |
- Revenue increased about 14.7%; operating income increased about 23.6%, and UGI-attributable net income increased about 19.0% year over year.
- Management’s non-GAAP adjusted net income attributable to UGI was $123.5 million, or $1.06 per diluted share, versus $101.2 million, or $0.88 per diluted share. Adjustments included Midstream & Marketing commodity-derivative effects and, in 2013, $5.7 million of retroactive French tax expense.
- AmeriGas Propane reported Partnership EBITDA of $230.2 million versus $185.9 million. Gas Utility operating income was $82.1 million versus $69.8 million. UGI International income before taxes was $49.2 million versus $50.0 million; Midstream & Marketing income before taxes was $35.2 million versus $24.9 million.
- Operating cash flow exceeded the prior-year period but remained below capital expenditures. Working-capital changes used $223.4 million of cash; operating cash flow before working-capital changes was $296.3 million.
- Cash and cash equivalents were $418.1 million at December 31, 2013, compared with $389.3 million at September 30, 2013. Total debt was $4,037.8 million, including $421.5 million of bank loans; long-term debt was $3,549.1 million and current maturities were $67.2 million.
- Total assets were $10,663.5 million and total equity was $3,718.7 million at quarter end. The filing does not provide a consolidated operating-margin figure.
Material changes versus the prior comparable period
- Colder U.S. weather supported domestic results: AmeriGas retail gallons sold rose 6.7%, and Gas Utility core-market throughput increased 10.6%. European operations experienced warmer-than-normal weather.
- AmeriGas benefited from higher volumes, slightly higher retail unit margins, and completed Heritage Propane integration synergies. Prior-year AmeriGas results included $5.5 million of Heritage integration transition costs.
- UGI International revenue and margin rose, principally reflecting Flaga’s acquisition of BP’s Polish LPG business in September 2013; higher expenses and French tax changes weighed on earnings.
- Midstream & Marketing improved on capacity-management and peaking activity, natural-gas gathering, and higher Hunlock Creek generation margins and output.
- Cash used in investing activities increased to $148.8 million from $93.4 million, including $20.8 million of business acquisitions. Financing activities provided $101.1 million, primarily reflecting increased bank borrowings.
- The company revised the 2012 comparative statements after identifying incorrect hedge accounting for certain Midstream & Marketing commodity derivatives. The revision reduced comparative net income by $2.9 million overall and UGI-attributable net income by $0.1 million; reported comparative EPS was unchanged. Certain other immaterial corrections were also included.
Outlook, risks, and unusual items
- No consolidated earnings or revenue guidance is stated in the supplied filing text. Management said each business unit had sufficient liquidity for fiscal 2014 needs, while noting capital-market financing might not be available on acceptable terms.
- In January 2014, severe winter conditions and high fall crop-drying demand caused propane supply and logistics disruptions and sharp wholesale cost increases in affected U.S. regions. AmeriGas incurred alternative-supply and transportation costs; earnings could be pressured if increases cannot be passed through. Higher customer bills could also increase bad debts, conservation, and customer attrition.
- French tax legislation increased Antargaz tax expense, including a $5.7 million retroactive charge in the quarter; the filing also notes a temporary increase in the French corporate surtax.
- Management disclosed a material weakness in accounting for certain commodity derivatives, discontinued hedge accounting for Midstream & Marketing commodity derivatives, and stated remediation was expected during fiscal 2014. Management reported disclosure controls effective at a reasonable-assurance level.
- Environmental matters, an FTC investigation into propane-cylinder filling practices, and a purported West Virginia class action remain pending. Management could not estimate possible losses above recorded amounts; unfavorable outcomes could affect future operating results or cash flows.
- Market risks include commodity prices, interest rates, foreign exchange, counterparty performance, and collateral requirements. A hypothetical 10% adverse commodity-price change would increase the specified derivative loss by approximately $43.4 million; the filing also quantifies euro and interest-rate sensitivities.
- After quarter end, the board declared a $0.2825-per-share quarterly dividend and authorized repurchases of up to 10 million shares over four years. No repurchases under this authorization are reported in the supplied text.
Important facts for investors to verify
- Whether the propane supply disruptions, cost pass-through, and customer collection risks affected subsequent-quarter results.
- Progress and completion of the fiscal 2014 remediation plan for the commodity-derivative accounting material weakness.
- Whether operating cash generation, seasonal working-capital needs, and debt levels remain manageable, including refinancing and facility expiration dates.
- Integration and financial contribution from the BP Poland acquisition, and ongoing effects of French tax changes.
- Developments in the environmental matters, FTC investigation, and litigation, including any change in estimated exposure.