Q2 2025 UGI Corp Earnings Call
Hello, and welcome to the UGI Corporation fiscal 2025 second quarter 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.
Speaker Change: Like to ask a question by that time. Please press star one on your telephone keypad. Thank you I would like to turn the conference over to Jimmy Tomorrow, Vice President of Investor Relations and ESG.
You may begin.
Jimmy Tomorrow: Good morning, everyone. Thank you for joining our fiscal 'twenty three to five second quarter earnings call with me today are Bob <unk>, President and CEO and Sean O'brien CFO on today's call. We will review our second quarter financial results.
Speaker Change: Key business highlights before concluding with a 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 only.
Speaker Change: Actual results may differ significantly because of risks and uncertainties that are difficult to predict.
Speaker Change: Please read our earnings release and our annual report for an extensive list of factors that could affect results.
Speaker Change: I feel no duty to update or revise forward looking statements to reflect events or circumstances that are different from expectations.
Speaker Change: We will also describe our business using certain non-GAAP financial measures reconciliations of these measures to the comparable GAAP measures are available within oil presentation.
Bob: With that I'll turn the call over to Bob.
Bob: Thanks, Tommy and good morning to all of you.
Bob: Before we walk through our financial and operational results in detail I want to start with a summary of our year over year performance on several key financial metrics.
Bob: Starting with adjusted diluted EPS, UGI reported a 12% year over year increase for the fiscal second quarter.
Bob: Delivering the highest adjusted diluted EPS for the second quarter and year to date period in the company's history.
Bob: All four segments provided EBIT growth has solid operational execution enabled us to effectively meet higher demand, particularly from colder weather in fiscal Q2, while maintaining cost efficiencies.
Bob: With this strong performance, we have increased our fiscal 2025 guidance range to $3 to $3 15.
Bob: The balance sheet continues to strengthen with $1 9 billion in available liquidity.
Bob: And in overall leverage ratio of three eight times at the end of the quarter.
Bob: Now let me also share several other highlights during the quarter or LNG infrastructure operate at peak capacity.
Bob: Responding effectively to the sustained cold weather patterns experienced particularly in January and February.
Bob: Regional natural gas demand continues to demonstrate robust growth.
Bob: <unk> are strategically located midstream assets to deliver these essential services reliably.
Bob: Last year, we initiated an expansion project to double the liquefaction capacity at our <unk> facility.
Bob: This significantly enhances our ability to fulfill additional peaking contracts and provide vital LNG services to customers in the northeast.
Bob: Construction has now been completed and the facility is currently in commissioning with full operational status expected by fiscal 2026.
Bob: In aggregate during the quarter, we deployed $160 million in capital investment primarily in the natural gas businesses.
Bob: At the utilities, we continue to expand our reach and strategically extending our infrastructure to previously underserved communities.
Bob: Our consumer base has grown by over 6600, new residential heating and commercial accounts year to date, reflecting the persistent demand for natural gas service throughout our service territories.
Bob: Now before I hand, the call over to Shaun to walk through the financial results in more detail I'd like to speak to our fiscal 2025 guidance range.
Bob: Given our strong financial performance through the first half of the fiscal year and the continued momentum we're seeing across our businesses. We are pleased to announce an increase in the fiscal 2025 of adjusted diluted earnings per share guidance range to.
Bob: To $3 to $3 15.
Bob: This increase is largely driven by several factors.
Bob: First during the fiscal second quarter, we experienced favorable weather conditions, when compared to the 10 year normal weather used in establishing our guidance.
Bob: These weather conditions drove incremental earnings throughout all of our businesses power.
Bob: However in order to meet the winter demand, we prioritize production and distribution over certain planned operational investments, which will be executed during the second half of our fiscal year.
Bob: Next we are beginning to see some operational improvements at amerigas, which have contributed to lower customer attrition levels.
Bob: These early stage enhancements began with a pod model launched in September.
Bob: Which has removed silos and provide a greater alignment operational efficiency and accountability.
Bob: Combined with the favorable weather conditions. These improvements have resulted in a $19 million increase.
Bob: In the fiscal year to date, EBIT when compared with the prior year.
