UGI - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 was seasonally weak but broadly in line with internal expectations: adjusted diluted EPS of $(0.01) vs. $(0.06) prior year and ahead of Wall Street EPS consensus, while revenue missed consensus meaningfully; management reiterated confidence to finish FY25 at the top end of $3.00–$3.15 adjusted EPS guidance. EPS estimate beat*; revenue estimate miss*.
• Capital discipline and balance sheet remain strong: YTD free cash flow $558M, leverage 3.8x, and ~$1.9B available liquidity as of 06/30/2025.
• Strategic portfolio optimization progressing: ~$150M of LPG divestiture proceeds (Hawaiʻi, Italy, UK small cylinder), exiting AmeriGas wholesale to focus on profitable segments; PA rate case joint settlement for ~$69.5M revenue increase expected to be implemented in FY2026.
• Call catalysts: positive tax tailwinds expected from the “One Big Beautiful Bill Act,” active AI/data center-driven midstream opportunity pipeline (double-digit NDAs), and AmeriGas operational KPIs improving (safety, routing efficiency +8–10%).

What Went Well and What Went Wrong

What Went Well

• Record YTD adjusted diluted EPS of $3.55 (+$0.33 YoY) driven by contributions across segments, operating efficiencies, AmeriGas improvements, and tax credits.
• Liquidity and free cash flow: ~$1.9B available liquidity and YTD free cash flow up 11% to $558M; corporate leverage at 3.8x with AmeriGas improving leverage by nearly one turn.
• Strategic actions: ~$150M proceeds from LPG asset sales; exiting AmeriGas wholesale to focus on profitable customers; management: “We wouldn’t sell any asset that would be dilutive…equal or better than in our own hands”.

Management quotes:

• “We expect to be at the top end of our fiscal 2025 adjusted EPS guidance range of $3 to $3.15”.
• “This [tax law] is going to be a positive impact to the company”.
• “We’re seeing substantial inquiries…data centers and the like; we have the right assets in the right place”.

What Went Wrong

• Midstream & Marketing EBIT down $16M YoY on lower gathering/processing margins and absence of power generation (Hunlock Creek sale) despite stronger gas marketing.
• UGI International volumes down 9% with 16% warmer weather and lower unit margins; EBIT down $14M YoY.
• Utilities EBIT down $9M YoY as higher O&A (+$10M) and D&A (+$2M) outweighed modest margin gains (+$4M).

Analyst concerns:

• Revenue missed Wall Street consensus by ~$288M* (actual $1.394B vs. $1.682B estimate) and continued midstream margin compression signals near-term headwind to top line.
• AmeriGas retail gallons down 3% YoY; customer attrition remains a pressure point despite operational improvements.

Transcript

Speaker 5

Good day and thank you for standing by. Welcome to the UGI Corporation Q3 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Tameka Morris. Please go ahead.

Speaker 2

Good morning, everyone. Thank you for joining our fiscal 2025 third quarter earnings call. With me today are Bob Flexon, President and CEO, and Sean O'Brien, CFO. On today's call, we will review our third quarter and fiscal year-to-date financial results along with other key business highlights before concluding with a question and answer session. Before we begin, let me remind you that our comments today include certain forward-looking statements which management believes to be reasonable as of today's date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict. Please read our earnings release, our quarterly reports, and our annual report for an extensive list of factors that could affect results. We assume no duty to update or revise forward-looking statements to reflect events or circumstances that are different from expectations. We will also describe our business using certain non-GAAP financial measures.

Reconciliations of these measures to the comparable GAAP measures are available within our presentation. With that, I'll hand the call over to Bob.

Speaker 1

Thanks, Tameka, and good morning. UGI has continued to deliver outstanding year-to-date results, reflecting the strength of our asset portfolio and our team's commitment to safely and reliably deliver positive energy solutions to our customers. Our increasing focus on safety, driving superior business performance, operational excellence, and creating greater financial flexibility is yielding results across each of our businesses. UGI's year-to-date adjusted diluted EPS of $3.55 is a record performance, up $0.33 over the prior year period. This performance reflects meaningful contribution from all segments, specifically from strategic investments in the growth-oriented natural gas infrastructure, operating efficiencies, particularly at UGI International, the customer focus improvements now underway at AmeriGas, and income tax credits. For the fiscal third quarter, we reported adjusted diluted EPS of negative $0.01 compared to positive $0.06 in the prior year period.

