UGI Corp (UGI +1.78%), like many utilities, has battled much warmer than normal weather across its service territories for the past few years, which has cooled off demand for heating fuels like natural gas and propane. This past winter, however, has been much closer to normal, which has been good for UGI's business. Because of that, the company expects to deliver even better results for fiscal 2018.
UGI results: The raw numbers
|
Metric |
Fiscal Q2 2018 |
Fiscal Q2 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Adjusted net income |
$298.2 million |
$231.8 million |
28.6% |
|
Adjusted EPS |
$1.69 |
$1.31 |
29% |
Data source: UGI Corporation. EPS=earnings per share.
Image source: Getty Images.
What happened with UGI this quarter?
Cold weather caused red-hot demand for heating fuels:
- Adjusted EBITDA at the company's AmeriGas Propane (APU +0.00%) subsidiary jumped 14.1% versus the year-ago period. Overall, temperatures were 14.2% colder than the same period of last year across AmeriGas Propane's service areas, which helped fuel a 9.9% increase in volumes.
- Adjusted income before taxes at UGI International rose 4.8% as 6.3% colder temperatures versus last year helped fuel a 9.9% increase in volumes. The acquisitions of UniverGas and DVEP also helped boost volumes during the quarter.
- Midstream and marketing income before taxes leaped 28.4%. While the weather across these service territories was 1.9% warmer than normal, it was 14.3% colder than last year. That drove up demand for natural gas, which helped boost margins on UGI's midstream assets. The acquisition of the Texas Creek gathering assets also helped pad results.
- Income before taxes in the UGI utilities segment rose 16.9% versus last year thanks to a 15.1% increase in natural gas volumes flowing through its systems to core markets because the weather was 10.8% colder than last year.
- In addition to the positive impact from the colder weather, the company also saw a net benefit of $0.19 per share due to tax reforms in the U.S. and France.
What management had to say
CEO John Walsh commented on the company's fiscal second quarter by saying:
This was a strong quarter for UGI and a strong first half of the fiscal year. The business experienced weather that was relatively normal in all service territories, and colder than the prior year. Excluding the benefit of tax reform, first half adjusted EPS was more than 50% higher than 2013, the last time the company experienced comparable weather. When the benefits of tax reform are included, our adjusted EPS growth over that period was almost 70%. This growth has been delivered through the highly disciplined allocation of capital into accretive projects across all of our businesses and a resolute focus on operational efficiency. We are pleased with this performance but even more excited for the future of the company as we see many opportunities for growth.
Walsh notes that UGI has worked hard to offset the impact the weather has on its business by investing in organic expansion projects and acquisitions. These growth initiatives have enabled the company to grow earnings by more than 50% over the past five years after normalizing for the impact of the weather.
Looking forward
UGI's strong start to its fiscal year now has the company on pace to exceed its initial guidance that adjusted earnings would be between $2.45 to $2.65 per share, which represented 11.4% growth at the midpoint versus last year. The company now sees its adjusted profit coming in the range of $2.70 to $2.80 per share, a more than 20% increase from fiscal 2017.
