UGI (UGI) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - UGI reported adjusted diluted earnings per share (EPS) of $2.84 for fiscal 2023, a decrease from $2.90 in the prior year [4][11] - The Utilities and Midstream & Marketing segments delivered record earnings with an 8% growth in EBIT over the prior year [4][11] - UGI ended fiscal 2023 with available liquidity of $1.6 billion, including cash and cash equivalents [17] Business Line Data and Key Metrics Changes - The Utility segment achieved record EBIT of $365 million, up $29 million or 9% over the prior year, benefiting from a weather normalization rider and higher gas base rates [13] - Midstream & Marketing reported record EBIT of $291 million, an increase of $22 million or 8% over the prior year, aided by fee-based contracts and acquisitions [14] - UGI International experienced a 9% decline in LPG volumes due to warmer weather and energy conservation efforts, with total margin down $15 million [15] - AmeriGas saw a 7% decline in LPG volumes, attributed to driver staffing shortages and customer attrition, although total margin increased by $1 million due to higher LPG unit margins [16] Market Data and Key Metrics Changes - The company noted that approximately 86% of Midstream & Marketing margins are underpinned by fee-based contracts, providing stability despite market fluctuations [8] - The global LPG businesses faced challenges due to operational headwinds and geopolitical factors affecting energy conservation in Europe [4][15] Company Strategy and Development Direction - UGI is focused on reducing costs and enhancing operational efficiencies, targeting permanent savings of approximately $70 million to $100 million by the end of fiscal 2025 [19][20] - The company is conducting a strategic review of its LPG businesses, particularly AmeriGas, to maximize shareholder value [20][39] - UGI plans to prioritize investments in regulated utilities and leverage midstream assets for reliable earnings growth [20][21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by high interest rates and elevated inflation levels, impacting operational performance [4] - The company anticipates a slight decline in volumes for AmeriGas in fiscal 2024, but expects improvements in operational metrics [22][32] - UGI's fiscal 2024 guidance for adjusted diluted EPS is set between $2.70 and $3, assuming normal weather conditions [21] Other Important Information - UGI invested approximately $563 million in capital expenditures for infrastructure replacement and improvements in fiscal 2023 [6] - The company completed the sale of non-core energy marketing operations in the UK, Belgium, and France, reducing exposure to natural gas and power marketing in Europe [9] Q&A Session Summary Question: Timing of the strategic review for AmeriGas - Management indicated that the strategic review is still in early stages and no updates on timing or outcomes are available [28][29] Question: Global LPG assumptions for 2024 - Management explained that while assuming normal weather, they expect volume declines due to ongoing conservation efforts and previous warmer weather [30][32] Question: Benefits from operational improvements in AmeriGas - Management noted that improvements in on-time deliveries and customer service are being seen, but lingering effects from past driver shortages continue to impact volumes [36][37] Question: Leverage targets and balance sheet considerations - Management stated that they ended fiscal 2023 with leverage in the low 4's and aim to reduce it to sub-4 in 2024, focusing on improving the balance sheet without additional equity [43][44] Question: Share repurchases and capital allocation - Management acknowledged that while share repurchases are a consideration, the focus remains on strengthening the balance sheet and maintaining dividends [46] Question: Capital expenditure outlook for utilities - Management confirmed that while capital expenditures are being tightened, they remain committed to being ahead of schedule with infrastructure improvements [50][51]