AmeriGas Partners' (APU) CEO Jerry Sheridan on Q3 2014 Results - Earnings Call Transcript

Jul.30.14 | About: AmeriGas Partners (APU)

AmeriGas Partners (NYSE:APU)

Q3 2014 Earnings Conference Call

July 30, 2014 09:00 ET

Executives

Daniel Platt – Treasurer & IR

Hugh Gallagher – CFO, AmeriGas Propane

Kirk Oliver – CFO, UGI Corporation

Jerry Sheridan – President & CEO, AmeriGas Propane

John Walsh – President & CEO, UGI Corporation

Analysts

Dave Maureen – Bank of America Merrill Lynch

Carl Kirst – BMO Capital

Chris Sighinolfi – Jefferies

John Edwards – Credit Suisse

Operator

Good morning my name is Steve and I will be your conference operator today. At this time I would like to welcome everyone to the UGI AmeriGas Third Quarter Earnings Conference Call. (Operator Instructions). Before turning the call over to the speakers today I would like to apologize in advance as we’re experiencing technical difficulties and you may hear clicking on the line. Please do not disconnect to reestablish the connection. Thank you.

I would now like to turn the call over to Daniel Platt, Treasurer. Please go ahead.

Daniel Platt

Thanks Steve. Good morning and thank you for joining us. As we begin, let me remind you that our comments today will include certain forward-looking statements, which managements 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, 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 business and our ability to successfully integrate acquired businesses and achieve anticipated synergies. UGI and AmeriGas undertake no obligations to release revisions to their forward-looking statements to reflect events or circumstances occurring after today.

In addition, our remarks 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 not be considered in conjunction with performance measures such as cash flow from operating activities.

With me today are Hugh Gallagher, CFO of AmeriGas Propane; Kirk Oliver, CFO of UGI Corporation, Jerry Sheridan, President and CEO of AmeriGas Propane; and your host, President and CEO of UGI Corporation, John Walsh. John?

John Walsh

Thanks Dan. Good morning and welcome to our call. I hope that you all have had a chance to review our press release reporting third quarter results for UGI and AmeriGas. Operational activity ramps down somewhat in the third quarter. The last three months have been noteworthy for us as we move forward on an attractive range of new investment opportunities. I will comment briefly on the key drivers for our solid performance in the third quarter, I will turn over to Kirk who will provide you with a more detailed review of UGI’s Financial Performance. Jerry will follow with an overview on AmeriGas and I will wrap up with an update on our strategic initiatives.

We delivered a strong performance in Q3 despite warmer than normal weather across our service territories. Our Q3 GAAP EPS was $0.18, our adjusted EPS which reflects a $0.03 mark to market adjustment was $0.15. This compares favorably with our adjusted EPS of $0.11 in the third quarter of fiscal ’13.

Our midstream and marketing business showed particular strength as we utilized our Marcellus asset network strong natural gas demand across the region. As I noted on our last call, while extreme winter weather was the most significant factor impacting our financial performance over the winter. The market factors impacting pipeline capacity values, delivered gas costs, are fundamental and far reaching. Demand for natural gas across CGI Service territories is exceptionally strong.

It spans all of our traditional customer segments as well as the power generation sector. Our integrated asset portfolio in the Marcellus which includes pipelines, gathering system, natural gas storage, LNG and a large base of customer demand provides us with a significant opportunity to deliver value during period volatility.

There is a clear need for additional pipeline and storage capacity to serve the Mid-Atlantic and North East regions. We believe there is recognition of infrastructure gap on the part of both producers and consumers which will enhance and accelerate our efforts to develop new infrastructure projects. We’re pleased with the progress we have achieved in the Marcellus remain very focused on continuing to build out our asset network.

There were several other noteworthy activities in the quarter across our business. Our gas utility continues to deliver exceptional growth as demand for natural gas remain strong across both the residential and commercial segment. We expect to add over 18,000 customers this fiscal year with conversions accounting for the majority of the additions. We’re also getting greater response to our growth expansion tariff or get gas. This new program enables us to reach unserved or underserved areas of our service territory. While growth has been a key area for us, we’re equally focused on our infrastructure placement program of cast iron and bare steel which is moving forward on pace with our commitments.