As a reminder, our third and fourth quarters typically represent the seasonally weaker periods for our business, and this year's results reflect normal seasonal patterns. Given our strong year-to-date performance and the momentum across our businesses, we expect to be at the top end of our fiscal 2025 adjusted EPS guidance range of $3 to $3.15, which Sean will discuss later in the call. Slide 5 provides several key operational highlights for the third quarter. We deployed over $600 million of capital on a year-to-date basis, with more than 80% directed to our highest risk-adjusted return businesses, the regulated utilities and UGI Energy Services. In addition, our utility segment continued to demonstrate strong fundamentals with sustained customer growth of approximately 9,000 residential, heating, and commercial customers added this fiscal year.

We also made progress on the Pennsylvania Gas Utility rate case, where there was a joint petition for approval of settlement filed on July 9. This petition was for $69.5 million in revenue increase and is subject to review and approval by the Administrative Law Judges and Pennsylvania Public Utility Commission. We anticipate that new rates will be finalized and implemented in the first quarter of fiscal 2026, which will support continued system investments to promote pipeline safety, reliability, and modernization. Separately, across both LPG businesses, we are successfully executing on our strategic portfolio optimization initiatives, entering into definitive agreements for asset sales, which are expected to generate approximately $150 million in total proceeds during fiscal 2025.

These targeted divestitures demonstrate our intention to operate in locations where we have a competitive advantage, focusing resources on our highest return opportunities while providing financial flexibility to support de-leveraging objectives and fund growth investments. Turning to AmeriGas, our customer focus improvement initiatives are progressing as expected, with ongoing execution of key actions, including procurement, routing and delivery, and call center re-assuring as we prepare for the upcoming winter season. Furthermore, we are focusing on profitable customer segments. Therefore, we will be substantially exiting the wholesale business. While this may reduce the total LPG gallons sold, we expect no meaningful impact on our overall results as these volumes have little to no earnings contributions. For reference, fiscal 2024, the wholesale business represented approximately 11% of total LPG gallons sold but was essentially a break-even business.

With that, I'll hand the call over to Sean to walk through the financial results in more detail.

Speaker 3

Thanks, Bob, and good morning. I'll now provide more details on our financial performance. For the third quarter, UGI reported adjusted diluted EPS of negative $0.01 compared to positive $0.06 in the prior year period. This quarter reflected the impact of typical seasonal patterns within our business: warmer weather across a few of our service territories and the anticipated reduction in midstream margins. Specifically, the utility segment was down $0.04, primarily due to higher operating and administrative expenses. Midstream and marketing was down $0.01 as the higher investment tax credits associated with the renewable natural gas projects largely offset lower gathering and processing margins. UGI International was also down $0.02 as the lower total margins more than offset the benefits from reduced operating and administrative expenses and lower tax expense. At AmeriGas, while EBIT was fairly flat year over year, the business benefited from lower income tax expense.

At Corp and Other, there was an offset to normalize the corporation's tax rate, and this is reflected in the EPS decline shown year over year. Turning to the quarterly results for each reportable segment. At the utilities, EBIT was $30 million for the quarter versus $39 million in the prior year period. Total margin was up $4 million, largely due to benefits from the infrastructure replacement and betterment program at the West Virginia Gas Utility. Operating and administrative expenses rose by $10 million, reflecting, among other things, higher personnel-related and maintenance expenses. Depreciation and amortization expenses also increased due to continued investment in our distribution system. At the midstream and marketing segment, EBIT was $27 million for the quarter, down $16 million over the prior year.

Total margin decreased $9 million as lower margins from natural gas gathering and processing operations, as well as the 2024 divestiture of our power generation asset, Hunlock Creek, were partially offset by increased margins from gas marketing activities. Year over year, the segment also saw lower other income, particularly due to the absence of income from a storage farm out contract in the prior year. Turning to the global LPG businesses. At UGI International, LPG volumes declined by 9% due to the effects of continued structural conservation, the absence of certain customers who previously converted from natural gas to LPG, and the impact of weather that was 16% warmer than prior year. The effect of this volume decline, along with the lower LPG unit margins, were partially offset by the translation effects of stronger foreign currencies, leading to a $19 million decline in total margin.