Bob: Looking ahead.
Bob: We are continuing our efforts to streamline and optimize key business processes to better position Amerigas.
Bob: For the upcoming winter season.
Bob: At UGI International we are reducing the prior estimate of a 5% to 8% headwind from the jetty damage due to Opex recovery.
Bob: Our revised estimate is approximately <unk> <unk>.
Bob: Lastly, we are operating in a fluid environment with continued evolution in trade and tariff policies.
Bob: Given the nature of our business and the limited number of items internationally, we believe the tariffs cost exposure is insignificant.
Bob: We have seen that these policies have placed downward pressure on propane prices, which can be beneficial to our customers.
Bob: Given the nature of our pricing contracts and hedging strategy, we do not anticipate material benefits or headwinds in this operating environment.
Bob: In summary, the revised guidance reflects our confidence in the underlying strength of our businesses.
Bob: Hindered our ability to continue executing our strategic priorities in the second half of the year.
Bob: I'll now turn the call over to Sean to delve further into the financial results.
Sean O'Brien: Thanks, Bob and good morning, all.
Sean O'Brien: I'll provide more detail on our financial performance for the fiscal second quarter.
Sean O'Brien: As Bob mentioned, we delivered strong results across all business segments, while continuing to strengthen our balance sheet and maintain disciplined capital allocation in a dynamic market environment.
Sean O'Brien: <unk> delivered adjusted diluted EPS of $2 21.
Sean O'Brien: 24 above the prior year period.
Sean O'Brien: The utility segment was up <unk>, given the colder weather, partially offset by higher operating and administrative expenses.
Sean O'Brien: Midstream and marketing increased 13 as the business benefited from the effects of higher investment tax credits associated with the RMG projects being placed in service this fiscal year.
Sean O'Brien: UGI International was consistent year over year, as lower operating and administrative expenses were more than offset by reduced tax benefits.
Sean O'Brien: At Amerigas, while EBIT was up $16 million over the prior year period, largely due to colder weather the effect of higher income tax expense led to a 6% decline in adjusted diluted EPS.
Sean O'Brien: As noted on the Q1 call Amerigas is experiencing a higher tax rate due to limitations on interest expense deductibility on a consolidated basis. There is a corresponding offset to normalize the corporation tax rate and this is reflected in corporate and other.
Sean O'Brien: Overall, corporate and other was up 52.
Sean O'Brien: Due to lower income taxes of 54.
Sean O'Brien: Partially offset by <unk> <unk> of higher interest expense.
Speaker Change: I'll now walk you through the key drivers for each reportable segment when compared to the prior year.
Sean O'Brien: Starting with the utility segment.
Sean O'Brien: EBIT was $241 million for the quarter up $15 million over the prior year period.
Sean O'Brien: Both core market in total system throughput showed strong growth, primarily driven by weather conditions that were 15% colder than the comparable period last year.
Sean O'Brien: This favorable weather pattern contributed to $22 million increase in total margin.
Sean O'Brien: Though this gain was partially offset by the impact of weather normalization mechanism in our Pennsylvania, and West Virginia territories.
Sean O'Brien: Operating and administrative expenses rose by $6 million, reflecting higher investments in system maintenance and increased uncollectible account expenses.
Sean O'Brien: Depreciation and amortization expenses also increased as we continue our capital investment strategy to enhance and modernize our distribution infrastructure.
Sean O'Brien: At the midstream and marketing segment, we reported EBIT of $154 million, which was comparable to the prior year.
Sean O'Brien: Total margin increased $2 million driven by strong performance in capacity management, and gas marketing activities, which more than offset lower margins from the gas gathering and processing operations margin was also impacted by the divestiture of our power generation asset, namely Homelink Creek in September 2010.
Sean O'Brien: For which contributed $3 million in the prior year period.
Sean O'Brien: Turning to the global LPG businesses.
Sean O'Brien: At UGI International LPG volumes declined by 4% as the impact of weather that was colder than prior year was more than offset by continued structural conservation and the absence of certain customers, who previously converted from natural gas to LPG.
Sean O'Brien: Total margin was down $3 million as the effect of lower LPG volumes and the translation effects of the weaker foreign currencies were largely offset by higher LPG unit margins.