Jerry, will provide you with details on AmeriGas this quarter but I wanted to comment on the strong performance of our two target growth areas. AmeriGas Cylinder Exchange, ACE and National Accounts. ACE sales growth is approximately 8% year-to-date, well our National Accounts Program continues to grow at an accelerated rate with volumes up 11% in the quarter when compared to prior year.

Our European team was once again challenged in the quarter by very warm weather which has been a consistent theme for Europe this fiscal year, we have been pleased with our performance in Europe in a year when the weather brought back bad memories of fiscal ’12. Our teams remain focused on unit margin management and expense controls. We’re also identifying opportunities for new investment.

I will comment on one of those investment opportunities when I discuss our strategic initiatives later in the call.

I would now like to turn over to Kirk at this point for the financial review.

Kirk Oliver

Thanks John. Good morning everyone. As John mentioned we had a strong quarter due to warm weather driven primarily by strong results in midstream marketing and to a lesser extent the utility operations. You can see here that we experienced warm weather on all of our business this quarter. More into know for AmeriGas the weather in the shoulder months of April and May of this year was significantly warmer than last year.

All of our international businesses were also impacted by the effect of much warmer weather this quarter this last year particularly Antargaz in France where temperatures were almost 33% warmer in the third quarter of last year.

Moving on now to AmeriGas, we are reporting operating income for the quarter of 7.2 million an increase of 3.4 million over the last year. Total margin decreased by 3.6 million reflecting a decrease in the retail volume sold partially offset by modestly higher retail propane unit margins. Operating expenses decreased by 2.1 million, operating expenses in the prior period include 9.9 million of transition expenses. Excluding the heritage transition expenses from last year, operating expenses increased 7.8 million reflecting higher overtime vehicle and equipment repairs, general insurance cost and spring advertising program.

Depreciation expense was 47.8 million, up 4.6 million from the prior year due to a onetime adjustment to last year’s quarter relating gains in Heritage, asset life’s and a run-off in some short life assets this quarter.

Finally I would also like to remind everybody that effective April 1 of this quarter all propane hedges have been reported as mark to market hedges and are included in corporate and other results in our GAAP statements.

Existing hedges which have qualified for hedge accounting will runoff overtime. We will continue to highlight any mark to market impacts to our financial statements. Jerry will go into more detail on AmeriGas operations later on the call.

The loss in income before taxes that UGI International of 1 million, this is down 15 million from the prior year period. Our Europe operation continue experience very warm weather this quarter following the record warm winter heating season.

Temperatures at Antargaz were almost 20% warmer than normal this year which was nearly 20% colder than normal last year. For the full year the weather was 18% warmer than last year for Antargaz (Technical Difficulty) 16% warmer for Flaga.

UGI International management team did a good job navigating the warm weather and with assistance from volumes added in the BP Poland acquisition have held volumes year-to-date to only 2.1% below last year. Volumes for this quarter were 7.4% lower than the prior period reflecting warm weather and was partially offset by incremental retail gallons associated with the BP Poland acquisition.

The decrease in total margin of 11.6 million principally reflects the impact of lower LPG gallon sold slightly slower average retail unit margins related to the addition of BP Poland and the impact of much warmer weather our customer mix at Antargaz.

The increase in operating expenses in other reflects a higher operating expenses at Flaga resulting from the BP Poland acquisition partially offset by the translation effect of the stronger euro. The average euro to dollar translation rate for the current quarter was approximately a $1.37 per euro compared with a $1.30 for the prior year period.

Turning to slide 11, gas utility of reporting income before taxes is 7.3 million compared to 5 million in last year’s quarter, throughput to core customers increased 4.5% reflecting the effects of customer growth due primarily to customer conversions from fuel oil to natural gas.