UGI International continued to drive operational efficiencies, and this quarter we saw a $9 million decline in operating and administrative expenses driven by lower personnel and distribution expenses, which was partially offset by the translation effect of the stronger foreign currencies. Overall, the segment reported EBIT of $43 million in comparison to $57 million in the prior year period, largely due to a $19 million decline in margin and slightly higher depreciation and amortization expenses, partially offset by lower operating and administrative expenses. At AmeriGas, the operating loss of $28 million for the quarter was fairly consistent with the prior year, as the effect of lower retail volumes stemming from continued but reduced customer attrition was more than offset by higher retail unit margins.

Turning to the full year-to-date performance, the EBIT from our reportable segments was comparable year over year, demonstrating the resilience of our diversified portfolio amid a mixed operating environment. At the utilities, EBIT was up $12 million, primarily driven by a 10% increase in core market volumes from favorable weather conditions. Midstream and marketing experienced a $22 million EBIT decline, reflecting the anticipated impact of lower minimum volume commitments on one contract renewal completed in Q4 last year, as well as the 2024 power generation asset sale. UGI International's EBIT decreased $9 million, largely due to the absence of the Swiss business divested in Q3 last year, along with softer retail volumes, and this was largely offset by the successful reduction of $35 million in operating and administrative expenses. AmeriGas showed some momentum, with EBIT up $18 million, reflecting both higher total margins and disciplined expense management.

Notably, the segment achieved a slight increase in total retail gallons, largely due to colder weather conditions during the critical winter months, which offset customer attrition. This underlying operational performance, combined with meaningful tax benefits primarily associated with investment tax credits, led to the year-to-date adjusted diluted EPS of $3.55. Looking to the fiscal fourth quarter, we anticipate that earnings from our underlying businesses, excluding taxes, will be largely consistent with the prior year period. Of note, while we recorded a diluted loss of $0.16 in Q4 of fiscal 2024, this included $0.20 of tax benefit from regulatory changes that allowed us to utilize previously expensed valuation allowance. With that outlook for the fiscal fourth quarter and our year-to-date results, we expect that UGI will achieve the top end of its fiscal 2025 adjusted diluted EPS guidance range of $3 to $3.15 per share.

This guidance excludes potential incremental benefits from the recently enacted One Big Beautiful Bill Act. While our team continues to review the impact of the bill on our business, the bill's changes to the deductibility of interest expense are expected to provide additional tax expense favorability as we move forward. Turning to the balance sheet, we continued to build financial strength and flexibility, as evidenced by our leverage ratio of 3.8 times for the quarter and robust free cash flow generation. Combined with strong available liquidity of approximately $1.9 billion as of June 30, 2025, these metrics underscore our commitment to exercise financial discipline and maintain a solid foundation for value creation. Lastly, I am pleased with the progress made in optimizing our LPG portfolio, generating approximately $150 million in cash proceeds while streamlining our footprint, enhancing our strategic focus, and providing meaningful support for our de-leveraging objectives.

I will turn the call over to Bob for his closing remarks.

Speaker 1

Thanks, Sean.

Speaker 2

Good morning, everyone. Thank you for joining.

Speaker 5

Thank you. At this time, we will conduct our question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Julien Dumoulin-Smith of Jefferies. Your line is now open.

Morning, Julian.

Speaker 4

Hi, good morning. Hi, good morning, Sam. It's actually Paul Zimbardo on for Julien. Thanks for taking the time. The first one I want to ask is, if you could unpack a little bit the potential disclosure you have, a potential benefit from One Big Beautiful Bill Act, is that bonus depreciation on unregulated activities? Is that 45Zs on RNG? Just any, even just qualitative description you can help with there.

Speaker 3

Yeah, Paul, this is Sean. I'll hit a couple of things. The biggest impact initially will be, over time, we have lost some of the interest deductibility, specifically at AmeriGas, almost predominantly at AmeriGas. That started to impact us, Paul, back in 2023. It had impact in 2024, and it would have had impact this year. Step one is we'll be able to retroactively go back and probably, you know, we're still finalizing the numbers, but remove some of the allowance that we had, the valuation allowance we had to put on the books over the last two years and a little bit this year. Step one. By the way, that will continue. That's retroactive, but it will also continue as we go forward.

The other two items I think that have big impact for us, is because of the ITCs this year, we're very, very, we're closing out our R&G projects as they all come into service. Bonus hasn't been an election that we've really focused on, but this act will give us the ability as we move forward, probably to utilize bonus depreciation a little more. I think you're spot on there. R&D credits is another area with the amount of capital we're spending at the utility and that gas. We see some benefit there. On the 45Zs, I think it's just more strengthening the position as we get into next year and beyond, around 45Zs. We haven't given the exact number, but we definitely know the trend. This is going to be a positive impact to the company.

