Q3 2024 UGI Corp Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the UGI Corporation Q3 2024 Earnings Conference Call.
goodday and thank you for standing by
Operator: Thank you for joining us for the Q3 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.
Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tameka Morris, Senior Director of Investor Relations. Please go ahead.
Speaker Change: Welcome to the UGI Corporation Q3 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tameka Morris, Senior Director of Investor Relations. Please go ahead.
Tameka Morris: Good morning, everyone. Thank you for joining our fiscal 2024 third quarter earnings call. With me today are Mario Longhi, Interim President and CEO, Sean O'Brien, CFO, and Bob Beard, CEO. On today's call, we will provide a business update and discuss our financial results before concluding with a question and answer session. Before we begin, let me remind you that our comments today include certain forward-looking statements which management believes to be reasonable as of today's date or.
Speaker Change: Good morning, everyone. Thank you for joining our Fiscal 2024 Third Quarter Earnings Call. With me today are Mario Longhi, Interim President and CEO , Sean OBrien, CFO , and Bob Beard, COO.
Speaker Change: on today' call we will provide a business update and discuss our financial results before concluding with our question-and answer session
Speaker Change: before we begin let me remind you that our comments today include certain forward-looking statements which management believes to be reasonable as of today's date oring
Tameka Morris: Actual results may differ significantly because of risks and uncertainties that are difficult to predict. Please read our earnings release and our most recent annual report for an extensive list of factors that could affect results. We assume no duty to update or revise forward-looking statements to reflect events or circumstances that are different from expectations.
Speaker Change: actual results may differ significantly because of risks and uncertainties that are difficult to predict please reador earnings release and are more recent annual reports for an extensive list of factors that could affect results
Speaker Change: We assume no duty to update or revise forward-looking statements to reflect events or circumstances that are different from expectation.
Tameka Morris: We will also describe our business using certain NGAP financial measures. Reconciliations of these measures to the Comparable Gap Measures are available in our presentation. And with that, I'll turn the call over to Mary. Thank you, Tameka.
Speaker Change: We will also describe our business using certain non- GAAP financial measures.
Speaker Change: for conciliations of these measures that the comparable gaap measures are available within all presentation
Mario Longhi: Thank you, Tameka, and good morning, everyone. FGI delivered solid results for the fiscal third quarter, reporting earnings per share of six cents in comparison to zero cents in the prior year. Our team has continued to make steady progress in executing on our key strategic priorities, including our focus on driving sustainable cost savings across the business, which is reflected in the results for the border. In alignment with our objective to strengthen the balance sheet, particularly at Amerigas and the corporate level, we executed several critical financing transactions during the quarter. These transactions are done.
Speaker Change: And with that, I'll turn the call over to Mario.
Mario Longhi: Some of these, which Sean will further discuss, have enhanced our overall liquidity, begun to address upcoming maturities, and supported Amerigas in its journey to stabilize operations. At the end of the quarter, UGI had available liquidity of $1.9 billion, inclusive of cash and cash equivalents, and available barring capacity on our revolving credit facilities. We continue to explore opportunities to optimize our portfolio across the entire business. This quarter, UGI Energy Services entered into a stock purchase agreement to divest Hoelock Creek, a 169 megawatt natural gas fired facility located in Pennsylvania, and we completed the sale of the LPG business
Mario: thank you to meka and good morning everyone
Mario: UGI delivered solid results for the fiscal third quarter, reporting a just earnings per share of $0.06 in comparison to $0.00 in the prior year.
Mario Longhi: For the fiscal year, we anticipate raising approximately $80 million of cash proceeds from divestment and are using reducing absolute death across the, Lastly, I want to highlight that in July, we released our sixth annual ESG report entitled The Journey, Managing Climate Risks and Opportunities, which provides an update on the progress made on our key ESG commitments. Of note, we are pleased to report that we achieved a 50% reduction in Scope 1 emissions while positioning the company to meet its commitment to delivering a 55% reduction by the end of fiscal 2025.
Speaker Change: Our team has continued to make steady progress in executing on our key strategic priorities, including our focus on driving sustainable cost savings across the business, which is reflected in the results for the border.
Mario: In alignment with our objective to strengthen the balance sheet, particularly at Amerigas and the corporate level, we executed several critical financing transactions during the quarter.
Speaker Change: These transactions
Speaker Change: Some of which Sean will further discuss have enhanced our overall liquidity, begun to address upcoming maturities, and supported Amerigas in its journey to stabilize operations.
Sean: At the end of the quarter, UGI had available liquidity of $1.9 billion, inclusive of cash and cash equivalents, and available borrowing capacity on our revolving credit facilities.
Unknown Executive: continue to explore opportunities to optimize our portfolio across the entire business, and entered into a stock purchase agreement to divest Hoelock Creek. UGI delivered one of the strongest year-to-date financial performances in its history, year to date, our weather resilient and growth-oriented natural gas business. Across the enterprise, the actions taken to optimize our cost profile and create greater efficiencies have begun to provide a meaningful contribution to our financial performance, and we expect to achieve the targeted $70 to $100 million in permanent cost savings by the end of fiscal 2024.