Total margin increased by 4.8 million or 6.5% reflecting higher core margin and greater firm delivery service market. Costs were up 3.5 million this quarter primarily driven by higher maintenance expense coming out of the extremely cold winter season.

Midstream and marketing posted another very strong quarter reporting income before taxes of 26 million, an increase of 19 million over the prior year quarter as we continue to benefit from our Marcellus asset portfolio and higher gas price volatility.

Total margin increased by 23 million in the quarter reflecting significantly higher capacity management and storage margin of 0.9 million. Greater retail gas marketing margin of 10.6 million and higher electric generation margin of (Technical Difficulty).

Natural gas gathering margin also increased by 3.4 million this period reflecting incremental margin from the Auburn pipeline extension, which was placed in service during the first quarter.

The increases in expenses principally reflects the increased cost associated with the expansion from our Marcellus asset portfolio. Our Midstream and marketing business benefited from increased volatility in the mid-Atlantic region of the United States which has resulted in very strong results for the quarter and for this fiscal year-to-date. The business is contribution to earnings year-to-date is up 62 million or almost a 140% over last year. While we do not expect this level of volatility to repeat itself anytime soon, we do expect volatility and capacity values to remain above the recessionary levels over the last years.

Looking at our liquidity and cash resources, we use a combination of bank facilities and cash-on-hand to meet our liquidity needs. Total liquidity by business in the form of cash-on-hand and available credit capacity are laid on the table on this slide. You can see from this table that the businesses have sufficient capacity to meet their liquidity needs.

Finally as I’m sure you have seen yesterday we announced an off cycle 10% dividend increase and a 3 for 2 stock. This brings the annual dividend rate to $0.87 per share post output [ph] is equal to $1.30 per share pre-the split.

In the past we have guided dividend payout expectations to a range of 35% to 45%. It's important to note that like our stated long term earnings growth objective, the payout guidelines of our long term and the payout ratio may for a number of reasons will expand in any given year.

On the whole we feel good about the quarter and our affirming guidance for adjusted earnings of $2.95 to $3.05 per share.

That completes my remarks and I will now turn the call over Jerry for his report on AmeriGas.

Jerry Sheridan

Adjusted EBITDA for AmeriGas in the third quarter was $55 million compared to $69 million reported in the third quarter of last year. As discussed during the second quarter conference call in May this was not an entirely unexpected results as last year’s third quarter was unrepeatable due to cold spring weather following a relatively warm winter.

The weather in the shoulder months of April and May this year were significantly warmer than last year. April alone was 12% warmer than last year with weather for the quarter averaging about 10% warmer than last year.

As a result retail volume in Q3 was 216 million gallons or 4% below the 225 million sold last year.

Retail margins during the quarter were about $0.03 per gallon above Q3 last year in-line with our expectation -- margin with inflation. Average propane cost for the quarter was a $1.06 per gallon at Mont Belvieu which was 16% above Q3 of 2013, though 19% below Q2 of this year.

We also discussed in May we expected this quarter includes certain expenses that were essentially an overhang from a very unusual winter that left us many catch up repairs to our equipment and assets at our customer sites. In all operating expenses were $225 million or 11 million, 5% higher than last year primarily due to increased overtime, equipment repairs and some discretionary advertising expenses related to spring marketing programs. Lastly, the expenses excluded $10 million in transition expenses.

We’re reaffirming our guidance for the year at 660 million to 675 million fiscal 2014. As always this guidance assumes warmer weather in September for the month of fourth quarter with meaningful weather impact.

The expense items that I mentioned is now behind us and the business is meeting our expectations as we focus on commercial accounts and our Cylinder Exchange business.

Now turning to our growth, our National Accounts Program experienced solid quarter with volume up 11%, our AmeriGas Cylinder Exchange Program delivered volume growth of 4% in Q3 and a continued focus on operating activities with key customers has led to an increase in cylinder turns at most retail locations with year-to-date volume approximately 2% [ph].

We have also added over a 1000 new location so far this year for ACE and you can find AmeriGas Cylinder Exchange now at 48,000 locations. Although we’re happy to see the unusual 2014 winter fully behind it, throughout 2014 is shaping up to be tremendous year for AmeriGas.

