UGI Corporation — Form 10-Q Summary
Business context and reporting period
UGI reported its fiscal first quarter, the three months ended December 31, 2020, compared with the three months ended December 31, 2019. Its businesses include U.S. and European propane distribution, regulated gas and electric utilities, and energy marketing and midstream operations. Results are seasonal and generally strongest in the first and second fiscal quarters.
Financial results and liquidity
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $1.932 billion | $2.007 billion |
| Operating income | $502 million | $377 million |
| Net income attributable to UGI | $303 million | $212 million |
| Diluted EPS | $1.44 | $1.00 |
| Adjusted net income (non-GAAP) | $247 million | $246 million |
| Adjusted diluted EPS (non-GAAP) | $1.18 | $1.17 |
| Cash from operating activities | $151 million | $118 million |
| Capital expenditures | $187 million | $182 million |
Revenue declined about 4%, while GAAP net income and diluted EPS rose. Management said the GAAP comparison benefited from gains on unrealized commodity and foreign-currency derivatives in the current period versus losses in the prior-year period. Adjusted net income was nearly unchanged. The current-period results also included a tax benefit related to the CARES Act.
At December 31, 2020, cash and cash equivalents were $416 million; total debt was $6.601 billion, including $568 million of short-term borrowings. Total available liquidity, including cash and available revolving-credit capacity, was approximately $1.5 billion. UGI reported compliance with debt covenants and no near-term senior note or term-loan maturities. Operating cash flow is seasonally low in the first fiscal quarter; working-capital changes used $218 million of cash.
Material changes versus the prior comparable period
- AmeriGas Propane: Operating income fell to $141 million from $165 million. Warmer weather, lower retail gallons sold and lower unit margins reduced total margin; lower operating expenses partly offset the decline.
- UGI International: Operating income increased to $135 million from $96 million, with stronger LPG margins and euro translation effects contributing. Retail LPG volume declined 4%.
- Midstream & Marketing: Operating income decreased to $52 million from $55 million. Lower peaking margin and the absence of divested HVAC and Conemaugh operations partly offset improved capacity-management results.
- UGI Utilities: Operating income declined to $77 million from $92 million, reflecting warmer weather, lower gas utility volumes, COVID-related commercial and industrial impacts, and higher depreciation and operating costs.
Outlook, commentary, risks and unusual items
- UGI agreed to acquire Mountaineer Gas Company for a preliminary $540 million, including assumption of approximately $140 million in debt. The transaction is subject to regulatory and other approvals and was expected to close in the second half of calendar 2021. UGI expected to use debt and/or equity-linked securities and existing liquidity to fund it.
- Management described ongoing COVID-19 effects and uncertainty around customer finances, demand, receivable collection, impairment risks, project timing, liquidity and cash flows. It said it could not predict the pandemic’s duration or total effects.
- Business transformation programs carry execution and customer-service risks. AmeriGas expected more than $140 million in annual benefits by the end of fiscal 2022, at an estimated total cost of approximately $200 million, including about $100 million of capital spending. UGI International’s Project Alliance was expected to generate more than €30 million in annual benefits, with estimated cumulative costs of approximately €55 million. Corporate-services transformation was expected to cost about $40 million over two to three years and produce more than $15 million in annualized savings by fiscal 2023.
- Gas Utility’s Pennsylvania rate settlement allows $20 million of annual base-rate increases in two phases during 2021. It also permits recovery over 10 years of specified COVID-related costs; the utility may not file another rate case before January 1, 2022.
- Risks include weather and energy-price volatility, regulatory and environmental matters, foreign-exchange exposure, customer and counterparty credit risk, project execution, and pandemic impacts. The PennEast project faced litigation concerning eminent-domain authority; an adverse outcome could delay or prevent the project and impair UGI’s investment. UGI Utilities reported $49 million of accrued environmental investigation and remediation liabilities for covered Pennsylvania sites, with recovery expected through utility rates.
- No consolidated earnings guidance for the year is provided in the filing text summarized here. Management cautioned that interim results are not necessarily indicative of full-year results.
Most important facts for investors to verify
- How much of GAAP earnings growth came from derivative mark-to-market movements and CARES Act tax benefits, versus recurring operations; review the company’s non-GAAP reconciliations.
- Whether AmeriGas volume and margin trends improve, and whether transformation savings are achieved without significant customer disruption.
- Mountaineer acquisition approvals, financing terms, closing timing and integration economics.
- Liquidity and borrowing needs through seasonal working-capital swings, capital spending and the proposed acquisition.
- Developments in PennEast litigation, COVID-related customer assistance and recoverable costs, and environmental and legal contingencies.