Hugh Gallagher - Treasurer
Jerry Sheridan - President & CEO, AmeriGas Propane, Inc.
Kirk Oliver - CFO
John Walsh - President & COO
Lon Greenberg - Chairman & CEO
Carl Kirst - BMO Capital Market
Sharon Lui - Wells Fargo
Mark Barnett - Morningstar
UGI Corporation (UGI) Q4 2012 Earnings Call November 8, 2012 4:00 PM ET
2012 UGI Corporation conference call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Mr. Hugh Gallagher, Treasurer. Mr. Gallagher, the floor is yours sir.
Thank you. Good afternoon everyone and thanks for joining us today. As we begin, let me remind you that our comments today will include certain forward-looking statements, which management 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 businesses and our ability to successfully integrate acquired businesses including Heritage Propane and achieve anticipated synergies.
UGI and AmeriGas undertake no obligation 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 provides useful information to investors to more effectively evaluate the year-over-year results of operations of the company. These non-GAAP financial measures are not comparable to measures used by other companies and should be considered in conjunction with performance measures such as cash flow from operating activities.
With me today are Jerry Sheridan, President and CEO of AmeriGas Propane; Kirk Oliver, CFO of UGI Corporation; John Walsh, President and COO of UGI and your host Chairman and CEO of UGI, Lon Greenberg. Lon?
Thank you. Let me welcome everybody to our call as well. I hope you all had the opportunity to review our press releases. Given that we just had our Analyst Meeting several weeks ago, obviously, it wasn’t too much new in our press releases. Our fiscal year earnings per share at UGI and our EBITDA at AmeriGas for fiscal year ‘12 were consistent with our prior announcements. Probably, the only new information in that release was that we were off to a good start this fiscal year, although we all know it's quite early in the fiscal year. Weather was close to normal levels during October and our businesses performed consistent with our expectations during that time.
During this call, you are going to hear from Kirk, John and Jerry and they will provide you with a lot more substantive information about our accomplishments during fiscal year ‘12 and our financial position as we move forward. Following their remarks, I will jump back in and give you a few closing observations. And so with no further adieu, Kirk, the floor is yours.
Thanks Lon and good afternoon everybody. This is my first conference call here at UGI and I am really excited about being the member of the team and a part of this company’s future. I will be providing a brief overview of results for the year followed by a discussion of liquidity, debt, cash flow and capital expenditures.
Earlier today, we reported a seasonal net loss for the fourth quarter of $14.7 million or $0.13 per share, compared with a seasonal net loss of $22.4 million or $0.20 per share in the prior year quarter. The current year quarter included the impact of $0.04 in acquisition and transition expenses. Last year’s quarter included the negative impact of about $0.08 related to losses on extinguishment of debt and currency hedges. So on an adjusted the seasonal net loss for the current year quarter was slightly better than last year.
For the fiscal year ended September 30, 2012, we reported net income attributable to UGI of $199.4 million or $1.76 per diluted share compared to $232.9 million or $2.06 per diluted share in the fiscal ‘11. These results are in line with the guidance we first issued in April and recently updated it at our Analyst Day three weeks ago.
Fiscal 2012 was marked by record setting warm weather in the U.S. that had a significant impact on all of our domestic businesses. Weather was also much warmer than normal in Europe resulting in a difficult operating environment for international propane as well In addition to the impact of warm weather, current year results included the negative impact of about $0.14 of adjustments related to acquisition and transition expenses and extinguishments of debt. Fiscal 2011 results included unusual items of about $0.04 in net expense as outlined in our earnings release.
In the interest of time, I am going to refrain from going through the details of each of our segments. We have already covered this ground in today’s release and at our recent Analyst Day. I will use rest of my time to go over cash flow, debt, liquidity and capital expenditures in the businesses.
UGI’s balance sheet is very strong and we remain committed to maintaining a strong balance sheet as a means of supporting our growth initiatives. UGI’s consolidated cash position excluding restricted cash was approximately $320 million at September 30, 2012.
AmeriGas had about $60 million in cash on hand and $427.2 million in borrowing capacity under its revolving credit facility at September 30, 2012. The credit facility matures in October 16th showing AmeriGas’ strong liquidity position for fiscal ‘13.
