UGI Corp Earnings Cooled Off by Warmer Weather

Warm winter weather is great for consumers because it means lower utility bills, but that's not so great for the utilities because it means lower earnings. That correlation is clear from UGI's (UGI 1.02%) fiscal first-quarter report, which was released after the market closed on Monday.

UGI results: The raw numbers

Data source: UGI Corporation.

What happened with UGI this quarter? 
The weather had a noticeable impact on UGI's business segments this quarter.

• The company's AmeriGas Propane (NYSE: APU) subsidiary saw its revenue decline 27.5% year over year while its operating income slipped 7.2%. This was due to a 13.3% decrease in retail gallons sold because temperatures were 20% warmer than normal and 16.8% warmer than last year.
• UGI's international revenue increased by 2.8% while its operating income jumped 43.5%, however, this was primarily due to the acquisition of Finagaz. That helped the segment overcome the negative impact from warmer temperatures as well as some foreign currency headwinds. 
• The UGI utilities segment saw its revenue decline 31.1% while operating income dropped 36.1%. Again, this was primarily due to warmer weather, with the temperature in the company's gas utility service territory 25% warmer than normal.
• Revenue at the company's midstream and marketing segment slumped 30.4%, though operating income was only down 5.9% year over year. Higher natural gas gathering and peaking total margin helped to partially overcome weaker natural gas prices.

What management had to say 
CEO John Walsh, commenting on the company's results, said:

We were pleased with the performance of our businesses in the first quarter, given the major weather challenges we faced. All of our businesses experienced weather that was significantly warmer than normal and, in most instances, significantly warmer than the prior-year period. Weather, as measured by heating degree days, was approximately 25% warmer than normal for the Utility, 20% warmer for AmeriGas, and 22% warmer for UGI France. Despite the challenge of warm weather, our business was able to deliver adjusted net income that was only slightly lower than the prior year, as we benefited from earnings associated with the Finagaz acquisition, higher income from natural gas gathering and peaking services, and a continued focus on cost containment.

While the weather was clearly the story during the quarter, UGI's earnings would have been much worse if it wasn't for its diversification and acquisition-driven growth strategy. The Finagaz acquisition paid very big dividends during the quarter, fueling really strong results at UGI's international segment. Meanwhile, the midstream and marketing segment was able to partially offset the impact from lower natural gas prices by delivering stronger margins from some of the other natural gas services it provides. 

Looking forward 
UGI made solid progress during the quarter on its long-term strategic initiatives. Two areas worth noting are acquisition-driven growth at AmeriGas, which completed three acquisitions during the quarter, as well as organic growth at its midstream and marketing segment, which made progress on the construction of its new LNG liquefaction facility as well as the Sunbury and PennEast pipeline projects. These initiatives are not only expected to drive future earnings growth, but to help soften the impact of the weather on UGI's results.