Sean: next
Speaker Change: we continue to explore opportunities to optimize our portfolio across the entire b
Speaker Change: This quarter, UGI Energy Services entered into a stock purchase agreement to divest of Hoelock Creek.
Speaker Change: a 169 megawatt natural gas fired facility located in Pennsylvania. And we completed the sale of the LPG business in Switzerland.
Speaker Change: For the fiscal year, we anticipate raising approximately $80 million of cash proceeds from divestitures.
Speaker Change: or using reducing absolute deatht across the entity
Speaker Change: Lastly, I want to highlight that in July , we released our sixth annual ESG report entitled The Journey, Managing Climate Risks and Opportunities.
Speaker Change: which provides an update on the progress made on our key ESG commitments.
Speaker Change: Of note, we are pleased to report that we achieved 50% reduction in Scope 1 emissions while positioning the company to meet its commitment of delivering a 55% reduction by the end of fiscal 2025.
Sean O'Brien: Similarly, we achieved our goal of a 25% improvement in spend with diverse tier one and tier two suppliers two years ahead of schedule. On a year-to-date basis, despite several headwinds facing the business world, UGI delivered one of the strongest year-to-date financial performances in its history. Reporting adjusted diluted IPFs of $3.22, year to date, our weather resilient and growth-oriented natural gas business achieved a 23% increase in adjusted earnings per share and continues to maintain a strong balance sheet.
Speaker Change: Similarly, we achieved our goal of a 25% improvement in spend with diverse Tier 1 and Tier 2 suppliers two years ahead of schedule.
Speaker Change: on a year-to-date basis, despite several headwinds facing the business.
Speaker Change: UGI delivered one of the strongest year-to-date financial performances in its history, reporting adjusted diluted EPS of $3.22.
Speaker Change: Here to date, our weather-resilient and growth-oriented natural gas businesses.
Speaker Change: achieved a 23% increase in adjusted earnings per share and continued to maintain a strong balance sheet.
Sean O'Brien: UJI International delivered a 43% increase in adjusted earnings per share when compared to the prior year, and generated approximately $140 million in free cash flow. We continue to execute on our objectives to stabilize and optimize the business, and this includes reducing costs and eliminating inefficiencies. Across the enterprise, the actions taken to optimize our cost profile and create greater efficiencies have begun to provide a meaningful contribution to our financial performance, and we expect to achieve the targeted $70 to $100 million in permanent cost savings by the end of fiscal 2024.
Speaker Change: UGI International delivered a 43% increase in adjusted earnings per share when compared to the prior year and generated approximately $140 million in free cash flow.
Speaker Change: at america
Speaker Change: We continue to execute on our objectives to stabilize and optimize the business, and this includes reducing costs and eliminating inefficiencies.
Speaker Change: Across the enterprise, the actions taken to optimize our cost profile and create greater efficiencies have begun to provide a meaningful contribution to our financial performance
Speaker Change: And we expect to achieve the target of $70 to $100 million in permanent cost savings by the end of fiscal 2025.
Sean O'Brien: And based on our assumptions for the fourth quarter, we are on track to deliver on our fiscal 2024 adjusted EPS guidance range of $2.70 to $3. Also of note. While we are employing a strong capital discipline, we continue to exact a substantial amount of capital in our natural gas business here today. UGI deployed approximately $510 million of capital expenditure, with 77% allocated to both the regulated utilities for infrastructure replacement and betterment in the midstream and marketing sector.
Speaker Change: with this back drop and based on our assumptions for the fourth quarter we are on track to deliver on our fiscal two thousand and twenty-four adjusted ns guidance range of two dollars a seventy cents to three dollars
Speaker Change: Also of note, while we are employing strong capital discipline, we continue to invest a substantial amount of capital in our natural gas businesses.
Speaker Change: Here today, UGI deployed approximately $510 million of capital expenditure, with 77% allocated to both the regulated utilities for infrastructure replacement and betterment in the midstream and marketing segment.
Sean O'Brien: The utility segment continues to be an area of organic growth, and we are pleased with the addition of roughly 10,000 residential, heat, and commercial customers on a year-to-date basis. I want to thank our dedicated employees who work hard every day to execute a great strategy and deliver these stellar results. And with that, I'll hand you over.
Speaker Change: The utility segment continues to be an area of organic growth, and we are pleased with the addition of roughly 10,000 residential, heating, and commercial customers on an year-to-date basis.
Speaker Change: I want to thank our dedicated employees who work hard every day to execute a nice strategy and deliver these stellar results.
Speaker Change: And with that, I'll hand the call over to Sean to discuss the financial results for the quarter.
Sean O'Brien: Thanks, Mario, and good morning. First, I will provide my comments on the performance for the quarter before turning to the outlook for the rest of this fiscal year. As Mario mentioned, for the fiscal 2024 third quarter, UGI delivered adjusted diluted EPS of $0.06, in comparison to $0.00 in the prior year period. The utility segment was up one penny, arguably due to higher gas and electric base rates, and results for the midstream and marketing segment were flat to the prior year. UGI International reported an increase of $0.13, largely stemming from higher LPG unit margins and lower operating and administrative expenses. Amerigas was flat as lower EBIT was offset by favorable income tax.
