UGI Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2020. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data. UGI distributes propane and other energy products, operates regulated gas and electric utilities, and conducts energy marketing and midstream businesses. The 2020 results include full ownership of AmeriGas Partners following the August 2019 merger and UGI Appalachia following the August 2019 CMG acquisition, affecting year-over-year comparability.
Financial performance and condition
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Revenue | $2,228.9 vs. $2,606.1 in 2019 | $4,235.5 vs. $4,806.3 in 2019 |
| Operating income | $361.9 vs. $538.8 | $739.1 vs. $706.5 |
| Net income attributable to UGI | $225.5 vs. $245.4 | $437.5 vs. $309.6 |
| Diluted EPS | $1.07 vs. $1.38 | $2.08 vs. $1.74 |
| Adjusted net income attributable to UGI (non-GAAP) | $327.6 vs. $253.9 | $573.8 vs. $397.7 |
| Adjusted diluted EPS (non-GAAP) | $1.56 vs. $1.43 | $2.73 vs. $2.24 |
Management’s adjusted measures exclude, among other items, mark-to-market effects on commodity and certain foreign-currency derivatives and specified discrete costs. They are non-GAAP measures and should be considered alongside GAAP results.
- Cash flow: Six-month operating cash flow was $562.4, down from $617.6. Investing used $326.9, including $342.0 of property, plant and equipment expenditures. Financing used $347.8. Cash, cash equivalents and restricted cash declined $109.1 to $401.7.
- Debt and liquidity: Total debt was $6,480.8 at March 31, 2020, including $653.5 of short-term borrowings; long-term debt was $5,827.3. Management reported approximately $1.2 billion of available liquidity and compliance with debt covenants. UGI Utilities issued $150 of 3.12% senior notes due 2050 on April 16, 2020, using proceeds partly to reduce short-term borrowings.
- Capital and shareholder returns: Fiscal 2020 capital expenditures were expected to total approximately $730, subject to pandemic-related delays. The quarterly common dividend was raised from $0.325 to $0.33 per share, effective for the July 1, 2020 payment.
Material changes versus the prior comparable periods
- Quarterly GAAP net income and diluted EPS declined, while adjusted net income and adjusted EPS increased. UGI attributed the difference largely to greater derivative losses and transformation and acquisition costs in the current period, as well as full AmeriGas ownership and the additional shares issued in the merger.
- For the six-month period, GAAP and adjusted earnings increased. Adjusted results benefited from contributions across the segments, including full AmeriGas ownership and UGI Appalachia; increased interest expense from acquisition-related debt partly offset those contributions.
- Quarterly revenue fell across the business, reflecting lower energy prices and volumes. Six-month segment results were mixed: AmeriGas earnings were pressured by lower propane volumes and margin; UGI International and Midstream & Marketing earnings improved; UGI Utilities earnings also increased.
- Warmer-than-normal weather reduced heating-related demand across the businesses. The AmeriGas merger also increased weighted-average shares, affecting per-share comparisons.
Outlook, management commentary, risks and unusual items
- COVID-19: UGI said the duration and financial impact were not predictable. Potential effects include customer payment difficulties, reduced demand, receivables risk, asset impairment, workforce or supply disruption, and delays to projects and capital spending. Management stated it expected sufficient liquidity to support operations and commitments, while noting uncertainty around liquidity, cash flows and capital expenditures.
- Tax and unusual items: The CARES Act NOL carryback generated an estimated $19.2 tax benefit reflected in the lower effective tax rate. The company had not filed its fiscal 2019 or 2020 tax returns and said the tax effects could change. Six-month LPG transformation expenses were $36.2; CMG acquisition and integration expenses were also recorded. Derivative fair-value movements materially affected reported results.
- Transformation plans: AmeriGas initiatives were expected to generate more than $120 of annual savings after completion, with estimated total costs of about $175, including approximately $100 of capital expenditures. UGI International’s Project Alliance targeted more than €30 of annual savings, with estimated costs of about €55, including approximately €20 of IT capital expenditures. These are management targets, not achieved results.
- Regulatory and project matters: UGI Utilities’ gas utility requested an annual $74.6 base-revenue increase; the Pennsylvania regulator suspended the case, with review expected to continue until November 19, 2020 unless settled earlier. PennEast’s legal and permitting outcome remained uncertain and could cause delay, added costs or impairment of UGI’s investment.
- Other contingencies and risks: The filing discusses environmental remediation obligations and ongoing propane-cylinder antitrust litigation; management did not expect pending claims to have a material financial statement effect. Key broader risks include weather, commodity prices and collateral needs, foreign exchange, customer or counterparty defaults, regulation, project execution and access to financing.
- Dividend and rate outlook: No company-wide earnings guidance is provided in the supplied filing text. The filing states that interim results are seasonal and are not necessarily indicative of full-year results.
Important facts for investors to verify
- How COVID-19 affected collections, demand, customer credit losses, operations and project timing after March 31, 2020.
- Whether reported liquidity remains adequate under higher collateral calls or weaker operating cash flow, and how short-term borrowing levels evolve.
- Whether AmeriGas and UGI International achieve the stated transformation savings and costs, and whether those initiatives affect service, retention or margins.
- The outcome and timing of the $74.6 gas utility rate case and the PennEast legal proceedings, including any investment impairment.
- How much of the GAAP-to-adjusted earnings difference reflects noncash derivative volatility, and whether tax benefits under the CARES Act are ultimately realized.