Sean O'Brien: The business demonstrated continued cost discipline, reducing operating and administrative expenses by $13 million through lower personnel costs optimize maintenance programs and favorable foreign currency translation effect.
Sean O'Brien: As a reminder, we employ a multiyear foreign currency hedging strategy, which mitigates FX volatility within our overall financial results.
Sean O'Brien: Overall, EBIT grew by $12 million, driven by operational efficiencies and improved operating income that more than compensated for lower total margin compression and reduced gains on foreign currency hedge contracts.
Sean O'Brien: At Amerigas, the business benefited from the colder weather conditions, which drove higher LPG volumes and this effect was partially offset by continued customer attrition.
Sean O'Brien: We capitalized on advantageous weather conditions, which drove LPG volume growth, partially counterbalanced by continued customer attrition.
Sean O'Brien: Total margin.
Sean O'Brien: Expanded by $13 million, reflecting the combined impact of higher retail volumes and LPG unit margin improvements with minimal offset from reduced fee income.
Sean O'Brien: The segment reported EBIT of $154 million up $16 million over the prior year period fueled by higher total margins and increased gained from tank sales.
Sean O'Brien: Turning to the balance sheet I am pleased that our focused on balance sheet optimization is continuing to yield positive results as evidenced by our available liquidity of $1 9 billion and the reduction in Ugi's net debt to EBITDA ratio from four times at the end of fiscal 2024 to three eight times.
Sean O'Brien: As of March 31.
Sean O'Brien: Margin expansion operational efficiencies and disciplined capital deployment led to year to date free cash flow of approximately $490 million up 55% year over year spin.
Sean O'Brien: Specifically at Amerigas that was also considerable improvement in the year to date free cash flow, which supported the segment's debt reduction of over $65 million, including a $21 million partial prepayment of its two year intercompany loan with UGI International <unk>.
Sean O'Brien: Amerigas is net debt to EBITDA ratio at March 31, 2025 was five four times down from six times at the beginning of this fiscal year.
Sean O'Brien: At April 32025, Amerigas had approximately $90 million in cash and no short term borrowings.
Sean O'Brien: We are pleased with this enhanced cash generation, which supports our continued deleveraging goals, while maintaining strategic investments and solid shareholder returns and with that I'll turn the call over to Bob for his closing remarks.
Bob: Thanks, Sean before we open the line for questions I wanted to emphasize how our focus on operational excellence is delivering measurable improvements across several key metrics.
Sean O'Brien: This progress combined with our disciplined approach to creating operational efficiencies.
Speaker Change: <unk> has expanded our margins on a year over year basis.
Speaker Change: In addition, we're particularly proud of the 55% improvement in free cash flow generated.
Speaker Change: Reflecting both the strength and sustainability of our business model.
Speaker Change: Looking ahead, our natural gas businesses continue to be our primary growth engine with strategic infrastructure investments predominantly in the regulated utility business.
Speaker Change: Driving rate base expansion.
Speaker Change: At Amerigas, we're making steady progress on operational improvements enhancing business processes and service quality to drive higher levels of customer retention.
Speaker Change: Internationally, our disciplined approach is generating strong cash flows that support our corporate priorities.
Speaker Change: Through focused capital allocation infrastructure monetization.
Speaker Change: His strategic portfolio optimization, we are well positioned to navigate market uncertainties and create incremental value for our stakeholders.
Speaker Change: Thank you for your time with US today, and we will open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session. At this time I would like to remind everyone that in order to ask a question press star.
Speaker Change: Well the number one on your telephone keypad.
Speaker Change: On your first question comes from the line of <unk> <unk>. Mr. <unk>. Please go ahead.
Gabe: Well Gabe.
Speaker Change: Alright, Hey, good morning, sorry about that.
Gabe: Okay very good.
Gabe: Got it okay.
Speaker Change: I wanted to start out with Amerigas crude some improved performance with some benefits for some weather here can you just talk about kind of I guess learn more about the learnings coming out of the winter and also maybe what you're targeting kind of going into this upcoming fiscal year and then on a related question I think last quarter you talked about your <unk>.