At our guidance levels earnings will have literally doubled from the earnings of AmeriGas just three years ago. We have also restored our distribution coverage to 1.3 [ph] times and our leverage ratio to approximately 3.6 times in-line with the expectations that we announced the Heritage acquisition three years ago.

I would also like to mention that on June 17, we completed secondary offering (Technical Difficulty) transfer partners ETP of 8.5 million AmeriGas common units. With yield elimination of our unit sales is very positive event for our unit holders and it eliminates the uncertainty around the unit price that often accompanies these types of sales.

ETP and affiliates now hold approximately 4.4 million, most of which are being held in a capacitive insurance affiliate and will likely be converted to cash rateably as ETP business needs to shape.

Finally an announcement that Paul Grady, our Chief Operating Officer has decided to retire in January of 2015. Paul’s leadership advice and partnership has been a great value to me and to the successful Heritage integration, especially Paul giving us enough time to smoothly transition the COO responsibility. So that concludes my comments and now I will turn the call back over to John.

John Walsh

As I noted earlier this was a noteworthy quarter for us from a strategic perspective as we move forward with several exciting new opportunities. Earlier this month we announced that we had reached an agreement in principle to acquire Total’s LPG distribution business is France for €400 million to €450 million. Total’s LPG volumes are roughly equivalent to our Antargaz but with somewhat different product mix. We’re excited about this opportunity to significantly expand our presence in France.

While we’re still several months away from closing the regulatory filing and the process has been initiated, certainly keep you updated on our progress. One of the platforms that our Midstream strategy is to build out of our infrastructure network in Marcellus, this includes large projects such as Auburn pipeline network as well as smaller projects that hence the value of our existing projects.

For example we recently received FERC approval to expand the liquefaction capacity at our Temple LNG Facility. This project will increase liquefaction by 50% and is expected to be online by the end of the calendar year. This investment will enhance our ability to serve existing markets such as the LDC pre-trading market and develop newly emerging LNG segments.

In addition to the expansion of the existing liquefier Temple, our Midstream team is actively developing projects that we will further expand our LNG asset network in the Marcellus. On our last call I outlined two additional phases for our Auburn pipeline network project. Work is well underway in the first phase of that project with additional compression. This phase will come online by the end of 2014 and the additional capacity will enable higher system throughput to serve the robust demand in North-East Pennsylvania.

There is no doubt that fiscal ’14 has been an eventful year for both UGI and AmeriGas. Our strong financial performance over the first nine months has been coupled with significant advances in our strategic programs. While extraordinary weather and its impact on delivering gas cost in the North-East regions was a major contributor to our strong year-to-date performance. We believe that the infrastructure gap created by the escalated demand for natural gas will provide positive momentum for new UGI structure projects.

The stock led and dividend increased referenced -- is reflection of our confidence in UGIs future prospects. We’re excited about the opportunities that lie ahead for us in fiscal ’15 and beyond and look forward to keeping you updated on our progress.

With that I will turn it back over to Steve who will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Dave Maureen from Bank of America Merrill Lynch. Your line is now open.

Dave Maureen – Bank of America Merrill Lynch

On Total Gas can you talk a little bit about what specific regulatory steps you got to go through to get this closed and I guess what’s the timing on those would be? And then also maybe I know you talked about, it's still early in the process but have you gotten any initial informal reactions from regulators with the acquisition announcement?

John Walsh

In terms of regulatory process, certainly the most significant element of that would be regulatory approval from the appropriate competition authority so that will get looked at possibly at the EU level or possibly in country and that’s still to be determined and that’s determined through regulatory process and that process has been initiated. And timing of that is sort of in-line with my comments, it's basically determined by the regulator. We’re assuming and believing that probably within a six month window or so we close I think in our release talked about the first half of 2015. We will get more clarity as the process proceeds. We feel good about our submission and the rationale in terms of making this investment but obviously we have to let the regulatory process run its course and we will respond to any increase that come out of that process.

