UGI Corporation — FY2023 Third-Quarter 10-Q
Business context and reporting period. UGI is an energy distributor and marketer operating in the U.S. and Europe through AmeriGas Propane, UGI International, Midstream & Marketing, and Utilities. This unaudited Form 10-Q covers the fiscal quarter and nine months ended June 30, 2023; the quarter is seasonally less significant than the winter heating quarters.
Key financial results
| Metric | Three months ended June 30, 2023 | Nine months ended June 30, 2023 |
|---|---|---|
| Revenue | $1.659 billion, down from $2.033 billion | $7.524 billion, down from $8.172 billion |
| Operating income (loss) | $(732) million, versus $99 million | $(1.681) billion, versus $1.363 billion |
| Net income (loss) attributable to UGI | $(789) million; diluted EPS $(3.76) | $(1.633) billion; diluted EPS $(7.78) |
| Adjusted net income (loss), non-GAAP | $(1) million; adjusted diluted EPS $0.00, versus $12 million and $0.06 | $608 million; adjusted diluted EPS $2.81, versus $626 million and $2.90 |
| Operating cash flow | Not presented separately for the quarter | $857 million, versus $848 million |
| Capital expenditures | Not presented separately for the quarter | $670 million of cash expenditures, versus $551 million |
All dollar amounts are U.S. dollars. Segment total margin (revenue less cost of sales, with Utilities’ stated adjustment for revenue-related taxes) for the nine months was $1.080 billion at AmeriGas, $723 million at UGI International, $401 million at Midstream & Marketing, and $750 million at Utilities. These segment measures are not consolidated GAAP gross margin.
At June 30, 2023, cash and cash equivalents were $260 million; total debt, including short-term borrowings, was $7.116 billion; and available liquidity, including cash and undrawn revolving facilities, was approximately $1.8 billion. The reported balance sheet showed current assets of $2.035 billion and current liabilities of $2.083 billion. Interest expense was $96 million for the quarter and $281 million for the nine months, up from $82 million and $245 million, respectively.
Changes versus prior comparable periods
- Reported results were substantially affected by a $656 million non-cash pre-tax AmeriGas Propane goodwill impairment in the quarter, and by a $215 million pre-tax loss on the prior sale of the U.K. energy marketing business during the nine-month period.
- Management reported net losses from changes in unrealized commodity and certain foreign-currency derivatives of $116 million for the quarter and $1.386 billion for the nine months, versus net gains of $22 million and $269 million, respectively, in the prior-year periods. Management says these instruments economically hedge anticipated future transactions; their accounting effects can make GAAP results volatile.
- Nine-month adjusted net income declined to $608 million from $626 million. Lower contributions from AmeriGas and UGI International were partly offset by growth in Midstream & Marketing and Utilities. AmeriGas retail propane volumes fell 9%; UGI International LPG retail volumes fell 10%, with warmer weather, conservation, and weaker foreign currencies among the cited factors. Midstream & Marketing operating income rose, reflecting gathering and processing activity and natural-gas marketing margins; Utilities also benefited from rate changes.
- Cash from operations was nearly unchanged, but working-capital changes used $352 million, primarily reflecting derivative collateral payments and accounts-payable movements. Investing cash use increased, principally with higher capital expenditures.
Outlook, risks, and unusual items
- AmeriGas impairment and credit: The impairment followed lower projected margins and customer retention, higher operating expenses, and the issuance of higher-cost debt. Remaining AmeriGas goodwill was $1.3 billion; the filing warns that further deterioration or higher interest rates could cause additional impairment. AmeriGas OLP breached leverage and interest-coverage covenants as of March 31, 2023, but UGI capital contributions cured the breach. UGI provided an irrevocable support letter; management expects covenant compliance for the following 12 months.
- Debt and liquidity: AmeriGas issued $500 million of 9.375% notes due 2028 and used proceeds, cash and UGI support, among other funding, to redeem $675 million of 5.625% notes, recognizing a $9 million pre-tax extinguishment loss. UGI says it expects sufficient liquidity and was in compliance with debt covenants at June 30. It is pursuing refinancing of its $300 million revolving facility, which matures August 2024, and says other liquidity sources could repay it if refinancing is unsuccessful.
- European energy marketing: UGI has sold its U.K. business and entered into agreements to divest substantial portions of its Belgian and French energy marketing businesses; it continues to wind down activity in the Netherlands and remaining French business. Completion of pending transactions depends on regulatory and other approvals, and final gains or losses may vary with derivative fair values.
- Legal and regulatory matters: The cause of the March 2023 West Reading explosion, which caused seven fatalities, remains under investigation. UGI has received claims and is involved in lawsuits; it believes covered third-party claims above its deductible are recoverable through insurance, but cannot predict outcomes. Rate matters include a proposed $9 million annual Electric Utility increase subject to approval and pending Mountaineer proceedings.
- Other risks: Management cites weather and seasonality, energy-price and collateral volatility, inflation, customer attrition, European market disruption, foreign exchange and interest rates, access to capital, regulation, and operational and environmental risks. No specific full-year earnings guidance is provided in the supplied filing text.
Important facts for investors to verify
- Whether AmeriGas operating performance, customer retention, margins, and debt service stabilize, and whether remaining goodwill faces further impairment.
- AmeriGas covenant compliance and the extent of any future financial support required from UGI.
- How much of reported earnings and cash flow volatility reflects derivative valuation and collateral movements versus underlying operating performance.
- Progress, final economics, and approvals for the European energy marketing exits, including the wind-down obligations.
- Outcome and potential financial exposure from West Reading claims and investigations, and the status of utility rate proceedings.
- Refinancing of UGI’s August 2024 revolving facility and the sustainability of liquidity, capital spending, and dividends.