UGI Corporation's CEO Discusses F1Q 2012 Results - Earnings Call Transcript

UGI Corporation ( UGI)

F1Q 2012 Earnings Call

January 25, 2012 4:00 PM ET


Hugh Gallagher – Treasurer

Lon Greenberg – Chairman and CEO, UGI Corporation

John Walsh – President and CEO, UGI Utilities, Inc.

Eugene Bissell – President and CEO, AmeriGas Propane, Inc.


Carl Kirst – Bank of Montreal

Darren Horowitz – Raymond James

Ronald Londe – Wells Fargo

Stephanie Guan – Bank of America

James Yannello – Skyden Capital

Mark Barnett – Morningstar Research

John Hansell – Presidus

Steven Karpel – Credit Suisse



Good day, ladies and gentlemen, and welcome to the UGI and AmeriGas First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Hugh Gallagher, Treasurer of UGI.

Hugh Gallagher

Thank you, and good afternoon and thank you for joining us. As we begin, let me remind you that our comments today will include certain forward-looking statements, which management of UGI and AmeriGas believe to be reasonable as of today’s date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict and many of which are beyond management’s control.

You should read our annual reports on Form 10-K for a more extensive list of factors that could affect results, but among them are: adverse weather conditions; cost volatility and availability of all energy products; increased customer conservation measures; the impact of pending and future legal proceedings; domestic and international political, regulatory and economic conditions; currency exchange rate fluctuations; the timing of development of Marcellus Shale gas production; the timing and success of our commercial initiatives and investments to grow our businesses; and our ability to successfully integrate acquired businesses including Heritage Propane and achieve anticipated synergies.

UGI and AmeriGas undertake no obligation to release revisions to their forward-looking statements to reflect events or circumstances occurring after today. In addition, our remarks today will reference certain non-GAAP financial measures that management believes provide useful information to investors to more effectively evaluate the year-over-year results of operations of the companies. These non-GAAP financial measures are not comparable to measures used by other companies and should be considered in conjunction with performance measures such as cash flow from operating activities.

With me today are John Walsh, President and COO of UGI Corporation; Gene Bissell, President and CEO of AmeriGas, and your host, Chairman and CEO of UGI Corporation, Lon Greenberg. Lon?

Lon Greenberg

Thanks, Hugh. Let me also welcome everybody to our call. I’m sure you’ve had the opportunity to review our press releases reporting our first quarter results. As you know, we reported earnings per share of $0.77 versus $1.01 last year. AmeriGas reported net income attributable to AmeriGas Partners of $42.5 million compared to $74.9 million last year on EBITDA of $83.7 million compared to $113 million last year.

I must say that this has been one of the more frustrating quarters I’ve encountered during my many years as UGI’s CEO. Surely we have encountered periods of warm weather in the past as many of you know, but I must say they’ve never been as uniformly extraordinary as this. For example, weather in our French liquid petroleum gas operation was nearly 30% warmer than the prior year. Weather in our utility operations was nearly 19% warmer than the prior year. Weather in our domestic propane operation AmeriGas was nearly 10% warmer than the prior year.

So, whether you were in Philadelphia, Paris, Vienna, Chicago, Atlanta, you experienced very little winter weather this year and that lack of winter weather also adversely affected our Midstream & Marketing business, which, as you know, not only sells gas and electricity on a non-regulated basis, but it also owns and manages assets, which prosper when cold temperatures create volatility in commodity markets.

However, as is often the case, there are occasions when headline earnings numbers mask important positive trends and developments and this certainly is one of those cases. You’ll note that our margins in our domestic and International Propane businesses were managed quite effectively despite a high cost environment. While it’s less visible to you, we note in our release that our customer growth in our Gas Utility businesses was robust due to record conversions from oil to gas.

Our Midstream & Marketing businesses began operations on our Auburn pipeline project and also announced $150 million expansion of that project to extend the line south. Our International Propane businesses completed the acquisition of Shells’ liquefied petroleum gas distribution businesses in the UK, Scandinavia and the Benelux countries and our results this quarter reflect a contribution from that acquisition despite incurring integration costs. And finally, AmeriGas closed a few weeks ago the Heritage transaction, which we have great hopes for.

So, while we were disappointed that our substantial progress cannot be seen in our earnings this quarter, I certainly prefer it this way compared to reporting a quarter of great earnings, perhaps even record earnings along with a much less promising future.

We’ve experienced in the past occasions, and fortunately they’ve been far apart, when weather or some other abnormal market circumstance causes a short-term interruption in our steady progress. On these occasions, like today, our fundamentals were strong, our execution solid and our opportunities plentiful. And so you are going to hear from us today that we are confident that, like on those other few occasions, we will demonstrate the strength of our businesses and strategies when conditions return to more normal levels.

I’ll have more to add on this later in the call, but at this point I’d like to turn it over to Hugh and John and then Gene for some comments as well. So, Hugh?

Hugh Gallagher

Okay. Thanks, Lon. As Lon mentioned in his remarks, the overarching theme for this quarter was a lack of demand for all energy products resulting from the extraordinarily warm weather we encountered in each of our business units. There are two themes that we often repeat when discussing our business with investors. First is if you watched the weather during the heating season and you evaluate historical trends in our business units, you will have a sense of how our businesses will perform given variations in weather and second, that we believe in diversification as a means of reducing risk and that geographic diversification reduces weather-related risk.

For the first quarter of fiscal 2012, this first statement clearly held true, but, unfortunately, geographic diversification did not do its job and we experienced weather that was incredibly warm everywhere we operated.

AmeriGas experienced the warmest first quarter weather in the last 10 years. Weather for the quarter was approximately 12% warmer than normal, 10% warmer than last year. During the critical heating season – heating month of December, weather was 16% warmer this year than it was last year. As a result, volumes sold declined nearly 14% year-over-year, the primary contributor to the $8.5 million decrease in net income contribution from AmeriGas. Operating expenses increased modestly at AmeriGas due to the $3.7 million in cost incurred during the quarter related to the Heritage acquisition.

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