Total long-term debt at AmeriGas was $2.3 billion compared with $934 million at September 30, 2011. The increase in debt is largely due to the debt incurred in connection with the Heritage acquisition. As we are pointing out that since the acquisition of Heritage last January, AmeriGas has repaid over $250 million in long-term debt through a combination of tender offers, debt retirements and scheduled maturities.
UGI Utilities had $1.3 million in cash on hand and about $290 million in borrowing capacity under its revolving credit facility at September 30, 2012. Long-term debt at Utilities was $600 million at September 30, 2012 compared with $640 million last year. Utilities repaid a medium term note that matured in September and we intend to finance this maturity along with some additional pending maturities on a more permanent basis later this year.
The Midstream & Marketing business had $13 million in cash on hand and a total of $120 million in capacity available under its revolving credit and accounts receivable facilities at September 30th. We intend to extend the term of these facilities part of the scheduled maturities in 2013.
Turning now the Europe, Antargaz had no borrowings outstanding under its €40 million revolver and approximately €57.4 million of cash on hand at September 30, 2012. Flaga had approximately €19.5 million of cash on hand and €22.5 million in capacity available on its primary revolving credit facilities at September 30th.
AvantiGas, our propane operation in the UK had cash on hand of approximately ₤10.5 million at September 30 and it has no debt. Total long-term debt at International Propane was €446.3 million at September 30, 2012; the only noteworthy change in long-term debt during the year was the addition of €19.1 million term loan at Flaga last December to fund a portion of the Shell acquisition.
As we have said many times, we look to each of our businesses to generate cash that we can redeploy to drive growth. Excluding cash held by our operating subsidiaries, UGI had about $107.9 million of cash for investment and general corporate purposes at September 30, 2012; compared with $81.4 million last year.
Capital expenditures during the year totaled $339 million. At AmeriGas a $103.1 million in capital including $40.5 million in growth, $45.1 million in maintenance and $17.6 million in transition capital. At utilities, a $114.1 million in capital, including $45.7 million in growth and $68.4 million in maintenance capital.
The $68.4 million in maintenance capital included approximately $60 million related to infrastructure replacement. International Propane, capital expenditures were $60.4 million. Midstream and marketing expense of $60 million in capital including capital related to LNG expansion, natural gas storage Hunlock and Auburn 1 and 2.
Looking ahead the fiscal 2013, we are forecasting total capital expenditures of $510 million. AmeriGas plans to invest about $52 million in growth, $58 million in maintenance and $20 million in transition capital for a total of approximately $130 million. UGI Utilities expects to spend approximately $118 million, $37.7 million in growth and $80.3 million in maintenance capital.
UGI’s maintenance capital forecast includes about $70 million in spending related to infrastructure replacement. International Propane expects to spend about $70 million in capital during fiscal ’13 including $53 million at Antargaz much of this is maintenance capital.
The Midstream and marketing segment plans to invest about $185 million next year with the vast majority of these expenditures going to growth related investments primarily related to the Auburn 2 gas gathering project and storage enhancements. That concludes my remarks, I look forward to working with all of you and I will now turn it over to John for his update on operations.
Thanks Kirk. 2012 was a noteworthy year for UGI. While much of our discussion during the year focused on the unusually warm weather and its impact on our businesses. In the long run, the most critical events of 2012 for UGI were the strategic investments made over the past 12 months.
This has been a year of intense activity for us as we address the challenges presented by the warm weather while driving forward with our strategic activities of acquisition integration and capital projects execution. We covered many of these activities in detail during our recent Analyst Day. So I will provide a brief updates on a few key areas.
This has been an unprecedented year of activity for our gas utility team. Our infrastructure replacement program has been enhanced with a record level of investments in fiscal year ’12. We recently filed a settlement agreement with the Pennsylvania PUC on the Allentown investigation with specific timetables for infrastructure replacement.
We are awaiting the PUC’s decision on our proposed settlement and are prepared to execute the accelerated program. We also set a new record for growth in the gas utility driven by the unprecedented demand for fuel oil to natural gas conversions.
Our residential conversions and upgrades were up over 50% versus last year and our commercial account additions were up about 20%. Net customer growth in our gas utility top 2% for the year.
Acquisition integration was the major focus for our propane businesses in both the US and Europe. We had a full 12 months to execute our integration plan in Europe for the businesses we acquired from Shell.
