UGI Corporation — FY2018 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2018. The filing is an annual report, not a standalone fourth-quarter report; it also presents unaudited quarterly data. UGI is an energy holding company operating through AmeriGas Propane, UGI International, Midstream & Marketing, and regulated UGI Utilities.
Key financial metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $7.651 billion | $6.121 billion |
| Operating income | $1.064 billion | $1.004 billion |
| Net income attributable to UGI | $718.7 million | $436.6 million |
| Diluted EPS | $4.06 | $2.46 |
| Adjusted net income attributable to UGI (non-GAAP) | $485.6 million | $406.1 million |
| Adjusted diluted EPS (non-GAAP) | $2.74 | $2.29 |
| Cash from operating activities | $1.085 billion | $964.4 million |
| Capital expenditures, excluding acquisitions | $594.3 million | $623.6 million |
| Total debt | $4.590 billion | $4.539 billion |
| Cash and cash equivalents | $452.6 million | $558.4 million |
| Common dividends declared per share | $1.02 | $0.975 |
Revenue increased 25.0%, while operating income increased 6.0%; operating margin was approximately 13.9%, versus 16.4% in FY2017. The comparison is affected by energy commodity pass-through revenue and significant tax and other unusual items.
Segment performance and material changes
- AmeriGas Propane: Revenue was $2.823 billion, up 15.1%; adjusted EBITDA was $605.5 million, up 9.8%. Retail gallons increased 3.3% as U.S. weather was 13 percentage points colder than the prior year. A $75.0 million non-cash trademark impairment reduced operating income.
- UGI International: Revenue was $2.684 billion, up 42.9%, and operating income was $223.1 million, up 14.0%. Acquisitions, including UniverGas in Italy and DVEP in the Netherlands, contributed materially; stronger euro and sterling translation also lifted reported results. European temperatures were warmer than normal.
- Midstream & Marketing: Revenue was $1.422 billion, up 26.8%, and operating income was $173.9 million, up 24.9%. Growth reflected gathering, peaking and capacity-management activity, the Sunbury Pipeline, and higher electricity generation. Steelton LNG entered service; the company also acquired gathering assets and a 44 MW gas turbine.
- UGI Utilities: Revenue was $1.092 billion, up 23.1%, and adjusted net income attributable to UGI was $140.9 million, up 21.5%. Gas throughput and customer additions increased. The segment’s reported revenue and pretax income were affected by regulatory treatment of tax savings.
Operating cash flow rose from $964.4 million to $1.085 billion. Investing used $747.9 million, including $187.2 million for acquisitions; financing used $438.2 million. Cash declined by $105.8 million during the year. At year-end, short-term borrowings were $424.9 million and long-term debt was $4.165 billion. Management stated that each business unit had sufficient liquidity for FY2019, while noting capital-market access is not assured on acceptable terms.
Outlook, commentary, risks and unusual items
- Management described FY2018 weather as normal to slightly warmer than normal overall, but materially colder in U.S. operations than FY2017. It attributed improved adjusted results to weather, lower U.S. federal taxes, acquisitions, growth initiatives, infrastructure investments and utility rate increases.
- Estimated FY2019 capital expenditures are $743 million, including $375 million for UGI Utilities, $129 million for Midstream & Marketing, $122 million for UGI International and $117 million for AmeriGas. The filing gives no explicit FY2019 earnings or EPS guidance.
- GAAP net income includes a $166.3 million benefit from remeasuring U.S. deferred tax balances and a $12.1 million benefit from French tax-law changes. Management’s adjusted measures exclude these remeasurement gains, derivative gains and other specified items. The tax accounting was partly provisional and subject to refinement.
- After year-end, UGI International refinanced term debt with a €350 million 3.25% note due 2025, a €300 million term loan, and a €300 million revolving facility, using proceeds and cash on hand to repay earlier loans. This refinancing changes the maturity and interest-rate profile from the September 30 balance-sheet presentation.
- Key risks include winter-weather variability; volatile LPG, natural gas and power prices; supply and transport interruptions; competition and declining LPG industry volumes; foreign exchange and interest-rate exposure; utility rate recovery; acquisition integration; environmental remediation; cybersecurity; and climate and other regulatory changes.
- A PAPUC enforcement complaint related to a 2017 natural-gas explosion seeks approximately $2.1 million in civil penalties; UGI Utilities contested the allegations. The filing also describes environmental remediation obligations and propane-cylinder antitrust class-action litigation whose impact management could not reasonably estimate.
Most important facts for investors to verify
- Reconcile the $718.7 million GAAP net income and $4.06 diluted EPS to adjusted net income of $485.6 million and adjusted diluted EPS of $2.74, focusing on tax remeasurement and derivative adjustments.
- Review segment results excluding acquisition, currency-translation and weather effects, and assess whether FY2018 growth is repeatable.
- Examine the debt maturity schedule, covenants, refinancing terms, and subsidiary restrictions on transfers to the parent; approximately $1.5 billion of subsidiary net assets were restricted from transfer.
- Track the $743 million FY2019 capital plan, PennEast’s construction and regulatory milestones, and expected returns from recent infrastructure and acquisition investments.
- Monitor resolution and potential financial exposure from the pipeline incident complaint, environmental matters and antitrust litigation.
- Assess the quality and sustainability of cash flows and dividends given seasonal working-capital needs, acquisitions, capital spending and the holding company’s reliance on subsidiary distributions.