UGI's (UGI 0.17%) first fiscal quarter of 2018 benefited from a series of tailwinds that sent earnings to a quarterly record. Not only was the weather cooler than last year, but the company's growth initiatives are starting to pay dividends. On top of that, it benefited from changes to the U.S. tax code. These factors set the company up for what could be an excellent fiscal year.
UGI results: The raw numbers
|
Metric |
Fiscal Q1 2018 |
Fiscal Q1 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Adjusted net income |
$179.3 million |
$160.9 million |
11.4% |
|
Adjusted EPS |
$1.01 |
$0.91 |
11% |
Data source: UGI Corporation. EPS = earnings per share.
Image source: Getty Images.
What happened with UGI this quarter?
The weather played a big role this quarter.
- Adjusted EBITDA at the company's AmeriGas Propane (APU +0.00%) subsidiary rose 4.9% versus the year-ago period. While the weather was 9.9% colder than the previous year, gallons sold dipped 0.2%. That's mainly because temperatures were warmer than normal for all but that last week when they plummeted 60% below the year-ago level. That said, AmeriGas Propane more than made up for the weaker volumes by keeping costs at bay, which helped boost margins.
- Adjusted income at UGI International dropped 8.3% even though gallons sold increased 3.7% due to recent acquisitions. That was because the weather was warmer than last year and expenses rose due to the impact of foreign exchange fluctuations.
- Midstream and marketing income was up 7.1% thanks to weather that was 6.2% colder than last year, which fueled demand for natural gas. In addition to that, the company benefited from the placing the Sunbury pipeline into service.
- Income in the UGI Utilities segment rose 18.3% because the weather was 6% colder than last year, which drove demand for natural gas. In addition to that, the company added 3,800 new heating customers and also benefited from higher rates.
What management had to say
CEO John Walsh commented on the company's fiscal first quarter by saying:
This was a strong start to fiscal 2018 as we experienced colder weather than the prior year in most of our service territories and realized benefits from our growth initiatives, as well as the U.S. tax reform legislation. Subsequent to the end of the quarter, our electric utility filed its first rate case in 22 years, and we were pleased to receive the FERC certificate for the PennEast pipeline.
The changes in the tax law had a noticeable impact on UGI's financial results. Reported earnings skyrocketed 59% to $2.07 per share after the company recorded tax benefits from not only the U.S. tax overhaul but a finance bill in France. Meanwhile, even after adjusting for those one-time benefits, UGI still realized higher profits in the quarter directly relating to the tax law changes. Overall, the legislation in the U.S. added $0.12 per share to its adjusted earnings during the quarter, while the French finance bill partially offset that with a negative $0.03 per share impact, resulting in a net $0.09 per share boost to the bottom line. For the full-year, the company expects that the changes to the two tax codes will add $0.15 to $0.25 per share to its adjusted earnings.
Looking forward
That said, even with the strong showing in its fiscal first quarter, and the added benefit from the tax law changes, the company isn't yet ready to make any adjustments to its full-year guidance. That's because its fiscal second quarter is the most significant contributor to full-year results, which is causing it to wait until after the current quarter closes before making changes to that forecast. However, with the cold blast from late last year stretching into early January, and another cold snap expected in the U.S. this month, the current quarter could be an excellent one for the company, which increases the odds that it will boost its full-year outlook.