Our teams achieved our synergy goals and incurred most of the transition expenses in FY ’12. So we're in a strong position as we start the new fiscal year. We also made great progress on our integration program in AmeriGas in the 10 months since the Heritage acquisition closed.
All critical milestones for integration activities have been hit and the field teams are aligned and prepared for upcoming winter season. We're very confident that we’ll achieve the operational service and growth targets that drove the business case for the investment.
We’ve increased our synergy target and that enhanced synergy performance has reflected in the guidance we provided at our Analyst Day and confirmed today. Jerry will provide additional details on the integration work during his comments.
An execution on our range of capital investment was the other key priority in FY ’12. It's been a busy but very productive year for us on projects. Our gas fired 125 megawatt power generation facility in Hunlock was restarted in late June and is operating at its full capacity.
We completed the expansion of our LNG peaking facility in Tampa, Pennsylvania in Q4, quadrupling our storage capacity and the plant is fully operational for the 2012, 2013 winter peaking season.
Our two Marcellus pipeline infrastructure projects are also progressing. The Auburn 2 projects which will extend our existing Auburn line southward to connect with Transco is in the field execution phase. The expected in service date for Auburn 2 is early FY ‘14.
The Commonwealth Pipeline are proposed 120 mile project with energy midstream and WGL is in the marketing phase as we work to sign precedent agreements with additional shippers, the outcome of which will shape the timing, route and rates for the project.
Although 2012 presented us with numerous challenges, we are very pleased with the progress we have made on our key projects and excited about the prospects for a strong performance in FY ‘13.
I would like to close with a brief update on the impact of Hurricane Sandy on our businesses and the communities we serve. Our thoughts are with the millions of families in our region that were impacted and continue to be impacted by this huge storm.
UGI’s businesses felt the impact on our mid-Atlantic and northeast operations but fortunately our serviced areas were spare the worst of the Hurricane. Our electric utility had almost 30% of its customers without power at the height of the storm on October 30, but power was restored to virtually all customers within about 30 hours.
All of our businesses were in normal operating mode by November1. We are working with AGA and our assisting utility companies to offer mutual way to gas utilities in the region that were most severely impacted.
I would now like to turn it over to Jerry who will take you through the AmeriGas performance in Q4. Jerry?
Thanks John. For AmeriGas, earnings in the fourth quarter met our expectations. We finished the fiscal year with adjusted EBITDA of $384.3 million. This is at the high end of our guidance that we issued in July and slightly higher than the update we provided at UGI’s Analyst Day in October.
For fiscal 2012, weather was a record 19% warmer than normal compared to weather that was essentially normal in fiscal 2011. Retail gallons sold were 1 billion gallons of 16% for the year due to the roughly nine months of Heritage volume included in our results offset by the impact of the record warm heating season temperatures.
Retail unit margins increased over prior year as we benefited from a significant decline in the underlying cost of product which averaged 5% lower in fiscal 2011. Cost drop such as these are historically beneficial to margins although the timings of this year’s product cost drop was offseason and didn’t have the same impact of similar price declined would have had in the peak heating season months.
Mont Belvieu cost as of September 30, it was $0.91 down 40% from year earlier. Stability caused these lower levels is very helpful to the industry as a results in more affordable heating bills for customers thus producing the focus on conservation. Despite the significantly warmer temperatures that dramatically affected volumes in earnings for AmeriGas and the entire retail propane industry, fiscal 2012 was successful in the sense that we are able to accomplish all of our objectives for the Heritage acquisition, including closing acquisition in mid-January inline with our expectations when we announced the deal in October, financing the debt portion of the transaction at under 7% also inline with our original expectations.
Selection of our field management team with a great blend of top talent from both AmeriGas and Heritage and we really view this management upgrade as the critical enabling synergy from the deal. Consolidation of all the back office activities into AmeriGas Valley Forge, Pennsylvania location and finally, completion of the first wave of [store] consolidations.
The fourth quarter also marked the final consolidations activities related to the Heritage acquisition before heading into the critical winter earnings season. The integration plan we established for Heritage prior to the closing consisted of two phases with the pause for the fiscal ‘13 winters. Phase 1 is complete and we will now realize net synergies of over $60 million in 2013 above the original $50 million expectation.