Speaker 4

Okay. No, it's good to hear across the board. I know I had to ask about AmeriGas. I'll leave that for someone else. I wanted to drill in a little more on the midstream side of the business. Obviously, you had a lot of activity with the Pennsylvania AI and Innovation Day. Are there any way that you could frame what you think the investment opportunity set is for the Pennsylvania midstream business, given a lot of the activity in and near your footprint? That'd be helpful. Thanks.

Speaker 1

Yeah, Paul, I think the best I can do with that right now is to say that both midstream and the utility, we expect will benefit. We have well into the double digits of NDAs with potential generators and other opportunities to utilize our infrastructure for providing natural gas or providing on-site LPG, or sorry, LNG. We see pretty robust opportunities there, multiple, like I say, multiple counterparties and in-depth discussions that are ongoing. We have the right assets in the right place to take advantage of all of this. It's just continuing to cultivate those opportunities.

Speaker 4

Okay. Great. If I could squeeze in one last one, any commentary you provide on the multiple for the strategic divestitures you had as of late?

Speaker 1

No. I mean, the way that we looked at all the divestitures is that we looked at kind of how we view the value in our hands versus the value that we're receiving from, again, the counterparty on it. We wouldn't sell any asset that would be dilutive. When you think about the various multiples of our business, even when you break them apart, it's got to either be equal or better than in our own hands. That way, on a risk-adjusted basis, you're creating value versus not selling. That's the way we look at it. We look at the NPV in our hand versus the sale price and make sure that it's not going to be diluted to us.

Speaker 4

I'm going to.

Speaker 3

Thank you, team.

Speaker 1

On leverage, Paul, when you think about it, it's got to be much better than our leverage ratio as well.

Speaker 3

Yes, no, I understand that. Thank you, team.

Speaker 4

Thanks, Paul.

Speaker 5

As a reminder, to ask a question, you will need to press star 11 on your telephone. Our next question comes from Gabriel Moreen of Mizuho Securities USA. Your line is now open.

Speaker 0

Good morning, everybody. I guess I'll take the AmeriGas question then. Just twofold there. One is, you know, there's a lot of moving parts, I think, between the wholesale divestiture, potential high grading of the customer base. I'm curious, Bob, as you go into the upcoming winter heating season, what sort of metrics you're most focused on here, whether it's, I guess, profit. I'm sure profitability is a big one, but anything you can kind of direct us to, whether it's absolute or relative metrics. The second part on the divestiture program, just on LPG, wondering if you know, you think you're kind of done for now, if there's more to go at this point.

Speaker 1

Yeah, thanks, Gabe. I'll go into it. Certainly, on the AmeriGas topic, I'll try not to use the rest of the call time for that. First of all, the wholesale business, again, it's been creating a lot of activity in our business, but not providing any bottom-line benefit. If, again, working on simplifying that business, we're not going to supply largely our competitors basically at our cost using our infrastructure. It doesn't make any sense to continue doing that to the extent we've got customers in there that are lost customers that will either become new national accounts that are on a profitable level, or they, again, will not be, we will not be continuing on with them.

It's really, I think, as you said, high grading the portfolio, taking the complexity out of the portfolio so we're focusing on our highest value customers out there and providing the commensurate level of service that our customers expect and deserve. I think it's a good step as we go into the winter to better handle our profitable businesses, our profitable customers within AmeriGas. When you think about some of the indicators we're looking at, safety is one that we don't talk a lot about on these calls. The third quarter of this year at AmeriGas had substantial improvements in our safety record. To me, that's a leading indicator of how well you're focusing on your businesses, your processes, and getting inefficiencies out of your business and maintaining a safe workforce and not creating rework or anything that's just adding cost and more complexity to the business.

I'm really happy to see the dramatic improvements that we've experienced in the third quarter on safety. It's been a key focus area for us. On a lot of the improvement projects that are underway, we've gone from really the analysis of what is the root cause of issues and what's the solution to implementation. We've talked about it in the past that it's, you know, this is a two-winter effort. Going into this winter, when you think about customer service, we'll have a bit of a hybrid release. We'll have some still international support for customer service, but a much more substantial footprint domestically to provide much better customer service. Another metric will be our customer service statistics, our net promoter scores, our time on hold, things of that nature. We continue to work on some of the KPIs and the things that really affect the customer.