Gabe: Targeting trying to refinance the 26 maturities.
Gabe: At the end of this fiscal year can you just give us an update there you're still comfortable with.
Gabe: So.
Gabe: Sure I'll take the first question and I'll, let Sean take the second one.
Gabe: So what I would say Gabe is that we got through the winter we took advantage of the better weather, but we're really focused on.
Sean O'Brien: Between now and the beginning of next year is how do we make the amerigas business processes better and were full fledged working on that these are the types of projects that I love because it's.
Sean O'Brien: Little to no investment with Big returns. So we're working on things like how.
Sean O'Brien: How we do routing and delivery.
Sean O'Brien: Becoming more efficient on the density of our miles, which will drive opex down in customer.
Sean O'Brien: Satisfaction upward we're working on how we purchase.
Sean O'Brien: Propane, we see tremendous opportunity to leverage our scale and consolidate our suppliers. We currently at 53 different suppliers for propane so were not taking advantage of our size. We're also looking at what's the most effective way to take advantage of propane prices.
Sean O'Brien: Because what we're seeing with the tariff environment is pressure on propane prices to go downward. So we see a lot of asymmetric risk there and we've got the capacity to start.
Sean O'Brien: Creating and utilizing a more strategic hedging program to lock in some of this lower propane costs better than what we have in the past we're looking at the customer value proposition, so segmenting our customers and.
Sean O'Brien: Making sure that the ones with the highest margin are getting the best service that they deserve and they should be getting in for those that are just marginal.
Sean O'Brien: Or at a loss either we make them more profitable or we will be reduced those types of customers is for us it's profitable volume that we need it's just not.
Sean O'Brien: Being able to look and say, what's the volume this year versus last year of what's the profitable volume this year versus last year. So we're looking to improve all elements of that business. How it's run take pressure off the customer service center, particularly as we re domesticate, our customer service and make that a better performing entity as well, but right now customer served.
Sean O'Brien: <unk> has had to deal with an onslaught of.
Sean O'Brien: Quick questions or concerns from customers that were making sure that we get to the root cause of all those things. So I'm very optimistic on what we can do by the time next winter arrives and Thats. Our goal here is to really improve how we do business in amerigas between now and next winter and now it's the time that we're doing it we've got.
Sean O'Brien: Five key business process projects underway fully staff. This is being led by Amerigas. This is not some outsource thing that send you down the wrong path. So theres not a lot of cost to it it's all about getting business better driving margin driving the appropriate volume and being much more efficient.
Sean O'Brien: And quality processes that don't result in customer service issue. So I think we're going to see a very different amerigas as we go into next winter and we've got new talent in the organization. We've reinvigorated the talent in that organization. So I'm actually quite bullish on what we can do with Amerigas, I think youre going to see a very strong.
Sean O'Brien: Propane business out there, but by next winter so.
Sean O'Brien: Excited on what that can do for this company and as Sean mentioned his comments as well a great cash flow that we had to bring down our leverage ratio as well I think we are positioned to build.
Sean O'Brien: It really make a real difference in when we go into next winter and Sean I'll hand, it over to you to talk about the recent dancing.
Sean O'Brien: <unk>.
Sean O'Brien: Yes, Gabe couple of things in terms of the refinancing. Your question nothing has changed on our goals maybe I'll hit some of the key things to remind everyone. So we have about $664 million that comes due next August late August.
Sean O'Brien: We're very focused on making sure we take care of that what I am excited about.
Sean O'Brien: Or a couple of things that I want to focus on Amerigas bought we've hit a bunch of them.
Sean O'Brien: Cash generation that Amerigas has been very strong we really took advantage of.
Sean O'Brien: A really strong winter.
Sean O'Brien: A couple of examples if you listen to my remarks, I mentioned were sitting close to on $100 million of cash here as we enter April that's pretty pretty excited about that we were able to start to already paid back part of the intercompany loan with international by about $20 million and as Bob was alluding to that we took a half a turn.
Sean O'Brien: Or more were about $5 four versus six on the leverage metrics. These funds.
Sean O'Brien: Fundamentally these are all incredible things about amerigas that we're seeing as we head into <unk>.