Further, Phase 2 of the integration is on track to be complete this spring with our final store consolidations in the field. In addition to the acquisition integration, 2012 was also a year of accomplishment in our key strategic thrusts. ACE our AmeriGas cylinder exchange business which is a summer counter cyclical business for us saw a nice volume growth.
Year-to-date, fiscal 2012 volume was up 9% and same-store sales were up 1% which was equivalent to the same-store sales growth in 2011. The majority of our volume growth was from new accounts and expansion of existing customer locations.
ACE is now available at 41,000 convenient locations across the United States. Further, our national accounts business added customers with almost 4,000 locations and we now serve approximately 200 customers at over 31,000 locations.
Finally, our acquisition program that was slowed during the Heritage integration still delivered eight small deals which will add 10 million gallons on an annualized basis. We are pleased with how well the Heritage acquisition has gone and we are well positioned as we move into the 2013 heating season.
The year has gotten off to a good start with weather (inaudible) in October that was 1.4% warmer than normal and 11.5% colder than last year. We certainly look forward to a continuation of more normal weather for the remainder of the year.
As you've seen from our earnings release guidance for fiscal 2013, these were adjusted EBITDA in the range of $630 million to $660 million excluding approximately $23 million in transition costs. We look forward to demonstrating the tangible benefits of the Heritage acquisition for years to come and we continue to target EBITDA growth of between 3% and 4% and distribution growth of 5% while maintaining strong liquidity, a strong balance sheet and solid distribution coverage.
In closing, I really want to thank the over 9,000 AmeriGas employees for their commitment and great flexibility through the entire integration. Now back to you, Lon.
Okay, thanks Jerry. Let me close with the following few comments. I want to reiterate our guidance for 2013 which was contained in the release at $2.45 to $2.55 a share, and Jerry mentioned the guidance for AmeriGas as well. I hope you understand what's implicit in that guidance is that we expect a very good year this year, and as we've said we are off to a good start doing that. We based our views on our guidance, on the progress we made last year. John and Jerry very ably described that progress, and of course as Jerry said we are banking on a return to what is sometimes referred to as more normal winter weather.
Kirk also did a great job of describing our very strong financial position, which of course allows us to pursue the strategies that we have. In that regard, we continue to make progress in pursuing those strategies, both John and Jerry talked about that and we continue to make progress on our acquisition strategy as we described that at our offsite meeting.
We stated in the press release today and on the call probably several times, its very early in the fiscal year and so we don't want to get too excited, but its better to start this October the way we did rather than the way we started last October, given the warm weather that we encountered both in October and November last year. So we are feeling good as we sit here today about our ability to move forward productively and show you what the earnings power of our businesses are.
So let me conclude by thanking you for your support, and we look forward to talking to you again in January after the conclusion of our first quarter earnings. At this point Michael I guess we can open it up to people and ask some questions.
(Operator Instructions) The first question we have comes from Carl Kirst of BMO Capital Market. Please go ahead.
Carl Kirst - BMO Capital Market
Not a whole lot here, but just really a couple of questions and first and John I appreciate the update on Sandy on the (inaudible). Was there any quantifiable impact to AmeriGas for Sandy be that on the negative or even people perhaps stocking up on propane on the positive. I mean will we see any impact on that in the December quarter?
There was a significant activity since we have operations across the whole region. It's not material. As I mentioned, on an overall basis, basically the entire company was back to normal operating mode by November 1, but I think the AmeriGas did a great job, first of all getting our operations fully back on stream and providing coverage, but then also working with some key customers and Jerry can comment on that.
Yeah, it certainly affected some of our locations that loss power temporarily and hurricanes are traditionally very good for our ACE business, but not a significant work force.
Carl Kirst - BMO Capital Market
Okay, I appreciate that. And second on Sandy and this is really the question, not sure it will have a, it's hard to imagine how but if we would have any impact on the CommonWealth negotiations and I am thinking more here about, given the path of the storm, has there been any impact on a possible routing or thoughts of different routes. I wouldn’t think so but just want to confirm that.
No, no impact at all, in fact from a flooding standpoint it was certainly in the areas where which are non coastal areas where we operate it was much less of an event than the events last year between hurricane Irene and tropical storm were much more problematic in terms of flooding. So no impact on the CommonWealth pipeline and for our facilities on the gas distribution side which are inland very, very limited impact.