Sean: Thanks, Mario, and good morning. First, I will provide my comments on the performance for the quarter before turning to the outlook for the rest of this fiscal year.
Sean: As Mario mentioned, for the fiscal 2024 third quarter, UGI delivered adjusted diluted EPS of $0.06, in comparison to $0.00 in the prior year period.
Sean: The utility segment was up one penny, arguably due to higher gas and electric base rates, and results for the midstream and marketing segment were flat to prior year.
Unknown Executive: UGI International reported an increase of $0.13, largely stemming from higher LPG unit margins and lower operating and administrative expenses. In addition, we recorded a $25 million non-cash impairment associated with the write-off of our investment related to a renewable dimethyl ether pilot plant.
Sean: UGI International reported an increase of 13 cents largely stemming from higher LPG unit margins and lower operating and administrative expenses.
Sean: Amerigas was flat as lower EBIT was offset by favorable income taxes.
Sean O'Brien: Similar to the prior quarter, the impact at Corp and other was related to taxes, offsetting the effects of the tax benefit at AmeriCorps. Before I walk through the key drivers for each reportable segment, I also wanted to note that excluded from adjusted net income was a $45 million non-cash impairment related to the Hunlunk Creek Act. As Mario mentioned, we entered into an agreement to sell that asset, generating cash that is being used to pay down debt and improve our credit.
Sean: Similar to the prior quarter, the impact at Corp and other was related to taxes, offsetting the effects of the tax benefit at Amerigas.
Speaker Change: Before I walk through the key drivers for each reportable segment, I also wanted to note excluded from adjusted net income was a $45 million non-cash impairment related to the Hunlunk Creek Asset.
Speaker Change: As Mario mentioned, we entered into an agreement to sell that asset, generating cash that is being used to pay down debt and improve our credit metrics.
Sean O'Brien: In addition, we recorded a $25 million non-cash impairment associated with the write-off of our investment related to a renewable dimethyl ether pilot plant. This action aligns with our previously communicated intent to limit investment in renewables, limiting spend to the $500 million of committed capital.
Speaker Change: In addition, we recorded a $25 million non-cash impairment associated with the write-off of our investment related to a renewable dimethyl ether pilot plant.
Speaker Change: This action aligns with our previously communicated intent to criterion investment in renewables, limiting spend to the $500 million of committed capital.
Sean O'Brien: Now moving to the review of each segment performance versus the prior year. For the utility segment, EBIT was $39 million for the third quarter, up $5 million over the prior year period. An $8 million increase in total margin was partially offset by increased depreciation and amortization expense associated with continued investment in our distribution system, core market volume was flat as customer growth was offset by weather that was 17% warmer than the prior year. The utilities realized an increase in total margins largely due to higher gas and electric base rates, Incremental Benefits from the DISC Program, as well as Continued Customer Growth.
Speaker Change: Now moving to the review of each segment performance versus the prior year period.
Speaker Change: At the utility segment, EBIT was $39 million for the third quarter, up $5 million over the prior year period.
Speaker Change: An $8 million increase in total margin was partially offset by increased depreciation and amortization expense associated with continued investment in our distribution system.
Speaker Change: The core market volume was flat as customer growth was offset by weather that was 17% warmer than the prior year.
Speaker Change: The utilities realize an increase in total margins largely due to higher gas and electric base rates, incremental benefits from the DISC program, as well as continued customer growth.
Sean O'Brien: Next, Midstream and Marketing reported EBIT of $43. $2 million, an increase over the prior year period, reflecting, among other things, a $1 million reduction in operating and administrative expenses at UGA International. Even with $57 million, up $35 million on a year-over-year basis, LPG volumes declined by 4% to the prior year, primarily due to the effect of warmer weather and lower growth in natural gas to LPG conversion. Total margin was up $18 million, driven by higher LPG unit margins and increased margin associated with the exit of the non-core energy marketing business. These increases were partially offset by the effect of lower LPG volume. On operating and administrative expenses, we realized a $19 million reduction due to lower personnel and maintenance costs. Nicely done, meridae.
Speaker Change: Next, Midstream and Marketing reported EBIT of $43 million, a $2 million increase over the prior year period, reflecting, among other things, a $1 million reduction in operating and administrative expenses.
Unknown Executive: $2 million increase over the prior year period, reflecting, among other things, a $1 million reduction in operating and administrative expenses at UGA International. On operating and administrative expenses, we realized a $19 million reduction due to lower personnel and maintenance costs.
Speaker Change: at UGA International.
Speaker Change: Even with $57 million, up $35 million on a year-over-year basis.
Speaker Change: LPG volumes declined by 4% to the prior year, primarily attributable to the effect of warmer weather and lower growth in natural gas to LPG convergence.
Speaker Change: Total margin was up $18 million driven by higher LPG unit margins and increased margin associated with the exit of the non-core energy marketing business.
Speaker Change: These increases were partially offset by the effect of lower LPG volumes.
