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UGI Corp's Earnings Plunge on Warmer Weather and Higher Costs

UGI Corp's (NYSE: UGI) fiscal third-quarter results came in well below the prior year period. However, the company was up against a tough comparable quarter, which benefited from cooler weather and lower costs for propane and butane. Still, the company's overall results for the quarter and the fiscal year have come in a bit weaker than expected, which has it on pace to at best hit the low end of its guidance range.

UGI results: The raw numbers

Metric

Fiscal Q3 2017

Fiscal Q3 2016

Year-Over-Year Change

Adjusted net income

$16.6 million

$40 million

(58.5%)

Adjusted EPS

$0.09

$0.23

(60.9%)

Data source: UGI Corporation.

Image source: Getty Images.

What happened with UGI this quarter? 

A warm April and rising costs caused earnings to dive:

  • The results of the company's AmeriGas Propane Partners (NYSE: APU) subsidiary came in a bit below last year. Retail gallons sold declined 3.8% to 195 million after temperatures climbed 11.7% warmer than normal and were 4.6% above last year's average. The critical heating month of April was particularly warm across AmeriGas' regions, with temps 17.1% warmer than normal. Those higher temperatures caused demand to decline, which took AmeriGas' adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) down 9.6% to $58.4 million.
  • The warmer weather also hurt UGI's international segment, where retail gallons sold slipped 6.7% to 158.6 million due to 13.7% higher than normal temperatures. On top of that, the decline in liquid petroleum gas (LPG) costs from the prior year reversed as propane jumped 22% while butane was up 28% year over year. Those two factors caused adjusted income before income taxes to plunge 94.4% to $1.8 million.
  • The midstream & marketing segment also got burned by the warmer-than-normal temperatures, which were 22.9% higher this quarter. As a result, income before income taxes slumped 69.7% to $3.3 million.
  • Finally, the UGI utilities segment's income before income taxes dropped 15.5% to $17.5 million due to a 15.5% decline in gas volumes in its core market. Driving the demand decline were temperatures that were 30% warmer than last year and 21.2% higher than normal.

What management had to say 

CEO John Walsh commented on the company's fiscal third-quarter results by saying:

Our teams did an outstanding job this quarter. By managing costs and maintaining our focus on operational efficiency we were able to meet the challenges of warm weather and higher commodity costs. In addition, we were pleased to mark progress on several growth projects. Our Midstream & Marketing business placed its Manning LNG facility into service on July 1st. Our Utility reached agreement on its PNG base rate case and filed a Joint Petition for Approval with the Pennsylvania PUC on June 30th. Under the terms of the settlement agreement, UGI PNG would be permitted to increase base rates by $11.25 million and we anticipate new rates going into effect in mid-October. Our UGI International business closed a small acquisition in Sweden, and the pipeline of opportunities remains strong. Finally, AmeriGas marked strong growth in its cylinder exchange and national accounts programs and closed three acquisitions in the quarter.

UGI Corp's fiscal third quarter is a seasonally weak one for the company given that the shift from spring to summer tamps down demand for heating fuels. However, the company operated well, all things considered, as it kept a lid on costs, which helped it overcome the warmer weather and higher LPG costs to post results that were in line historically. Meanwhile, the company made progress on several initiatives to boost profitability, including putting one growth project into service and completing several acquisitions.

Looking forward 

That said, those growth initiatives won't move the needle on the company's guidance. UGI still expects full-year adjusted earnings to be at the lower end, or slightly below, its guidance range of $2.30 to $2.45 per share.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends UGI. The Motley Fool has a disclosure policy.