Carl Kirst - BMO Capital Market
Understood, thank you. And then last question is just really I don’t think actually [called] this down from the Analyst Day notes, but can you refresh us where we stand on the European euro hedges for both fiscal 2013 and 2014 as far as percentage hedged and the level?
We are following our normal program, so we are hedged for fiscal ‘13 fully and fiscal ‘14 we typically have around two-thirds of our needs hedged. We usually lay around and it will fall two-thirds, one-third and we are following that program again.
Carl Kirst - BMO Capital Market
do you have the level?
It’s slightly above a $1.30.
And a $1.31 this year.
Carl Kirst - BMO Capital Market
Would that hold into ‘14 as well?
It’s pretty close to that.
The next question we have comes from Sharon Lui of Wells Fargo.
Sharon Lui - Wells Fargo
So just to confirm on so no damages sustained from Sandy on the physical assets either.
Minimal, not take appreciable nothing to clear, and we were very fortunate just with the path of the storm.
In our electric division by the way, did an absolutely outstanding job of getting people back online as John mentioned, we had a high percentage of our customers who lost of electricity, but our team was well prepared, we had extra resources available and as John mentioned within 30 hours or so firstly everybody was back with electricity in our area and that was very concerted effort on our part to be prepared and have the right resources there.
Next we have Mark Barnett of Morningstar. Please go ahead.
Mark Barnett - Morningstar
Just couple of quick questions on the AmeriGas side. Is there any change you could give a little detail on your normalized volume projections underpinning the 2013 forecast, maybe to give us a better idea of some of the attrition that you saw after the combination and kind of a weather normalized runway going forward?
As you know we don't generally talk about specific volume or more than targets in our plans. Certainly we also plan on a deal of this magnitude to have some degree of attrition [movement] volume location there is some customer upset, but we are so far on track with our expectations on volume side.
Mark Barnett - Morningstar
So far it’s been fairly limited on the attritions and I guess?
Yeah, right within our expectations Mark. One of that hard parts of volume in this environment was it so warm last year that your base of volume that you have is difficult enough to try to figure out because customers use significantly less last year and all of the weather normalization models people have are based on assumed grades of degree day usage, and so when you adjust those volumes for degree days and when its so warm it becomes hard to get true understanding of your base. We have a better feel of numbers of the customers if you will and we are right within our expectations and as Jerry mentioned no undue loss of customers associated with the acquisition, in fact we are probably doing a little better in many areas than we suspected.
One final comment I would make on demand is, and Jerry touched on his comments is the beneficial impact of lower product costs which is helpful you know you have price induced or price influenced conservation and we are pleased that our customers are seeing lower prices or cost to lower so that's a good thing in terms of demand. I will say on margins that I think Jerry said at the offsite that we are not, in response to a question, we are not expecting margins to be significantly higher or significantly lower. We kind of see stability with margins and overtime margins increasing with inflation and operating expenses and things but from the margin side of your equation we are not expecting there to be a significant changes either way up or down in margins compared to where we were last year or the year before.
Mark Barnett - Morningstar
And just one more quick question, now that you have a little bit more time to fully realize the synergies you had initially projected, obviously you talked a little bit generally about some further upside in the future, do you have maybe a better idea of kind of a range that you might be expecting there or is it still kind of too early for that.
Too early. We are happy that we got ahead of the $50 million or up to $60 million now that we certainly will realize this year. And as we get into Phase 2 we will see if that number grows but we are in a position to be saying it has.
(Operator Instructions) It appears that we have no further questions at this time. We will go ahead and conclude our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks. Gentlemen?
That's fantastic Mike, thank you. Well, we are happy to close out the call. We appreciate all of your interest particularly given that we just had our analyst call. We look forward to reporting to you at the next quarterly call and we are comfortable that we are on the right track and we will demonstrate that to you in the future. So talk to you in January and everybody have a safe and happy holiday as we move forward. Bye.
And we thank you sir and to the rest of management for your time and you also have a great holiday season. The conference call is now concluded. We thank you all for attending today's presentation. At this time you may disconnect your lines. Thank you and take care everyone.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!