UGI Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2022; comparable period is the three months ended December 31, 2021. Amounts are in U.S. dollars unless otherwise noted. UGI operates propane distribution, regulated gas and electric utilities, and energy marketing and midstream businesses in the U.S. and Europe.
Financial performance and position
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $2.759 billion | $2.673 billion |
| Operating income (loss) | $(1.204) billion | $(68) million |
| Net income (loss) attributable to UGI | $(954) million | $(97) million |
| GAAP diluted EPS | $(4.54) | $(0.46) |
| Adjusted net income attributable to UGI (non-GAAP) | $246 million | $201 million |
| Adjusted diluted EPS (non-GAAP) | $1.14 | $0.93 |
| Operating cash flow | $(240) million | $(594) million |
| Capital expenditures, cash basis | $210 million | $186 million |
| Interest expense | $92 million | $81 million |
- GAAP results include $1.028 billion of net losses from changes in unrealized commodity and certain foreign-currency derivatives, versus $288 million of such losses in the prior-year quarter. Management says these instruments economically hedge anticipated future activity; the mark-to-market effects can create substantial period-to-period earnings volatility.
- Adjusted earnings rose 22%, reflecting higher contributions from AmeriGas Propane, Midstream & Marketing, and Utilities, partly offset by lower UGI International earnings.
- At December 31, 2022, cash and cash equivalents were $317 million and restricted cash was $227 million. Total available liquidity, including cash and revolving-credit capacity, was approximately $1.2 billion, down from $1.7 billion at September 30, 2022.
- Total debt was $7.716 billion, including $991 million of short-term borrowings; balance-sheet long-term debt, including current maturities, was $6.725 billion. Current maturities of long-term debt were $402 million. Total liabilities were $11.940 billion and total equity was $5.188 billion.
- Cash, cash equivalents and restricted cash increased $75 million during the quarter. Operating cash flow before working-capital changes was $491 million, while working-capital changes used $731 million, including $343 million of derivative collateral deposits paid.
- Segment operating income: AmeriGas Propane $110 million (prior $86 million); UGI International $56 million (prior $78 million); Midstream & Marketing $106 million (prior $74 million); Utilities $126 million (prior $96 million). Segment total margin increased to $380 million at AmeriGas, $155 million at Midstream & Marketing, and $256 million at Utilities, but declined to $215 million at UGI International.
Material changes and notable items
- Revenue increased $86 million year over year, but the results were dominated by derivative valuation losses and the U.K. business disposal. Consolidated cost of sales rose to $3.106 billion from $2.120 billion, contributing to the reported operating loss.
- On October 21, 2022, UGI sold its U.K. natural-gas marketing business for net cash proceeds of $19 million and recorded a $215 million pretax loss ($151 million after tax), substantially due to the non-cash transfer of associated commodity derivatives.
- UGI continues to pursue a sale of its French energy-marketing business after negotiations with a potential buyer ended; it also intends to wind down its businesses in Belgium and the Netherlands. A $19 million pretax impairment ($15 million after tax) was recorded for certain Netherlands assets.
- Domestic business segments experienced colder weather than the prior-year quarter, while UGI International experienced substantially warmer weather. UGI attributed lower European LPG volumes in part to warmer weather and customer conservation amid high energy prices.
- Quarter-end total current assets were $3.456 billion and current liabilities were $3.380 billion. Derivative values and related collateral requirements contributed to significant balance-sheet and liquidity movements.
Outlook, risks and contingencies
- Management reported no specific consolidated earnings guidance in this filing. It expects to refinance UGI International’s €300 million variable-rate term loan, due in October 2023, during the first half of fiscal 2023. Without refinancing, management expects sufficient liquidity to meet obligations over the next 12 months.
- UGI said it had approximately $1.2 billion in available liquidity at quarter-end and was in compliance with all debt covenants. It cautioned that commodity volatility, collateral needs, inflation, interest rates and access to financing may affect liquidity and future results.
- European energy marketing remains a material risk: extreme gas and power price volatility, supply constraints, limits on passing costs to customers, and margining and liquidity constraints may negatively affect results. UGI stated that it is considering exit or wind-down scenarios for affected European operations.
- Other highlighted risks include weather and seasonality, commodity supply and pricing, customer conservation and retention, utility rate recovery timing, foreign-exchange movements, counterparty defaults, interest rates, environmental claims, labor and supply-chain constraints, cybersecurity, and energy infrastructure execution.
- Environmental matters include estimated accrued remediation liabilities of $54 million for specified Pennsylvania manufactured-gas-plant sites; UGI expects recovery of covered costs through utility rates. AmeriGas reported an $8 million undiscounted liability for a New York site, with actual costs potentially higher or lower. Management believes pending claims and legal proceedings will not materially affect the financial statements.
- Regulatory developments: Pennsylvania Gas Utility’s approved annual base-rate increase is $49 million, phased in; Electric Utility filed for an $11 million annual increase in January 2023. Mountaineer’s 2023 infrastructure-replacement revenue of $22 million was approved, and it filed notice of intent to pursue a general rate case in February 2023.
- The company declared a quarterly common dividend of $0.36 per share, payable April 1, 2023. It repurchased 300,000 shares for approximately $12 million during the quarter.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the GAAP loss reflects temporary derivative mark-to-market movements, and how those positions ultimately settle against underlying purchases and sales.
- Progress and economics of the planned French energy-marketing sale and Belgium/Netherlands wind-down, including any further impairments, cash needs or liabilities.
- Successful refinancing of the €300 million UGI International term loan before its October 2023 maturity and the resulting borrowing costs and covenant headroom.
- Liquidity trends, derivative collateral requirements and working-capital needs as commodity prices and restricted cash fluctuate.
- Whether adjusted earnings growth persists, particularly given weather sensitivity, weaker UGI International performance, AmeriGas customer attrition and staffing constraints.
- Regulatory outcomes and timing for pending utility rate matters, plus the scale and recoverability of environmental and other contingencies.