Dave Maureen – Bank of America Merrill Lynch

And I guess as a quick follow-up to that is are you going to talk financial metrics and accretion around the deal, you think after it closes or just as we get closer to closing?

Jerry Sheridan

Certainly after it closes we definitely will. We maybe in a position as we get approach closer to provide more information. We provided the information we could on I think -- announced and that certainly we get together in the fall at the Analyst Day. We will provide an update in any available new information we can provide and we will share that with the investment community as soon as we’re in a position to do so.

Dave Maureen – Bank of America Merrill Lynch

And then shifting gears in terms of future projects at Midstream. Can you talk about to what extent you’re weighing, I guess what I would term shorter haul gathering opportunities versus participating either in new or in some of the announced long haul pipeline opportunities that re been getting developed out of the Marcellus and then I guess as a quick follow-up to that, can you disclose CapEx around the Temple project and what that’s going to be?

Jerry Sheridan

Yes first on Temple, the Temple project is about a $10 million project so that is a great investment for us. It's a modest capital project but it's a really good example of an add-on investment to enhance the value of an existing critical asset for us particularly given the demand for both peaking and liquid and we’re seeing enhanced demand for peaking based on what occurred this winter.

Most utilities in the region established new peaks in terms of output or send out on cold days, so we see robust demand for peaking and obviously with transport and other sectors where markets emerge, we see strong liquid demand so it's a good example. In terms of the infrastructure projects, we will look at a range of projects the projects that align best with our strategy, or the projects that really link production in Pennsylvania and surrounding regions particularly in Pennsylvania to demand for us and others in our region which the Pennsylvania and surrounding states. Those are the projects and Auburn is a good example of that, those are the projects that from a strategic standpoint really fit well for UGI, we look at other opportunities to participate in some larger projects but I would say we’re most focused on the project where we can align them with our core strategies which is really about making the abundance production and linking it to the demand that we serve and other serves in the Mid-Atlantic and North East region.

Dave Maureen – Bank of America Merrill Lynch

Got it and then just last one if I could, on the divi and the 10% increase there, but still maintaining the 4% longer term growth rate around the divi going forward. It seems reasonably conservative at this point. I have realized you don’t want to set the bar too high but I’m just wondering in light of your comments about Midstream earnings being stronger for longer, capacity values being higher. Do you think there is chance you could reevaluate that 4% growth rate in the near to medium term or you just think you will just revaluate it and there is possibilities in certain years could be stronger.

Kirk Oliver

Yes we look at that each year, we do -- plan which is kind of a four year outlook for our entire business and the company and we look at our earnings targets, we look at our commitments in terms of dividends. So there is no change in that, what we have historically have done is when we are at a point where cash flow has been particularly strong. We look at that and the outlook for cash flow remain strong looking forward, we then look at our dividend and take it up. The last time we had a sort of significant ratchet of the dividend was in 2010.

So we will certainly continue to do that. We will look at the policy as well and maintain, always looking to maintain the balance of growing our dividend but also having sufficient cash flow available to fund the investment opportunities that will drive growth in the earnings in the long term. We feel good about this increase, we feel good about the cash generation capabilities of our businesses and we will continually look at that to make sure those critical elements kind of stay in balance for us.

Operator

Your next question comes from the line of Carl Kirst from BMO Capital. Your line is open.

Carl Kirst – BMO Capital

Maybe John understanding this probably not much more to say on or you can say on Total but just to go ahead and ask and see. Is there any additional outside of the financial metrics as far as trying to give a flavor of either a relative percent synergies or perhaps even better the sense of timing of how the synergies get realized. Is this something that may take longer for instance what we saw with Heritage? I’m just trying to get a better flavor of that decision, any incrementally you can give?

John Walsh

Yes I think one of thing it's a really good question, one of things that certainly we’re focused on in Total -- make sure that we have a clear plan that aligns in terms of social issues and (Technical Difficulty) and certain agreement that are in place et cetera, et cetera. So as you can pointed out we’re looking at the delivery of certain synergies that will take place over a longer period of time than we would typically see or we would potentially see in other geographies. That was well understand as we look at the opportunity and develop the plan, so that’s not a surprise to us and then sort of the valuation of the business, it's based on that sort of more extended period of bringing the businesses together.