Sean O'Brien: Starting to address those.
Sean O'Brien: 2026 maturity on the fundamental market, there's actually some good news there obviously, there's been volatility since we last spoke.
Sean O'Brien: In the capital markets, but the amerigas bonds themselves are actually they have held in very very well I've been very pleased with what I've seen on those bonds and maybe the last point I'll make is we are actually trading at or better than where we were prior to a lot of the volatility we've seen over the last couple of months. So.
Sean O'Brien: We're set up to get that taken care of nothing's changed in our objectives and other than I think the business is set up much better as we go in to address those 2026 bonds.
Speaker Change: Great. Thanks, Scott So maybe if I could follow up just sort of sticking on a.
Speaker Change: Bigger picture theme on in basin sort of Appalachia natural gas demand. It seems like got some very topical no matter, whose conference call earnings Conference call you listen to this quarter, just wondering kind of latest thoughts on <unk> positioning in terms of partnering with any of those folks looking to take advantage of.
Speaker Change: Or cheap cheap cheap Appalachian gas and just what those conversations might be looking like lately.
Speaker Change: The only thing I would say Gabe is that.
Speaker Change: Certainly echo all your comments that you just made in both our midstream business, which has the pipelines as well as the.
Speaker Change: Our utility that has the distribution as well.
Speaker Change: Having a lot of discussions with potential.
Speaker Change: The generators the data centers and the like so we expect to see some really.
Speaker Change: Robust growth in those areas and we're fortunate to be located in the middle of all of that so we're proactive with.
Speaker Change: Folks that want to come in to talk about where does it make sense to locate.
Speaker Change: As a new generation assets in.
Speaker Change: Now we can.
Speaker Change: Get the natural gas, so we're well positioned to be a big part of that just by where our infrastructure is so.
Speaker Change: As Youll see as you know our capital allocation is heavily skewed towards the natural gas business and that's not going to change.
Speaker Change: And for those reasons that you just really articulated.
Speaker Change: Thanks, Bob appreciate that.
Speaker Change: And John if you would like to ask a question star one on your telephone keypad.
Speaker Change: And your next question comes from Brian of Julien Dumoulin Smith with Jefferies. Please go ahead.
Paul Zimbardo: Hi, Good morning team, that's actually Paul Zimbardo filling in for Julien.
Speaker Change: Morning, Thanks for the time.
Speaker Change: Okay.
Speaker Change: Good morning, Paul.
Speaker Change: Hi.
Speaker Change: Bob can you call that.
Speaker Change: Okay.
Speaker Change: Wholesale and that you'd be willing to put on how much incremental margin or EBITDA from amerigas.
Speaker Change: Turning to fiscal 2012.
Speaker Change: None of it.
Speaker Change: Theres been a little bit weaker performance of urban constraints.
Speaker Change: You can get back to EBITDA.
Speaker Change: EBITDA level that you've seen in local carrier.
Paul Zimbardo: Hello, Paul.
Paul Zimbardo: Couldnt put a number on it now.
Speaker Change: What we need to do is strengthen our business processes. So we're working on that we need to focus on the customer value proposition and ensure that our highest margin customers, which comes from the the residential retail is getting the right level of service.
Paul Zimbardo: Delivery.
Paul Zimbardo: As efficient people don't need to worry about their propane and so it was really just focusing on those types of things are going to make a real.
Paul Zimbardo: A real difference.
Paul Zimbardo: <unk>.
Paul Zimbardo: Beyond that I think its line until we get closer to.
Paul Zimbardo: At the beginning of the next fiscal year, when we put guidance out that we've put it put a number around that but these are certainly the things that we need to do to make a difference for this business and again I'm really excited about what amerigas can be.
Paul Zimbardo: And it doesn't require.
Paul Zimbardo: Investment and requires that our our talented employees within amerigas, bringing a structured problem solving approach to how do you make your business better and we've identified what are the five things that we've got to get done before next winter and we're all very engaged in all of that we're going to be I believe we're going to be a very formidable.
Paul Zimbardo: <unk> out there as we enter into next winter.
Paul Zimbardo: Okay.
