UGI Q3 2026 Earnings Call: Complete Transcript

UGI (NYSE: UGI ) reported third-quarter financial results on Thursday. The transcript from the company's third-quarter earnings call has been provided below. This content is powered APIs. 2 billion, slightly higher than the previous year, despite challenges from LPG divestitures and unfavorable weather.

The company completed its cast iron replacement ahead of schedule, reflecting a commitment to safety and reliability in its natural gas businesses. UGI Utilities' gas rate case settlement could lead to a $65 million rate increase phased over two years, supporting system investments and customer benefits. AmeriGas showed improvements in operational metrics, with decreases in injuries and out-of-gas events, and an increase in Net Promoter Score by 63%. UGI International maintained a strong EBITDA margin of 23%, with a focus on organic growth and operational efficiency.

90 for fiscal 2026, highlighting the fundamentals of its business and strategic progress. UGI reduced net debt at AmeriGas by $270 million and anticipates meaningful cash distributions from AmeriGas to the parent company in fiscal 2027. Midstream business growth is expected with planned well pad expansions and increasing demand for natural gas, particularly for power generation. Full Transcript OPERATOR Good day and thank you for standing by.

Welcome to the UGI Corporation Q3 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 is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tameka Morris.

Please go ahead. Tameka Morris, Investor Relations Good morning, everyone. Thank you for joining our fiscal 2026 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 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 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. And now I'll turn the call over to Bob.

Bob Flexon, President and CEO Thanks, Tameka, and good morning. Fiscal 2026 continues to be a year of disciplined execution against the strategic priorities we laid out at the start of the year. That focus is reflected in our financial performance, where solid operational results have absorbed the impact of portfolio actions, unfavorable weather, and slower growth in our domestic propane business. 2 billion, modestly ahead of the prior-year period.

This improvement resulted from growth at our utilities which more than offset roughly $40 million in year-over-year decline from the previously announced LPG divestitures and the effects of warmer weather across our LPG service territories. Importantly, the fundamentals of each of our businesses remain intact and the operational and financial progress we've made this year continues to strengthen the foundation of the company and support our long-term value creation strategy.

Year to date we directed approximately 76% of total capital expenditures to our natural gas businesses, advancing our commitment to pipeline safety, reliability and modernization, while adding more than 8,500 new heating customers across our regulated utilities service territories. Of note, we completed our cast iron replacement commitment several months ahead of schedule, reflecting our continued focus on safety. On July 31, the Administrative Law Judges recommended approval of UGI Utilities' Joint Petition for settlement of our gas rate case without modification, pending approval by the Pennsylvania Public Utility Commission.

The settlement would permit a two-step rate increase of $65 million, with approximately $40 million effective in October 2026 and approximately $25 million in October 2027, with a stay-out provision through January 2029. The terms of the settlement provide the company with the revenue needed to continue investing in its system, including maintaining its accelerated replacement of vintage materials, while providing substantial benefits and protections to customers.

As an example, the settlement includes a pilot that extends meaningful debt relief to a group of vulnerable customers who have historically fallen through the cracks, specifically individuals earning between 150% and 300% of the federal poverty level. These are households that don't qualify under the existing program, and so the pilot will help customers experiencing trouble paying their bills by providing an avenue to maintain service and manage their bills while mitigating bad debt risk for UGI.

5 million is available every year, we believe this settlement reflects a balanced outcome that strengthens the long-term relationship between the utility and the communities we serve. Beyond our regulated utilities, we also continue to position the midstream business for growth, with several well pad expansions planned on the UGI Appalachian system to increase throughput. These investments position us to capitalize on rising natural gas demand across the region driven by continued economic development and the growing energy needs of data centers and power generation, ensuring we have the capacity in place to serve our customers and support long-term growth.

