UGI Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2016; compared with the same periods in 2015. Amounts are in millions of dollars except per-share data. UGI distributes and markets propane, natural gas, electricity and related services in the U.S. and Europe. Results are seasonal and generally strongest in the first and second fiscal quarters.
Financial performance
| Metric | Three months 2016 | Three months 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $1,130.8 | $1,148.1 | $4,709.5 | $5,608.3 |
| Operating income | $155.7 | $56.1 | $1,076.6 | $841.5 |
| Net income attributable to UGI | $60.7 | $9.6 | $408.5 | $290.2 |
| Diluted EPS | $0.34 | $0.05 | $2.33 | $1.65 |
| Adjusted net income attributable to UGI (non-GAAP) | $40.0 | $12.4 | $368.6 | $351.9 |
| Adjusted diluted EPS (non-GAAP) | $0.23 | $0.07 | $2.10 | $2.00 |
Quarterly GAAP earnings included after-tax commodity-derivative gains of $29.6, compared with $4.9 a year earlier, and a $6.1 after-tax debt-extinguishment loss. Nine-month GAAP earnings included $55.6 of after-tax derivative gains, versus $46.2 of losses in 2015, and the same $6.1 debt-extinguishment loss. Adjusted measures exclude specified derivative effects, Finagaz acquisition/integration costs and debt-extinguishment losses; they are non-GAAP measures, not substitutes for GAAP results.
Quarterly adjusted earnings improved mainly on UGI International, UGI Utilities and AmeriGas Propane, partly offset by Midstream & Marketing. For nine months, adjusted earnings rose modestly: UGI International’s improvement was offset by declines in UGI Utilities, Midstream & Marketing and AmeriGas Propane. The nine-month revenue decline largely reflects lower energy prices and reduced volumes, including warmer-weather effects.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $863.0, down from $968.1. Investing used $367.1, including $370.6 of property, plant and equipment expenditures and $60.3 of net acquisition spending. Financing provided $48.6.
- Cash and cash equivalents were $909.2 at June 30, 2016, versus $369.7 at September 30, 2015. Management said liquidity at each business unit was sufficient for anticipated needs, while noting that capital-market financing may not be available on acceptable terms.
- Total debt was $4,300.9, compared with $3,889.7 at September 30, 2015. The higher cash and debt balances primarily reflect late-June debt issuances and the timing of subsequent repayments. Current assets were $1,882.1 and current liabilities $1,589.3.
- AmeriGas issued $1.35 billion of senior notes at 5.625% and 5.875%, partly refinancing higher-coupon notes; $917.1 of old notes were repaid in June, with further redemptions completed or scheduled after quarter-end. UGI Utilities issued $100 of 2.95% notes and planned additional long-dated note issuances to refinance $175 of 5.75% notes due September 2016.
- UGI declared a quarterly common-stock dividend of $0.2375 per share, a 4.4% increase from $0.2275.
Business drivers and material changes
- AmeriGas Propane: Third-quarter adjusted EBITDA increased to $64.6 from $48.9, with higher unit margins and lower operating costs. Nine-month adjusted EBITDA declined to $537.7 from $579.5 as retail gallons fell 10.8%; temperatures were 14.3% warmer than normal. Lower propane costs supported margins but did not offset lower volumes.
- UGI International: Third-quarter income before tax was $27.7 versus a loss of $16.9; nine-month income before tax rose to $211.2 from $87.8. Results include the full-period contribution from Finagaz, acquired in May 2015, and reflect higher margins and volumes, partly offset by acquisition-related costs. The China LPG business was sold in March 2016 without material financial-statement impact.
- UGI Utilities: Third-quarter income before tax increased to $20.7 from $10.3, aided by colder-than-prior-year spring weather and lower operating costs. Nine-month income before tax declined to $164.7 from $207.3, principally due to warmer weather and lower core-market volumes.
- Midstream & Marketing: Income before tax declined to $10.9 from $19.0 in the quarter and to $130.3 from $162.6 for nine months. Lower capacity-management margins, commodity prices, weather-related demand and planned power-plant outages weighed on results; gathering and peaking activity partly offset the declines.
Outlook, risks and contingencies
The filing gives no specific full-year earnings guidance. Management cited weather, commodity prices, customer demand and foreign-exchange movements as key uncertainties, and said available cash, operating cash flow, credit facilities and financing access were expected to meet anticipated commitments. Management emphasized that interim results are not necessarily indicative of full-year results.
- A proposed UGI Gas rate settlement would allow a $27.0 annual base-rate increase effective October 19, 2016, subject to regulatory approval; the original request was $58.6. Approval and timing remained uncertain.
- UGI Gas recorded $43.8 of estimated environmental remediation liabilities under a new Pennsylvania DEP agreement; associated costs were recorded as regulatory assets because recovery from customers was considered probable. Other MGP remediation obligations and recovery mechanisms remain relevant.
- Propane-cylinder antitrust class-action litigation remains pending, including a new indirect-purchaser case filed July 21, 2016. The company said it could not reasonably estimate any impact and intends to defend the claims.
- Commodity, interest-rate and currency movements may affect earnings, collateral needs and the value of foreign net assets. The filing reports a $57.0 estimated increase in commodity-derivative losses under a hypothetical 10% adverse price move; this is a sensitivity, not a forecast.
- The Energy Services receivables facility was scheduled to expire in October 2016; the company intended to extend it. AmeriGas expected a further approximately $12 debt-extinguishment loss in the fourth quarter from remaining note redemptions.
Important facts for investors to verify
- Whether the PUC approved the UGI Gas settlement and when the rate increase took effect.
- Completion and final cost of AmeriGas’ remaining note redemptions, including the anticipated additional extinguishment loss.
- Renewal terms and availability of the Energy Services receivables facility and the planned UGI Utilities refinancing.
- How much reported earnings growth reflects Finagaz, weather and derivative gains versus recurring operating performance; compare GAAP and non-GAAP measures.
- Developments in the antitrust litigation, environmental remediation and regulatory recovery matters.