Another one is our routing and delivery. It's another work stream that we've been focusing on. We have that rolled out now to a handful of our locations across the country, and we're experiencing, call it an 8% to 10% efficiency improvement on gallons delivered per mile and the cost of delivery. As we get through October 1, we plan to have that launched nationwide. That'll be another statistic that we're looking at, the efficiency of our delivery routes as well. Always the kind of bottom line, free cash flow. Are we generating cash flow from this business? As we've talked about, it needs to stand on its own. One of the things that I'm really excited about as well for AmeriGas is that their leverage ratio has improved by nearly one turn. We'll continue to watch the balance sheet, the importance of maintaining the right credit metrics.

As we go into the winter, there'll be various performance metrics, some of which I just went through. We're gearing up for the winter. One of the other things that came as a little bit of a surprise to me in this quarter when I think about substantial opportunity during the summer months to improve our ACE business as well. Again, through better productivity, better efficiency, better processes, there's meaningful improvements that we can make over the summer months. I would say that before going into the summer, my focus was relentlessly on the winter. Going out and visiting some of the locations and seeing the opportunity to really hit our production targets, I think, can really help us in the summer months as we go forward. I'm looking forward not only to a good winter next year, but also a stronger summer than we had this year.

Looking at those production metrics will be another one that we look at as we go into next summer at our various ACE facilities. There's a lot of opportunity, procurement of propane, proactively hedging to help our customers maintain stability of their bills. We've got a lot going on and a lot of progress. I think we're in really good shape going into the winter. Okay. Hopefully, that's helpful. I could talk about it for quite a long time, but I'll stop there.

Speaker 0

It does. Very comprehensive. Thank you, Bob. Maybe if I can come at midstream from a different angle. When you think about your producer activity behind some of the supply push systems that you have, can you maybe talk about what you're seeing given the uptick in basin demand, maybe some egress capacity too? As a second part to that question, are there any notable contract expiries on the midstream side that you're kind of watching over the next, call it, 12 to 18 months?

Speaker 3

Yeah, I can hit a few of those, Gabe. No significant notable contract expiries, or at least nothing that we anticipate where there's a significant shift. Meaning on the re-up, we think it'll be generally in line with where we're at. We did have that one last year, and maybe that's what you're referring to. I think as we look at 2026, we're not thinking about any big dip due to big contract expirations.

Speaker 1

Yeah. Again, Gabe, just to follow up on maybe the earlier question from Paul as well, when we look at the potential developers within the state of Pennsylvania, both on the regulated and unregulated side for power generation and the like, we're seeing substantial inquiries and opportunities there. It'll be continued work with all of those counterparties to see what we can do to participate and help make these energy investments that are happening across the state. We're in an exciting time for the state of Pennsylvania. The Energy Summit really highlighted that. The great thing about Pennsylvania is how, from a political standpoint, all parties are aligned on bringing investment into the state of Pennsylvania. It's really an exciting time here in Pennsylvania. Our midstream and utility business should be substantial benefactors of the movement underway.

Speaker 0

Great. Thanks, Bob. Thanks, Sean.

Speaker 3

Thanks, Gabe.

Speaker 1

Thanks, Gabe.

Speaker 5

I'm showing no further questions at this time. I would like to turn it back to Bob Flexon for closing remarks.

Speaker 1

Thanks, Dana. Thanks everyone for dialing in. Just a few closing comments. We had a record year, so that certainly is exciting in its own right. Work is underway to make the future even more successful than what we had this year. As I just mentioned, talking with Gabe, I'm very excited about our safety performance and the improvements we're seeing in safety. I just view that as a leading indicator to a well-run company. I feel great about that. The financial performance this year we talked about was great. The cash flow, $558 million, is an 11% improvement year-on-year. That really takes me to the third point of what we're really focusing on, which is the balance sheet. We've got our corporate leverage down to 3.8, $200 million debt reduction, as I mentioned a moment ago, with AmeriGas achieving nearly a one-turn improvement in its leverage ratio.

We're going to continue focusing on the intrinsic value drivers in our business, the state of Pennsylvania and West Virginia. We've had a constructive rate case proceeding. We're looking to get that through its final stages and have that part of our fiscal 2026 results. We've completed our midstream projects, and we've continued to look at our emerging opportunities. Finally, I'll just say that our eyes are completely focused on this upcoming winter and to be ready for a winter to have a really successful launch into fiscal 2026. With that, I'll conclude the call. Again, thanks everybody for participating and supporting us through all this, and look forward to our discussions in the future.

Speaker 5

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.