Speaker Change: on operating administrative expenses we realized the nineteen milliondoll reduction due to lower personnel and maintenance costs
Sean O'Brien: The EBIT was down $19 million on a year-over-year basis as the lower total margin was partially offset by reduced operating and administrative expenses. However, warmer weather and continued customer loss led to a 13% reduction in retail volumes over the prior year. The effect of lower volumes and lower LPG unit margins led to a $35 billion reduction in total margin when compared to the prior year. Operating and administrative expenses were down $17 million, reflecting, among other things, lower compensation and advertising.
Speaker Change: Lastly, at Amerigas, EBIT was down $19 million on a year-over-year basis as the lower total margin was partially offset by reduced operating and administrative expenses.
Speaker Change: Warmer weather and continued customer loss led to a 13% reduction in retail volumes over the prior year.
Speaker Change: The effect of lower volumes and lower LPG unit margins led to a $35 billion reduction in total margin when compared to the prior year.
Unknown Executive: Operating and administrative expenses were down $17 million, reflecting, among other things, lower compensation and advertising. As we look to drive sustainable operational efficiencies, right-size the organization, and strengthen our overall cost structure, As we turn to the fiscal 2024 fourth quarter, I want to remind you that we typically give back some earnings in this quarter due to the seasonal nature of the business, and we anticipate that the capital expenditure will be covered by our insurance policy. Turning to the Balance Sheet. Most importantly, Amerigas leverage was 4.9. Since the beginning of fiscal 2023, we have reduced absolute debt by approximately $300 million and executed important financings to support the business.
Speaker Change: Operating and administrative expenses were down $17 million, reflecting, among other things, lower compensation and advertising expenses.
Sean O'Brien: Moving on to the Full Year Outlook. As Mario shared, we've delivered one of the strongest year-to-date financial performances. Across our reportable segments, we delivered a $54 million reduction in operating and administrative expenses. As we look to drive sustainable operational efficiencies, right-size the organization, and strengthen our overall cost structure. The natural gas businesses are up 43 cents year over year from higher base rates and benefits from the weather normalization rider, which partially offsets the effect of warmer weather and increased capacity management margin.
Speaker Change: Thank you.
Speaker Change: Pivoting to the Full Year Outlook.
Speaker Change: As Mario shared, we've delivered one of the strongest year-to-date financial performances.
Speaker Change: Across our reportable segments, we delivered a $54 million reduction in operating administrative expenses as we look to drive sustainable operational efficiencies, right-size the organization, and strengthen our overall cost profile.
Speaker Change: The natural gas businesses are up 43 cents year-over-year from higher base rates, benefits from the weather normalization rider, which partially offset the effect of warmer weather, and increased capacity management margins.
Sean O'Brien: The global LPG businesses are down two cents on a year-to-date basis, as lower operating administrative expenses, increased LPG margins at UGI International, and higher margins due to the continued exit of the non-core European energy marketing business have been fully offset by the effect of lower volumes at America. As we turn to the fiscal 2024 fourth quarter, I want to remind you that we typically give back some earnings in this quarter due to the seasonal nature of the business.
Speaker Change: The global LPG businesses are down two cents on a year-to-date basis.
Speaker Change: As lower operating and administrative expenses, increased LPG margins at UGI International, and higher margins due to the continued exit of the non-core European energy marketing business, have been fully offset by the effect of lower volumes at Amerigas.
Speaker Change: As we turn to the fiscal 2024 fourth quarter, I want to remind you that we typically give back some earnings in this quarter due to the seasonal nature of the business.
Sean O'Brien: Outside of the normal earnings cadence, we anticipate that business will continue to benefit from the cost reduction efforts and the windfall of the European energy marketing operation. However, these benefits will be more than offset by lower LPG volumes and reduced gain from asset sales at Amerigas and lower earnings for the midstream and marketing business when compared to the prior year. Lastly, I want to point out that we are addressing damage to the jetty at Norgal, one of our supply terminals in France.
Speaker Change: Outside of the normal earnings cadence, we anticipate that business will continue to benefit from the cost reduction efforts and the wind-down of the European energy marketing operations.
Speaker Change: These benefits will be more than offset by lower LPG volumes and reduced gain from asset sales at Amerigas and lower earnings for the midstream and marketing business when compared to the prior year.
Speaker Change: Lastly, I want to point out that we are addressing damage to the jetty at Norgale, one of our supply terminals in France.
Sean O'Brien: Repairs to this facility, in which UGI has a 61% ownership interest, are expected to take up to 18 months, and we anticipate that the capital expenditure will be covered by our insurance power. The impact in the fiscal year is forecasted to be a material one to two cents. But at this point, we anticipate that the impact in fiscal 2025 could be as much as five to eight.
Speaker Change: Repairs to this facility in which UGI has a 61% ownership interest are expected to take up to 18 months and we anticipate that the capital expenditure will be covered by our insurance policy.
Speaker Change: The impact in the fiscal year is forecasted to be immaterial, 1-2 cents.
Speaker Change: But at this point, we anticipate that the impact of fiscal 2025 could be as much as five to eight cents.