There is a lot we can do going forward that delivers value across the two businesses in terms of logistic and operational synergies that will deliver with that – changes. So one of the things we have got a good track record of company is having a very detailed view of project execution when it comes to M&A and certainly we will bring discipline to this but basically we will take a little bit longer on certain elements of this because we need to make sure we’re executing in a manner that’s consistent appropriate for a major sort of combination of businesses in France.

Carl Kirst – BMO Capital

That’s helpful but it's too early to quantify I assume at this point?

John Walsh

Right, we will provide more information as we move forward.

Carl Kirst – BMO Capital

Can I ask you or maybe with Kirk to just repeat some of your comments? Unfortunately it cut out for me right when you were sort of addressing about the commercial activity as far as the natural gas marketing here in the fiscal third quarter talking about I think it was volatility of your basis specifically in the Mid-Atlantic and I thought you said something about near term versus long term and I just wanted to get a better sense of I guess A, what you’re seeing here in the fiscal fourth quarter if there has been any increase or decrease of opportunities relative to the quarter we just came out of and if B, from an outside observer standpoint it's something like that the (indiscernible) basis is still perhaps the best thing to monitor to get a sense of that.

Kirk Oliver

Yes I would say that’s a good thing to monitor to get some sense, I don’t think there is anything you can do that’s really precise on that matter and the point that really I was trying to make is that we have really benefited a lot this year from where our assets are located and how we optimize those assets around what’s going on in the Marcellus or in the Mid-Atlantic region really and taking advantage of some of the volatility there but we don’t expect a repeat of this year necessarily next year or anytime real soon.

But on the other hand we don’t expect things to go back down to the very low volatility levels that you saw going back to like 2008 once the recession hit.

John Walsh

I think just to expand on that I think what we’re seeing is underlying volatility that is notably higher than it was say in the 2008 to 2012 period especially where it was pretty dormant market so you can certainly see a difference and we saw some recovery and more volatility in ’13 and certainly last winter was kind of extraordinary but I think the point that Kirk made was in an underlying basis you do have this the impact of significantly increased demand with the natural lag that exist in terms of provision of infrastructure to meet peak demand and so that will continue to provide us opportunities moving forward on two fronts, one to utilize the asset from the capacity that we have in our network which is great. We’re not assuming next winter looks like this winter because this is a pretty unique winter but there will be some solid opportunities to use the assets we have and to make additional investments to be part of the build out of -- the necessary build out of infrastructure in business [ph].

It was an extraordinary year but we don’t -- certainly we’re not losing site of the fact that the combination of demand and infrastructure need creates a real opportunity for us that we need to be very focused on.

Operator

Your next question comes from the line of Chris Sighinolfi from Jefferies. Your line is now open.

Chris Sighinolfi – Jefferies

John just want to follow-up real quickly on Dave’s question about dividend. I know it's your practice and Kirk mentioned again it's to manage the payout ratio to that 35 – 45 band. And we have seen the heightened increase in the past like you’ve referenced in 2010 but I don’t recall seeing one that’s sort of an offsite like where we have two separate increases in the same year. I’m just kind of curious, what transpired for you and the Board between the April increase and the raise in your EPS guidance at that point and sort of the this announcement now there was just anything in particular you could point to that maybe shape the view on boasting the dividend a second time?

John Walsh

I would just say that probably the other important factor is just the strengthen of the cash flow this year, obviously very strong year from a reflected in the first nine months, deliver a lot of that income in the first six months. Cash flow has been greater, our team has done a great job working capital management. So I think the combination of very, very strong operating cash flow coming off the businesses plus bringing some of these capital projects like Auburn on stream that I think it gave confidence to do this and kind of reward investors. I’m not sure if we have done this before perhaps not but I think the timing was based on a combination of factors.