Turning to slide five, at AmeriGas, the transformation is taking hold, driving improved volume retention and favorable trends across several leading indicators. The team continues to strengthen the foundation of the business, materially improving trends in retail volumes sold when compared to pre-fiscal 2025 levels, as well as the balance sheet and free cash flow generation capabilities when compared to fiscal 2024. On a year-to-date basis, lost time injuries are down 50%, recordable injuries are down 44%, out-of-gas events are down 21%, and zero fills are down 17%, while our average net promoter score is up 63%. This is meaningful and measurable progress.

, we are ramping up sales and marketing efforts, expanding our sales channels, and targeting new residential and B2B customers. These improvements all demonstrate that AmeriGas is now well positioned for the anticipated return of distributions to UGI Corporation in fiscal 2027. Moving to UGI International, this year the team has done a tremendous job to offset the impact of non-core divestitures to deliver comparable year-to-date EBIT on a year-over-year basis, all while delivering a strong 23% EBITDA margin, which speaks to the quality and resilience of this business.

With a leading market position across our remaining geographies, over 90% tank ownership, and a strong track record of operational excellence, the business continues to experience long-standing customer relationships, strong customer retention rates, top-tier return on capital employed, and attractive free cash flow conversion rates. The embedded value and market potential of UGI International was recently underscored by an announced take-private transaction in Europe involving one of our primary competitors, a company with a similar business and a comparable footprint across our key markets.

The valuation applied by that announcement reinforces the significant value in our international platform and the opportunity that lies ahead as we move forward. The team is focused on achieving organic growth through multiple initiatives, including heating oil to LPG conversion, where the market is roughly four times the size of the addressable LPG market. Additionally, we will look to further optimize our operations to improve margins while maintaining the reliability and service our customers expect. And with that I'll hand the call over to Sean to walk through the financial results in more detail.

Sean O'Brien, Chief Financial Officer Thanks, Bob, and good morning. I'll now provide more details on our financial performance for the third quarter. UGI delivered total reportable segment EBIT of $58 million compared to $72 million in the prior-year period. , primarily in April, and lower growth at AmeriGas, partially offset by continued strength at our utilities.

The utility segment was up 10 million reflecting higher gas base rates that went into effect in October 2025. Midstream and Marketing was up 3 million driven by higher total margin from capacity management activities. UGI International was down 2 million as lower retail volumes from the previously announced non-core divestitures were partially offset by higher unit margins, and AmeriGas was down 25 million reflecting lower retail propane volumes from warmer weather and continuing customer attrition along with lower fee income.

Turning to the quarterly results for each reportable segment: at the Utilities, EBIT was up 10 million versus the prior year period, as increased margin from higher gas base rates was partially offset by increased depreciation and amortization expense reflecting the effects of continued investment in pipeline replacement activity. At the Midstream and Marketing segment, EBIT increased 3 million on a year-over-year basis. Total margin increased 13 million largely due to the timing of capacity margin and the recovery of higher pipeline costs as previously anticipated.

Operating and administrative expenses were 8 million higher, primarily due to LNG and renewable energy projects placed in service last year. Turning to the global LPG businesses: at UGI International, EBIT was 41 million for the quarter compared to 43 million in the prior year period. Retail volumes were 10% lower driven by the recent LPG divestitures in Austria and Eastern Europe. Total margin decreased 6 million, primarily reflecting the lower retail volumes sold, which were partially offset by higher average unit margins and the translation effects of stronger foreign currencies.

Operating and administrative expenses were lower, reflecting the impact of the aforementioned divestitures and lower personnel expenses, substantially offset by the translation effects of stronger foreign currencies. At AmeriGas, EBIT was down 25 million over the prior year period, largely due to the decrease in total margin stemming from lower volumes. Retail gallons decreased 10%, reflecting April temperatures which were 16% warmer than the prior year, as well as continuing customer attrition.

On a weather-adjusted basis and excluding the Hawaii divestiture, retail gallons decreased 6% versus the prior year period and 2% on a year-to-date basis when compared to the prior year. While the seasonally weak third quarter pressured near-term earnings, the continuing operational improvement actions at AmeriGas better positions the business for the upcoming heating season.