Sean O'Brien: We continue to work through modifications to our supply and logistics plan, and we will provide more information on our year-end earnings. Turning to the Balance Sheet. We completed several key financing activities this quarter, which align with the priorities that we shared with you earlier in the year. Most notably, in June, UGI issued $700 million of 5% convertible senior notes due in 2028. The net proceeds were used to repay a portion of borrowings under the UGI Corporation Credit Facilities to make a cash contribution to Amerigas Propane and for general corporate purposes.
Speaker Change: We continue to work through modifications to our supply and logistics plan, and we will provide more information on our year-end earnings call.
Sean O'Brien: We repurchased $475 million of the 2025 senior notes at American using cash on hand, $315 million in parental contributions, and other sources of liquidity. With these actions, UGI's Q3 Leverage Ratio was 3.9 times, within our target range of 3.5 to 4.0. Most importantly, Amerigat's leverage was 4.9. Lastly, on August 2, Amerigas entered into a new five-year senior secured asset-based lending revolver, which has a credit line of $200 million. Concurrent with the execution of the new revolver, Amerigas terminated the prior facility and, with it, eliminated the debt to EBITDA covenant rate.
Speaker Change: Turning to the balance sheet update.
Speaker Change: We completed several key financing activities this quarter, which align with the priorities that we shared with you earlier in the year. Most notably, in June , UGI issued $700 million of 5% convertible senior notes due in 2028.
Speaker Change: The net proceeds were used to repay a portion of borrowings under the UGI Corporation Credit Facilities to make cash contribution to Amerigas Propane and for general corporate purposes.
Unknown Executive: Next, we repurchased $475 million of the 2025 senior notes at Amerigas using cash on hand, $315 million in parental contribution, and other sources of liquidity.
Speaker Change: With these actions, UGI's Q3 leverage ratio was 3.9 times, within our target range of 3.5 to 4x.
Unknown Executive: Most importantly, Amerigas leverage was 4.9 times.
Speaker Change: Lastly, on August 2nd, Amerigas entered into a new five-year senior secured asset-based lending revolver.
Speaker Change: which has a credit line of $200 million. Concurrent with the execution of the new revolver, Amerigas terminated the prior facility and with it, eliminated the debt to EBITDA covenant ratio.
Sean O'Brien: I am incredibly proud of the company's execution on strengthening the balance. Since the beginning of fiscal 2023, we have reduced absolute debt by approximately $300 million and executed important financings to support the business. We are maintaining cost and capital discipline as we create greater financial flexibility and capacity within our balance.
Speaker Change: I am incredibly proud of the company's execution on strengthening the balance sheet.
Speaker Change: Since the beginning of fiscal 2023, we have reduced absolute debt by approximately $300 million and executed important financings to support the business.
Unknown Executive: We are maintaining cost and capital discipline as we create greater financial flexibility and capacity within our balance sheet.
Mario Longhi: And with that, I'll hand it over to Mario.
Speaker Change: And with that, I'll hand it over to Mario.
Mario Longhi: Before we open the line for Q&A, I want to acknowledge Bob Beard has elected to retire from his role as COO at the end of this calendar year. Over his 30 plus years as a highly regarded executive in the utilities and natural gas sectors, including his 16-year career with UGI, he has made many meaningful contributions to the company. Among them, one that needs to be highlighted is the development of strong and talented leaders in the natural gas line of business.
Unknown Executive: Before we open the line for Q&A, I want to acknowledge Bob Beard has elected to retire from his role as COO at the end of this calendar year, and among them, one that needs to be highlighted.
Mario: b str
Mario: Before we open the line for Q&A, I want to acknowledge that Bob Beard has elected to retire from his role as COO at the end of this calendar year.
Speaker Change: Over Bob's 30 plus years as a highly regarded executive in the utilities and natural gas sector, including his 16 year career with UGI, he has made many meaningful contributions to the company.
Unknown Executive: Among them, one that needs to be highlighted is the development of strong and talented leaders in the natural gas line of business.
Mario Longhi: As Bob will remain in his COO role through the end of the year, we will have a seamless transition to the existing leadership. I am also grateful that Bob will continue to act as an advisor to the board and the company for a period of one year post-retirement to assure strong support to our natural gas biz. In closing, I am confident that with diligent focus and execution of its key strategic priorities, UGI will continue to create sustainable value for its shareholders.
Speaker Change: As Bob will remain in his COO role through the end of the year, we will have a seamless transition to the existing leadership team.
Speaker Change: I am also grateful that Bob will continue to act as an advisor to the board and the company for a period of one year post-retirement to assure strong support to our natural gas business.
Unknown Executive: In closing, I am confident that with diligent focus and execution of the key strategic priorities, UGI will continue to create sustainable value for its shareholders.
Mario Longhi: Our priorities and the long-term commitments that we have made are clear. We continue to explore opportunities to drive further portfolio optimization and growth, prioritizing the stabilizing and optimizing Amerigas propane, seek to create operational efficiencies and establish an optimal cost structure, and drive balance sheeting. I'll now turn the call back to our operator to open the line for questions. Thank you.