Chris Sighinolfi – Jefferies

Also following up on the other dynamic, we have been sort of probing you about the European acquisition on Total. Just curious, you had mentioned that the business mix, the products mix there was somewhat different. I’m wondering, if we look at sort of the UGI International operations in aggregate and think about sort of the margin and profitability characteristics that exists there today. Is there anything you can say broadly about that product mix John or any other factor about Total’s operations that would in a broad sense skew us up or skew us in any way relative to sort of what we see reported from the business as it exists?

John Walsh

The one thing I would say in terms of their product mix, because I won't get too specific, is that they serve the same segment which is great. It's the same business, they sort of have a very similar mindset in terms of the way they think about the business. So they are serving the same segments but their mix across those segments varies. They tend to skew a little bit larger, higher volume, larger commercial and industrial accounts which in general are on average if you look at our customer base.

Higher volume tends to be somewhat lower margin. It's not an extreme but there is -- that’s the difference we talk about difference in product mix. We really talking about shift to modest or moderate shift towards larger account versus us where we have a higher concentration in cylinders and in small bulk. So lower volume, higher margin customer. So that’s a sort of directionally the difference when we talk about product mix.

Chris Sighinolfi – Jefferies

And then with regards that acquisition I know international acquisitions you have done a bunch in the last several years and you have noted in the periods after they close, there is some heightened cost around transition integration but I’m curious just given a size of this Total deal. Are you or Kirk thinking that you will separately identify let’s say those transition (indiscernible) cost similar to how you treat it Heritage when AmeriGas purchased it. So we can get a better sense of sort of maybe what a normalized recurring revenue rate might be.

Kirk Oliver

We will do that once we have closed -- when we provide updates et cetera we will break out how much of that is transition expense.

Chris Sighinolfi – Jefferies

And final question for me on marketing and Midstream, you know another very strong quarter. You mentioned the ongoing infrastructure gap there. I’m just wondering John, with investments you’ve made at Temple, at Auburn, sort of coupled with some environmental factors around basis that will get sort of consolidated and reported as one performance for that segment? If we think about fiscal 3Q performance, for sake of example, is there any way you can sort of help us (indiscernible) how much of that was driven by maybe some of those favorable environmental factors that might be less stable on a go forward, return on base business.

John Walsh

Yes, that’s not something that we would kind of want to be analyzing or communicating at this point. I think what we will focus on doing is for the analyst day to provide more granularity in terms of sort of the look back but also the look forward because it's important that we understand that but it's also helpful as the business gets larger and our asset base and the network increases. We will strive to provide more information and the analyst day will be a good opportunity for us to do that.

Operator

Your next question comes from the line of John Edwards from Credit Suisse. Your line is now open.

John Edwards – Credit Suisse

A question on the AmeriGas side, what’s the expectation for year-over-year retail volume growth for the fiscal fourth quarter?

Jerry Sheridan

We’re assuming that last year’s September was about some 20% warmer than normal, so we’re expecting better but we don’t normally talk in terms of our quarterly expectations, line item by line item if that’s okay.

John Edwards – Credit Suisse

Okay. So with the 20% warmer than normal September last year, I guess will it be fair to say you are pretty optimistic that you should have some pretty good volume growth, is that fair to say?

Jerry Sheridan

I wouldn’t say significant volume growth but it's the beginning of residential winter season. So we’re just expecting a normal quarter that we have had for many, many years.

Operator

This concludes the Q&A portion of today’s call. I will turn it back over for any closing comments.

Jerry Sheridan

Okay. Thanks everybody for your participation in the call. We look forward to talking with you on the next call. We will certainly keep you abreast of our developments and communicating on any significant issues that come up between now and the next call and we also look forward to seeing many of you at the Analyst Day which we will schedule for November. Take care.

Operator

Ladies and gentlemen this concludes today’s conference call. You may now disconnect.

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AmeriGas Partners (NYSE:APU): FQ3 EPS of -$0.47 misses by $0.08. Revenue of $613.2M (+5.4% Y/Y) misses by $14.46M.