UGI CORP quarterly report, Q1 FY2022

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UGI Corporation — Form 10-Q Summary

Reporting period: First quarter of fiscal 2022, the three months ended December 31, 2021. Financial figures are in U.S. dollars, in millions except per-share amounts. UGI operates propane and LPG businesses, regulated gas and electric utilities, and energy marketing and midstream businesses. Results are seasonal, with heating-season quarters generally stronger.

Financial performance and liquidity

  • Revenue: $2,673, up 38% from $1,932. The increase largely reflected higher energy commodity prices and the inclusion of Mountaineer, acquired in September 2021.
  • GAAP results: Operating loss was $68 versus operating income of $502; net loss attributable to UGI was $97, or $0.46 per diluted share, compared with net income of $303, or $1.44 per diluted share.
  • Adjusted results: Adjusted net income, a non-GAAP measure, was $201 versus $247; adjusted diluted EPS was $0.93 versus $1.18. UGI adjusts principally for commodity derivative results not associated with current-period transactions and other specified items.
  • Margins and segments: AmeriGas total margin fell $34 to $360, and UGI International margin fell $61 to $256. Midstream & Marketing margin rose $18 to $122, while Utilities margin rose $46 to $213, including $33 of incremental margin from Mountaineer.
  • Cash flow: Operating activities used $594, compared with $151 provided a year earlier. Operating cash flow before working-capital changes was $330 versus $369; working-capital changes used $924, including $260 of collateral repayments to derivative counterparties. Investing activities used $154; capital expenditures were $186. Financing activities provided $234.
  • Liquidity and debt: Cash and cash equivalents were $334 at quarter-end, down from $855 at September 30, 2021. Available liquidity, including cash and revolving-credit capacity, was approximately $1.5 billion, down from $2.2 billion. Total debt, including short-term borrowings, was $7,118; long-term debt was $6,416 on the balance sheet. UGI reported compliance with debt covenants.
  • Dividend: The quarterly common dividend was $0.345 per share; a further $0.345 dividend was declared in February 2022.

Material changes and management commentary

  • UGI attributed the lower adjusted earnings mainly to reduced earnings from its LPG businesses. AmeriGas retail gallons sold declined 13%, with U.S. temperatures 6.2% warmer than the prior-year period; higher product costs and inflation-related operating expenses also weighed on results. UGI International had higher retail volumes, but lower energy-marketing and LPG unit margins.
  • Management reported substantial commodity-price volatility and inflation in labor, supply, and distribution costs. It said some UGI International energy-marketing margin pressure from unusually high commodity costs may be recovered in future periods, but the filing does not quantify the amount or timing.
  • Changes in unrealized commodity and certain foreign-currency derivatives reduced reported results; management cited $288 of losses in the current quarter versus $70 of gains in the prior-year quarter. These effects are excluded in UGI’s adjusted earnings measure.
  • On December 7, 2021, UGI International issued €400 of 2.50% senior notes due 2029, using proceeds in part to repay its 3.25% notes due 2025. The refinancing generated an $11 pretax extinguishment loss.
  • After quarter-end, Energy Services completed the $190 Stonehenge natural-gas gathering acquisition, funded with credit-facility borrowings and cash. UGI said it expected to refinance the borrowings long term.
  • PA Gas Utility filed in January 2022 for an $83 annual base-revenue increase; approval and timing remain subject to the regulatory process. UGI also reported that Electric Utility’s previously approved settlement allows a $6 annual revenue increase.
  • No specific consolidated earnings guidance for fiscal 2022 is provided in the supplied filing text. Management said AmeriGas and UGI International transformation programs were substantially complete and their expected benefits remained on target. A corporate-services transformation is expected to incur about $40 of non-recurring costs and produce more than $15 of annualized savings by the end of fiscal 2023.

Risks, contingencies, and unusual items

  • Management highlighted commodity-price swings, weather and seasonality, inflation and supply-chain constraints, customer demand and collections, foreign exchange, interest rates, and the risk that rapid cost increases cannot be passed through fully or promptly. Derivative-related collateral demands can also affect liquidity.
  • At December 31, 2021, UGI disclosed a maximum gross derivative-counterparty loss exposure of $1,156 before considering collateral, netting, and other mitigants; it had received $205 of cash collateral.
  • UGI cited continuing COVID-19 uncertainty, including potential effects on customers, demand, receivables, projects, supply chains, and asset impairment. It said the duration and overall financial impact could not be predicted.
  • Environmental liabilities include $50 accrued for UGI Utilities’ Pennsylvania manufactured-gas-plant matters, for which the company expects recovery through rates, and $8 for the AmeriGas Saranac Lake site; actual remediation costs could differ. Management did not expect pending claims and legal actions, considered collectively, to materially affect the financial statements.
  • PA Gas Utility’s $83 rate request is pending. UGI said the regulator typically suspends the requested effective date during review and that the timing and outcome cannot be predicted.

Important facts for investors to verify

  • How much of the $201 adjusted net income reflects recurring operating performance, and how derivative mark-to-market effects may reverse or flow through future periods.
  • Whether the margin pressures in LPG and energy marketing persist, and whether UGI International’s anticipated recovery of some margin occurs and when.
  • Whether commodity-price volatility, working-capital needs, and collateral postings continue to constrain cash and available liquidity.
  • The outcome and timing of PA Gas Utility’s $83 annual rate request, and the integration and financing impacts of Mountaineer and Stonehenge.
  • Whether management’s stated transformation savings and cost targets are achieved, alongside the effects of inflation, weather, COVID-19, and supply constraints.