Unknown Executive: Our priorities and the long-term commitments that we have made are clear.
Mario: We continue to explore opportunities to drive further portfolio optimization and growth.
Unknown Executive: prioritize the stabilizing and optimizing AmeriGas propane
Mario: Seek to create operational efficiencies and establish an optimal cost structure and drive balance sheet improvement.
Speaker Change: I'll now turn the call back to our operator to open the line for questions.
Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A list. Our first question comes from Gabriel Moreen of Mizzouho. Your line is now open.
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from Gabriel Moreen of Mizzouho. Your line is now open.
Gabriel Moreen: Hey, good morning, everyone. Maybe I can start off with the last comment on the dock damage in France. I'm just curious, one, about the EPS impact: if you're confident about recovering the damage costs from insurance, why is that going to hit EPS? Or is it going to be just a timing thing? And then also the larger implications around supply and margins and your degree of confidence that you can maintain margins. Yeah, I guess you have to scramble a little bit for supply.
Hey, good morning, everyone. Maybe I can start off with the last comment on the dock damage.
Speaker Change: I'm just curious, one, the EPS impact, if you're confident about recovering the damage costs from insurance.
Speaker Change: Why that's going to hit EPS, or is it going to be just a timing thing? And then also the larger implications around supply and margins and your degree of confidence that you can maintain margins. Yeah, I guess you have to scramble a little bit for supply.
Mario Longhi: Good morning, and thanks for the question. The coverage from insurance is going to address the amount of capital required to rebuild. As we speak, the alternative logistics plans are in place. Our customers are not suffering from that, and we just shared with you some of the expected potential impact to the operational side of the business.
Speaker Change: Good morning and thanks for the question. The coverage from insurance is going to address the amount of capital required to rebuild it.
Speaker Change: As we speak the alternative logistics plans are in place. Our customers are not suffering from that. And we just shared with you some of the expected potential impact to the operational side of the business as we get into this.
Speaker Change: the next year that was just to give you frame of reference so we're going to be validating some of those numbers that's a grit further into the analyses
Mario Longhi: Thanks Mario. And then maybe I can shift to an update at Amerigath and how you feel about how things are progressing in the broader picture. On your initiatives there, particularly with the facilities having been swapped out, and I guess being unburdened by a Datiba Da covenant there, does that change your approach in terms of how you think about investing in that business going forward? And I guess the metrics you're looking at as you head into the winter heating season here.
Speaker Change: Thanks Mario. And then maybe if I can shift to an update at Amerigas and how you feel broader picture things are progressing.
Speaker Change: on your initiatives there, particularly with the facilities having been swapped out and I guess being unburdened by a Dativa DAC.
Speaker Change: Covenant there, does that change your approach in terms of how you think about investing in that business going forward and I guess the metrics you're looking at as you head into the winter heating season here?
Mario Longhi: No, we're just a matter of fact, is a big positive when it comes to the ability to focus. You know, the strategy that we laid out to address the talent shortage inside of Amerigato, that remains a firm. The clarity around some of the root causes of issues we have, be it new algorithms to define the best way for optimizing and getting more efficient all of the logistics, as well as a greater proximity to the customers, where we're moving the organization towards a pod concept, which will create much greater interaction between local supporters of the customer base rather than having a distant support to that very same customer base.
Speaker Change: No, it just, as a matter of fact, is a big positive when it comes to ability to focus.
Unknown Executive: You know, the strategy that we laid out to address the ability inside of AmeriGas that remains that firm.
Speaker Change: The clarity around some of the root causes of issues we have, be it with new algorithms to define the best way for optimizing and getting more efficient all of the logistics.
Unknown Executive: as well as a bigger proximity to the customers where we're moving the organization towards.
Mario Longhi: So there is a lot of work that's going into that direction. The plans and the strategic approach are not changing. It's just going to allow a better focus as we take this, you know, burden over a period of time.
Unknown Executive: a pod concept, which will create much greater interaction between local supporters.
Unknown Executive: of the customer base.
Speaker Change: rather than having a distant support to that very same customer base. So there is a lot of work that's going into that direction. The plans and the strategic approach is not changing. It's just going to allow a better focus.
Unknown Executive: as we take this, you know, burden from over us.
Mario Longhi: Great. And then last one for me, if I could, you got the power plant sale under agreement, and you've invested some smaller, smaller properties in UGI International. Can you just talk about where things stand maybe prospectively for any additional asset sales as you look across the portfolio? Yeah, the portfolio analysis.
Speaker Change: Great, and then last one for me if I could. You got the power plant sale under agreement. You've invested a smaller property in UGI International. Can you just talk about where things stand maybe prospectively for any additional asset sales as you look across the portfolio?
Mario Longhi: Yeah, the portfolio analysis is a live element of what we are doing. There is quite a bit of understanding of where value lies and where opportunities lie for improvement in this portfolio for us to be able to focus on the more value-adding elements of the organization. So, more to come on that, but there is a lot of good work being put in place that continues, okay?
Speaker Change: Yeah, the portfolio analysis is a live element of what we are doing. There is quite a bit of understanding of where value lies and where opportunities lie.