187 billion, up 3 million over the prior year period, as higher Pennsylvania gas base rates and increased LPG unit margins more than offset the impact of lower production volumes in the Appalachian region, warmer weather, several LPG divestitures, and continuing low single-digit customer attrition at AmeriGas. 55 in the prior year period. The year-over-year decline in adjusted EPS was largely driven by the absence of investment tax credits realized last year and higher interest expense as previously anticipated. 11 when compared to normal weather patterns.

90. The fundamentals of our business remain intact, and the strategic actions and operational progress we have made this year underscore our confidence in the long-term growth trajectory of the company. Moving to the balance sheet, we continue to make strong progress against our objectives, building financial strength and flexibility. This year we've completed several strategic debt transactions to extend our maturity profile and reduce borrowing costs by approximately 30 million on an annualized basis, and this included transactions at AmeriGas, UGI International, and UGI Energy Services.

375%. Through these transactions, we reduced net debt at AmeriGas by approximately $270 million versus the prior quarter. Additionally, we amended UGI Energy Services' Term Loan Credit Agreement to reduce its applicable interest rate margin, saving approximately 4 million on an annualized basis. 3x, the lowest point in 10 years, reflecting the continued deleveraging and capital structure actions underway across our global LPG platform.

And with that, I'll turn the call over to Bob for his closing remarks. Bob Flexon, President and CEO Thanks, Sean. Before we move to Q&A, I want to leave you with a few key takeaways. As you see on the slide, our diversified energy footprint is a platform for creating sustainable long-term shareholder value.

Our regulated natural gas businesses deliver weather-hedged earnings with a long runway of organic growth opportunities as regional demand for gas continues to increase. At UGI International, we remain the number one distributor in key markets, generating attractive returns and approximately 95% free cash flow conversion. We also have tangible growth levers ahead. For instance, the heating oil to LPG conversion opportunity alone addresses a market several times the size of where we compete today.

And I point to the progress we've made at AmeriGas over the past two years. This team has done meaningful work to stabilize the business with improvements in customer service and retention in a more disciplined operating model. Our focus is on finishing fiscal 2026 strong. As you know, this is a highly seasonal business where winter matters, so a lot of the team's energy is focused on operational and winter preparedness to deliver through the upcoming heating season.

Thank you for your time with us today, and we will open the line for questions. OPERATOR Thank you. At this time we will conduct the 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 the line of Konstantin Lednev with Wells Fargo Securities. Konstantin, your line is now open.

Whitney Mutalemo, Analyst at Wells Fargo Securities Hi team, good morning. It's actually Whitney Mutalemo on for Konstantin. On midstream, the guidance cut was primarily tied to delays in growth investments and lower production volumes. You're now showing well pad expansions on the system as well as that growth plan.

Has that delay been resolved or does it push into fiscal year 27? And just a follow-on, does that change your confidence in the 5 to 7 consolidated EPS CAGR through 29? Sean O'Brien, Chief Financial Officer Thanks, Whitney. Bob Flexon, President and CEO So what we're seeing is more production coming out of the Appalachia Basin.

So we have a couple well pad expansions, one that starts early in fiscal 27, a second one that starts towards the latter part of fiscal 27. We have the Auburn pipeline that's going to be FERC regulated that we expect also towards the end of 27 as well. So we're seeing a good return of production to the territory from what we saw in the current year. So we feel good about the growth prospects for our midstream business.

And you add to that the demand for power generation that'll come later in the decade, we're seeing a good funnel of opportunities for our midstream business. Sean O'Brien, Chief Financial Officer And Whitney, this is Sean. Maybe in terms of the 5 to 7, I'll give you a little bit of color, but we'll give more obviously at the end of the year when we give guidance. But the 5 to 7% remains intact.

There are moving pieces. We've seen some of the business units, even since we gave that guidance, with stronger outlooks.