Paul Zimbardo: Okay, that's great to hear and then.
Sean O'Brien: Like all of that or Sean just if you can comment a little bit on that.
Paul Zimbardo: However.
Paul Zimbardo: Yes.
Paul Zimbardo: Particularly high versus historical levels, it sounded like youre pulling forward some costs into the second half of the fiscal year from <unk>.
Paul Zimbardo: Next fiscal year, but just.
Paul Zimbardo: The structural drivers that would be helpful. Thank you.
Paul Zimbardo: Yes, Paul I mean, we tried to give some color.
Paul Zimbardo: So let me start with in terms of pulling expenses I think what we were trying to emphasize it was a for all of our businesses.
Paul Zimbardo: It was definitely we saw colder weather than we would've seen last year and more so even domestically than we did internationally so far for our utility for our midstream business. There was not only colder weather theres. Some extended periods of that so I think what were trying to allude to on that front Paul is that some of the work.
Paul Zimbardo: Both capital and Opex that would have gotten done in the first half of the year, we delayed and we pushed into the second half of the year. So if you are thinking about our original guidance there is going to be some timing.
Paul Zimbardo: In terms of those types of things happening in the second half of the year Secondly, and I think you were alluding to this fall the company.
Speaker Change: I've been here two years as I look at the company's earnings profile most of the time, it earns all or even more than its full year earnings in the first half of the year. So I think we're just trying to make sure everybody understands that it's.
Speaker Change: It's a winter driven generally company and therefore youre, earning most of your earnings are even more than a 100% in the first half of the year, though I'd be remiss if I didnt close on some positives we did raise guidance from the midpoint of $2 90.
Speaker Change: Where we're seeing some really good things that we will.
Speaker Change: Take to the bank per se, nor gal, but that Bob mentioned overseas International we're very pleased with how the team.
Speaker Change: Executed around that that was worth.
Speaker Change: Every bit of five <unk>.
Speaker Change: Amerigas is performing better than our guidance, we're very pleased with how thats performing so we're holding on to a lot of the benefits that we saw in the first half of the here and I alluded to a few things, which we are still focused on making sure that the efficiencies that the companies tried to deliver over the last two years are sustainable and ongoing.
Sean O'Brien: So far so good we are hitting on all those cylinders, but that timing is what we were referring to Paul and Paul I'm, just going to add a couple of things first of all I do rely heavily on Sean to make sure that we don't lose our way on cost management, but also the attrition for Amerigas and our second quarter was in the very low single digits. So we're already seeing benefits of a lot of the work.
Sean O'Brien: The team has done to shore up how we deliver and maintain our customer service level. So we've got a good running start for next year and the other thing I would add to that is.
Sean O'Brien: What I mentioned earlier around we can be far more strategic in how we manage our propane cost and well what we've been doing and we have already.
Sean O'Brien: <unk> achieved locked in some savings as we go into.
Sean O'Brien: The latter part of the year on our propane purchases I expect some real benefits financial benefits from that.
Sean O'Brien: That again requires no cost just requires some brainpower and we've got we've got good people within amerigas is going to make that happen.
Sean O'Brien: Thats great.
Bob: Thank you Bob.
Sean O'Brien: Alright, Thank you Paul Thanks, Paul.
Sean O'Brien: And there are no further questions at this time I will now turn the call back over to Bob Jackson for closing remarks.
Sean O'Brien: Thank you Tricia and thanks for those who attended the call just to reiterate very pleased to see our strong year to date performance.
Sean O'Brien: Particularly.
Sean O'Brien: Exciting for me is seeing our balance sheet improving both at the consolidated level and also down at the Amerigas level.
Sean O'Brien: Balance sheet is a priority for us we've got a lot of business process improvements underway not only in amerigas, but in all of our.
Sean O'Brien: Divisions that we expect to see benefit from they've got new talent within the organization. We are reinvigorating the culture here, we've got a lot of good people that have been here for a long time as well. So we're really excited about the things to come in.
Sean O'Brien: We're going to go to work and keep working at the things that we're doing and expect to see some good results from that so with that I. Thank you again for everyone for joining the call.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank Alex ranked journal you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: [music].