Unknown Executive: for improvement on this portfolio for us to be able to focus on the more value-adding elements of the organization. So, more to come on that, but there is a lot of good work being put in place that continues, okay?
Speaker Change: Great. Thanks very much.
Operator: Again, as a reminder, to ask a question, you will need to press star one on your telephone and wait for your name to be announced. Please stand by while we bring our next caller up. Our next caller is from Paul A. Zimbardo of Jeffreys. Your line is now open.
Unknown Executive: Roger.
Speaker Change: Again, as a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced.
Operator: Please stand by while we bring our next caller up. Our next caller is Paul A. Zimbardo of Jeffreys. Your line is now open.
Operator: Please stand by while we bring our next caller up.
Operator: Our next caller is from Paul A. Zimbardo of Jeffreys. Your line is now open.
Paul A. Zimbardo: Hi, good morning, team. Thank you. Good morning.
Speaker Change: Hi, good morning team. Thank you.
Paul A. Zimbardo: I had a two-part question on CapEx. Just noticing declines pretty much across the board, but particularly the utilities. It looks like it's down about 25%, 100 million years to date. If you could discuss like what the driver is there and also look at the LPG businesses, International Amerigas, notably down as well. If we should think about those as kind of like the new run rates for the LPG businesses and just some color on what's happening at the utility.
Paul A. Zimbardo: I had a two-part question on CapEx. Just noticing declines pretty much across the board, but particularly the utilities. It looks like it's down about 25%, 100 million years to date. If you could discuss like what the driver is there, and also look at the LPG businesses, International Amerigas, notably down as well. If we should think about those as kind of like the new run rates for the LPG businesses, and just some color on what's happening at the utility.
Speaker Change: Good morning.
Paul A. Zimbardo: I had a two-part question on CapEx, just noticing declines.
Paul A. Zimbardo: Pretty much across the board, but particularly the utilities looks like it's down about 25%, 100 million year-to-date.
Paul A. Zimbardo: If you could discuss what the driver is there, and also looking at the LPG businesses, International Amerigas, notably down as well. If we should think about those as kind of like the new run rates for the LPG businesses and just some color on what's happening at the utilities.
Sean O'Brien: Yeah, Paul, Sean, I can handle that. I think that on the LPG side of the equation, we've been very clear that, you know, we're going to limit some of the capital. Obviously, we've got maintenance capital, both internationally and domestically; we're not pulling back on that. But in terms of the growth side of the equation, you know, our strategy is to focus on running those businesses, you know, stabilizing Amerigas running international. So that step-down change that you're seeing this year in the LPG businesses will continue. We have that forecasted out through the next few years, and that is our intent.
Paul A. Zimbardo: Thanks.
Paul A. Zimbardo: Yeah, Paul, it's Sean. I can handle that. I think on the LPG side of the equation, we've been very clear.
Speaker Change: that, you know, we're going to limit some of the capital. Obviously, we've got maintenance capital, both internationally and domestically, we're not pulling back on that. But in terms of the growth side of the equation, you know, our strategy is to focus on running those businesses, you know, stabilizing Amerigas running international.
Sean O'Brien: On the NatGas side, two drivers there, we're finishing up some of the renewable projects in our, you know, midstream business. I think we're about 380 million into a $500 million spend. As Mario mentioned, we've curtailed that back at one point; the company was committing, you know, a little bit over a billion dollars, but we're finishing these projects that are in service; that'll probably be about 400 this year, maybe 100 next year.
Speaker Change: so that step down change that you're seeming this year in the lbg businesses will continue we have that forecasted out through the next few years and that is our intent
Speaker Change: On the NatGas side, two drivers there, we're finishing up some of the renewable projects.
Speaker Change: In our midstream business, I think we're about $380 million.
Paul A. Zimbardo: into a $500 million
Paul A. Zimbardo: Spend, as Mario mentioned, we've curtailed that back at one point, the company was committing, you know, a little bit over a billion dollars, but we're finishing these projects that are in service.
Sean O'Brien: So you'll see that sort of pullback on the midstream side. And then on the utility side, there's a little bit of a seven flow, but we're still, you know, heavily investing in those rate-based programs to replace cast iron and bare steel. This year, we're down just a little bit.
Speaker Change: That'll probably be about 400 this year, maybe 100 next year, so you'll see that sort of pull back.
Sean O'Brien: Part of that is we are focusing on the balance sheet. Obviously, Mario talked about some divestitures, we're trying to get the balance sheet in order, but you'll still continue to see a very good chunk of capital going into the rate base. We're going to honor our commitments there. You know, over the next few years, there'll be a little bit of seasonality; I think you'll see that uptick maybe a little bit in 26 and 27.
Speaker Change: In the midstream side, and then on the utility, there's a little bit of ebb and flow, but...
Speaker Change: We're still, you know, heavily investing in those rate base.
Speaker Change: programs to replace cast iron and bare steel.
Paul A. Zimbardo: This year we're down just a little bit. Part of that is we are focusing on the balance sheet. Obviously Mario talked about some divestitures.
