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UGI Corp (UGI) Q2 2024 Earnings Call Transcript Highlights: Strong Performance and Strategic ...

GuruFocus Research
·4-min read

  • Adjusted Earnings Per Share (EPS): $1.97, up $0.29 from the previous year.

  • Adjusted Net Income: 32% increase year-over-year for natural gas businesses.

  • Operating and Administrative Expenses: $27 million reduction year-over-year.

  • Dividends: 140th consecutive year of payments, aligning with long-term shareholder value commitment.

  • Fiscal 2024 Adjusted EPS Guidance: Projected range of $2.70 to $3.00.

  • Strategic Review Outcome: Decision to restructure and improve AmeriGas operations rather than sell.

  • Cost Reduction: Permanent measures initiated, contributing to lower operating expenses.

  • Liquidity: $1.7 billion available, including cash and credit facilities.

  • Debt Reduction: $340 million reduction at AmeriGas since fiscal 2023.

  • Capital Investment: $3.9 billion planned from fiscal 2024 to 2027, with a focus on natural gas businesses.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • UGI Corp reported a strong fiscal 2024 second quarter with adjusted earnings per share of $1.97, a $0.29 increase over the prior year, driven largely by the natural gas businesses.

  • The company implemented effective cost control, resulting in a $27 million year-over-year reduction in operating and administrative expenses.

  • UGI Corp is on track to deliver within the fiscal 2024 adjusted EPS guidance range of $2.70 to $3.00.

  • The company has completed a strategic review of the LPG businesses and is focusing on restructuring and operational improvement plans for AmeriGas.

  • UGI Corp has a robust performance from its Midstream & Marketing business, with a $48 million increase in EBIT over the prior year, driven by higher margins from natural gas marketing activities.

Negative Points

  • Despite the overall strong performance, UGI International was down $0.01 from lower earnings attributable to the noncore energy marketing business.

  • AmeriGas faced challenges with higher income taxes resulting from limitations on interest deductibility, contributing to a $0.17 decrease in its segment.

  • UGI Corp is dealing with operational challenges at AmeriGas, including higher customer attrition rates and pressure on debt covenants.

  • The company is in a period of balance sheet repair, requiring careful capital deployment and cost management to improve financial stability.

  • UGI Corp's dividend growth is expected to remain flat through fiscal 2026 as the company focuses on strengthening the balance sheet and stabilizing AmeriGas.

Q & A Highlights

Q: What is the approach to accomplishing around $400 million of debt reduction at AmeriGas? A: Sean P. OBrien, CFO of UGI Corporation, explained that the debt reduction involves both internally generated cash flows at AmeriGas and external corporate contributions. Specifically, AmeriGas is expected to provide about $200 million, with an additional $200 million coming from corporate resources, including cash on hand and potential asset sales.

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Q: Can you clarify the sources of the corporate contributions for debt reduction? A: Sean P. OBrien elaborated that the corporate contributions would come from a mix of cash on hand and the proceeds from asset sales, including a recent $27 million asset sale. This strategy is part of the company's broader effort to optimize its portfolio and generate cash.

Q: What are the options for adjusting the fee revolver at AmeriGas? A: The CFO mentioned that UGI is exploring replacing the revolver with another financial instrument that does not have quarterly covenants. This change aims to alleviate quarterly pressure and support AmeriGas through its operational turnaround without the constraints of current covenants.

Q: Regarding the Midstream & Marketing segment, how did the total margin change, and what were the primary drivers? A: Sean P. OBrien noted that the total margin in the Midstream & Marketing segment increased by $41 million, primarily driven by favorable basis differentials on gas pipelines and a positive shift in storage business performance compared to the previous year.

Q: Was there a significant uplift in storage margins during the quarter? A: The CFO clarified that while there was a positive performance in the storage margins, the gains were not outsized. The significant change was the improvement from the previous year's losses to modest earnings in the current quarter.

Q: Have you considered issuing equity for balance sheet repair instead of a gradual approach? A: Sean P. OBrien indicated that while various scenarios have been considered, currently, issuing equity is not part of the plan. The focus remains on cost reductions, careful capital deployment, maintaining dividend growth flat, and optimizing the portfolio to improve the balance sheet without additional equity.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.