UGI Corporation — Form 10-Q Summary
Business context and period. This unaudited filing covers the fiscal third quarter and nine months ended June 30, 2018. UGI operates propane distribution, utilities, energy marketing and midstream businesses in the U.S. and Europe. Results are seasonal, with earnings generally strongest in the first and second fiscal quarters.
Financial performance
| Metric | Three months ended June 30, 2018 | Three months ended June 30, 2017 | Nine months ended June 30, 2018 | Nine months ended June 30, 2017 |
|---|---|---|---|---|
| Revenue | $1,440.9 million | $1,153.5 million | $6,378.1 million | $5,006.8 million |
| Operating income (loss) | $28.5 million | $(2.8) million | $1,009.8 million | $976.6 million |
| Net income (loss) attributable to UGI | $52.4 million | $(19.0) million | $694.3 million | $431.6 million |
| Diluted EPS attributable to UGI | $0.30 | $(0.11) | $3.93 | $2.44 |
| Adjusted net income attributable to UGI | $15.1 million | $16.6 million | $492.6 million | $409.3 million |
| Adjusted diluted EPS | $0.09 | $0.09 | $2.79 | $2.31 |
Cash flow and liquidity. Nine-month operating cash flow was $926.8 million, compared with $846.0 million. Investing activities used $572.9 million, including $394.2 million of capital expenditures and $190.7 million for acquisitions. Financing activities used $402.3 million. Cash and cash equivalents were $506.7 million at June 30, 2018, down from $558.4 million at September 30, 2017; UGI reported $184.3 million of cash at the parent and corporate subsidiaries, excluding operating subsidiaries.
Total debt, including short-term borrowings, was $4,474.1 million at June 30, 2018, versus $4,539.0 million at September 30, 2017. Short-term borrowings were $299.1 million. Principal credit facilities showed substantial undrawn capacity, including $355.8 million available under AmeriGas OLP’s facility and $179.5 million under UGI Utilities’ facility. The receivables facility was scheduled to expire in October 2018; management intended to extend it.
UGI declared dividends of $0.76 per common share during the nine-month period. In April 2018, the quarterly dividend was raised from $0.25 to $0.26 per share, or $1.04 annualized.
Material changes and drivers
- Nine-month adjusted net income rose 20.4% to $492.6 million, with improvement across AmeriGas Propane, Midstream & Marketing and UGI Utilities; UGI International adjusted net income was essentially flat.
- Management cited colder U.S. weather versus the prior year, higher propane volumes, customer growth, acquisitions in Italy and the Netherlands, and growth in natural-gas gathering and midstream assets. International weather was warmer than normal.
- Third-quarter adjusted net income declined 9.0% to $15.1 million. U.S. business results benefited from colder April weather, while UGI Utilities’ margin was reduced by a Pennsylvania tax-reform rate order.
- Revenue growth also reflected higher energy selling prices and acquired businesses; revenue increases therefore do not by themselves indicate improved unit margins.
- UGI recorded a noncash $75.0 million pretax impairment charge for AmeriGas tradenames and trademarks it plans to phase out over about three years. The after-tax impact attributable to UGI was $14.5 million.
- Reported nine-month earnings included $172.1 million of favorable one-time U.S. tax-reform adjustments to tax accounts. Separately, the lower U.S. tax rate reduced current-period tax expense by about $60.6 million, while French tax-law changes increased it by about $4.7 million.
Outlook, risks and contingencies
The filing does not provide a clear numeric earnings or revenue forecast. Management cautions that interim results are not necessarily indicative of full-year results because of seasonality. UGI expects to contribute approximately $5.0 million more to its U.S. pension plan during the remainder of fiscal 2018.
The Pennsylvania PUC required regulated gas utilities to record a $24.1 million liability for tax savings accrued through June 30, 2018, and ordered temporary rate reductions beginning July 1. The ultimate rate treatment of the liability remains subject to a future proceeding. An Electric Utility rate request, reduced to $7.7 million in annual revenue, was pending PUC review.
Material risks include weather-driven demand, volatility and availability of energy commodities and transportation capacity, inability to pass through rising costs promptly, regulatory cost recovery and rate decisions, foreign-exchange movements, interest rates and capital-market access, acquisitions and integration, environmental liabilities, litigation, counterparty defaults, operational interruptions and cybersecurity events. UGI reported that it could not reasonably estimate the impact, if any, of the propane-cylinder antitrust litigation; it stated that it intended to defend the claims. Pennsylvania MGP remediation costs are generally recoverable through rates, while AmeriGas had accrued $7.5 million for a New York site and noted actual costs could differ significantly.
UGI committed up to $225 million to AmeriGas Partners through July 1, 2019, subject to partnership capital calls; no contributions had been made by June 30, 2018. Management said it believed business units had sufficient liquidity for anticipated needs, while acknowledging that future capital-market financing may not be available on acceptable terms.
Key facts for investors to verify
- Reconcile GAAP and adjusted results, especially the $172.1 million one-time tax benefit and the $75.0 million impairment; assess how recurring operating performance compares.
- Review the durability of segment earnings gains after separating weather, commodity-price effects, currency translation and acquisitions.
- Monitor the PUC’s treatment of tax savings and the outcome of UGI Utilities’ pending electric rate case and proposed utility merger.
- Confirm extension of the Energy Services receivables facility and assess debt maturities, borrowing availability and AmeriGas liquidity needs.
- Track litigation and environmental exposures, including the unquantified antitrust claims and the potentially variable cost of the Saranac Lake remediation.