Speaker Change: We're trying to get the balance sheet in order, but you'll still continue to see.
Speaker Change: A very good chunk of capital going into the rate base. We're going to honor our commitments there.
Sean O'Brien: But we still have a fair amount of capital; we'll give you guidance later on the Q4 call about $25, but our goal is to keep that going. The other key metric I think to keep in mind is that about 85% of the capital that we're still deploying will be into the natural gas businesses. We've been clear on that; that's where we want to continue to grow the company.
Speaker Change: You know, over the next few years, there'll be a little bit of seasonality. I think you can see that uptick maybe.
Speaker Change: A little bit in 26 and 27, but we still have a fair amount of capital. We'll give you guidance.
Paul A. Zimbardo: later on in the Q4 call around 25.
Speaker Change: But our goal is to keep that going. The other key metric, I think, to keep in mind is about 85% of the capital that we're still deploying will be into the NatGas businesses. We've been clear on that. That's where we want to continue to grow the company.
Paul A. Zimbardo: Okay, great. No, thank you for the color across the board.
Paul A. Zimbardo: And then the last one I have is just on the leverage metrics. Nice to see the improvement through June 30. But as we fast forward to a year from now, do you think that those stay the same levels, increase, or decrease for UGI Corp and Amerigas?
Speaker Change: Okay, great. No, thank you for the color across the board.
Speaker Change: And then the last one I have is just on the leverage metrics. Nice to see the improvement through June 30. Just as we fast forward to a year from now, do you think that those stay the same levels, increase or decrease for UGI Corp and Amerigas?
Sean O'Brien: The goal is to decrease both of them. In Q3, look, we're very pleased to see 3.9 in corporate and 4.9 at Amerigas. Q3 typically is our lowest quarter, but that's why, you know, but they're definitely below where we were in Q3 of last year, so I think that's real progress. You know, I mentioned the absolute debt of the company, which I'm very excited about, is below 7 billion. That's a big move, you know, down $300 million. The absolute debt at Amerigas is below $2 billion.
Speaker Change: The goal is...
Speaker Change: to decrease.
Speaker Change: Both of them. Q3, look, we're very pleased to see 3-9 and Corp at 4-9 at Amerigas. Q3 typically is our lowest quarter, but that's why, you know, but they're definitely below where we were Q3 of last year. So I think that's real progress. You know, I mentioned the absolute.
Speaker Change: Debt of the company, I'm very excited, is below $7 billion.
Speaker Change: That's a big move, you know, down $300 million. The absolute debt at Amerigas is below $2 billion.
Sean O'Brien: It wasn't that long ago that Amerigas was holding about $2.7, $2.8 billion. So, some big milestones. I think you're thinking about it right, Paul. I think the balance sheet stays in focus through fiscal 25. I think we continue to, hopefully, make some progress on that side of the equation. So, the short answer is that we want to continue to see improvement. Remember, our range is at corporate three, five, to four. So, we're still at the top end of that range, but within it. And the same thing with Amerigas, four, five, and we're at the top end of that range as well. So, good progress, but still a little more to do.
Speaker Change: It wasn't that long ago that Amerigas was holding about $2.7, $2.8 billion. So some big milestones. I think you're thinking about it right, Paul. I think the balance sheet stays in focus through fiscal 25. I think we continue, hopefully, to make some progress.
Speaker Change: on that side of the equation. So the short answer is we want to continue to see improvement. Remember our ranges at corporate 35 to 4. So we're still at the top end of that range, but within the range and the same thing with the Marigas 45 to 5. And we're at the top end of that range as well. So good progress, but still a little more to do.
Paul A. Zimbardo: Okay, great. Now, thank you all and congratulations to Bob on his retirement. Thanks, everyone.
Paul A. Zimbardo: Okay, great. Now, thank you all and congratulations to Bob on the retirement. Thanks, everyone. Thanks, Paul. Appreciate that. Thank you.
Paul A. Zimbardo: Thanks, Paul. I appreciate that. Thank you. Thank you, and one moment.
Operator: Thank you, and one moment, please. As a reminder, to ask a question, you will need to press star 11 on your telephone. I am showing no further questions at this time. I would now like to turn it back to Interim President and CEO, Mario Longhi.
Speaker Change: Thank you, and one moment, please.
Paul A. Zimbardo: and
Speaker Change: As a reminder, to ask a question, you will need to press star 11 on your telephone.
Mario Longhi: I am showing no further questions at this time. I would now like to turn it back to Interim President and CEO Mario Longhi.
Mario Longhi: Well, I appreciate you being with us today for the session, and I just want to wish you a great rest of summer and look forward to seeing you in November for the year-end call. All the best, and thanks again.
Speaker Change: Well, I appreciate you being with us today for the session, and I just want to wish you a great rest of summer and look forward to seeing you in November for the year-end call. All the best to you. Thanks again.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Goodbye.
Operator: Goodbye.
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Mario Longhi: Our customers are not suffering from that. Our customers are not suffering from that the next year. That was just to give you a frame of reference. So we're going to be verifying some of those numbers as we get further into the analysis.