UGI Corporation — Form 10-Q Summary
Business context and reporting period. This filing covers the fiscal third quarter and nine months ended June 30, 2020. UGI operates U.S. and European propane and LPG businesses, regulated gas and electric utilities, and energy marketing and midstream businesses. Results are seasonal, with heating demand typically strongest in the first half of the fiscal year. Comparisons are affected by the August 2019 acquisition of the remaining AmeriGas Partners interests and the August 2019 CMG acquisition.
Key financial results
Amounts are in millions of dollars, except per-share data. “Adjusted” measures are non-GAAP.
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Nine months ended June 30, 2020 | Nine months ended June 30, 2019 |
|---|---|---|---|---|
| Revenue | $1,199.3 | $1,363.7 | $5,434.8 | $6,170.0 |
| Operating income | $173.9 | $9.6 | $913.0 | $716.1 |
| Net income attributable to UGI | $85.3 | $(1.9) | $522.8 | $307.7 |
| Diluted EPS | $0.41 | $(0.01) | $2.49 | $1.73 |
| Adjusted net income attributable to UGI | $15.9 | $23.9 | $589.7 | $421.6 |
| Adjusted diluted EPS | $0.08 | $0.13 | $2.81 | $2.38 |
- Profitability and unusual items: Third-quarter GAAP income benefited from commodity derivative gains and a CARES Act tax benefit, partly offset by a $51.6 non-cash impairment of assets held for sale, COVID-19 effects, transformation costs, and higher interest and depreciation expense. Adjusted quarterly earnings declined year over year; adjusted nine-month earnings increased.
- Segment trends: For the nine-month period, Midstream & Marketing earnings before interest and taxes rose to $161.2 from $99.7, primarily reflecting incremental UGI Appalachia gathering margin and Pennant equity income. UGI Utilities’ comparable measure increased to $228.5 from $218.5, while AmeriGas Propane’s operating income fell to $390.1 from $412.7. UGI International’s increased operating income to $230.1 from $212.7 as lower operating costs more than offset weaker margin.
- Cash flow: Nine-month operating cash flow was $962.8, versus $924.6. Investing activities used $450.0, including $471.1 of property, plant and equipment expenditures; financing activities used $501.3. Cash, cash equivalents and restricted cash totaled $531.8 at June 30.
- Debt and liquidity: Total debt, including short-term borrowings, was $6,410.3 at June 30, compared with $6,600.3 at September 30, 2019. Short-term borrowings declined to $423.1 from $796.3, while long-term debt increased. Available liquidity, including cash and available revolving credit capacity, was approximately $1.6 billion. UGI reported compliance with debt covenants and no near-term senior-note or term-loan maturities.
- Margins: The filing reports segment total-margin measures rather than a consolidated margin percentage. Nine-month total margin increased $78.6 at Midstream & Marketing and $20.0 at UGI Utilities, but declined $55.9 at AmeriGas Propane and $19.8 at UGI International.
Changes, outlook, risks and contingencies
- Revenue declined year over year in both the quarter and nine-month period, primarily reflecting lower energy prices and volumes; COVID-19, weather, and foreign exchange also affected results. UGI said pandemic effects had significantly impacted fiscal 2020 performance, but it could not predict their duration or total financial impact.
- Management did not provide a specific full-year earnings forecast in the supplied filing text. It expected revised tax regulations to provide a significant fourth-quarter fiscal 2020 tax benefit, subject to ongoing evaluation and tax-return filing.
- UGI expects AmeriGas’ multi-year transformation initiatives to generate more than $120 million in annual savings after completion, at an estimated total cost of approximately $175 million. UGI International’s Project Alliance is expected to generate more than €30 million in annual savings, with estimated total costs of approximately €55 million. These are management expectations, not guaranteed outcomes.
- After quarter-end, UGI agreed to sell its approximately 5.97% interest in the Conemaugh power station; the agreement resulted in the $51.6 impairment recorded at June 30. Energy Services also acquired renewable natural gas company GHI Energy in July 2020.
- A proposed settlement in UGI Utilities’ Pennsylvania gas rate case, filed August 3, would allow a phased $20.0 annual base-rate increase in 2021, subject to regulatory approval. The filing does not establish that approval had been granted.
- The PennEast pipeline investment remains exposed to legal uncertainty; an adverse outcome could delay or prevent the project and impair some or all of UGI’s investment. Other disclosed exposures include environmental remediation, propane antitrust litigation, commodity prices, interest and currency rates, customer credit, and pandemic-related demand and collection risks.
- UGI increased its quarterly dividend to $0.33 per share. Management stated that liquidity was expected to support ongoing operations and commitments, while noting uncertainty around COVID-19 and access to financing on acceptable terms.
Investor verification points
- Reconcile GAAP and adjusted earnings, particularly the effects of commodity derivatives, CARES Act tax benefits, and the Conemaugh impairment.
- Assess whether COVID-19 effects, warmer European weather, and lower LPG volumes persist, and whether expected transformation savings are achieved.
- Verify regulatory approval and timing of the proposed UGI Utilities rate settlement and recovery of eligible pandemic-related costs.
- Monitor debt, available borrowing capacity, covenant compliance, and extension of the Energy Services receivables facility scheduled to expire in October 2020.
- Track PennEast litigation and environmental and antitrust contingencies for changes in estimated exposure.