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UGI Corp  (NYSE:UGI)
Q4 2018 Earnings Conference Call
Nov. 13, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Haide, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the UGI Corporation and AmeriGas Fourth Quarter 2018 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Brendan Heck, Manager of Investor Relations, you may begin your conference.

Brendan Heck -- Director of Investor Relations

Thanks, Heidi. Good morning, everyone, and thank you for joining us. With me today are Ted Jastrzebski, CFO of UGI Corporation, Hugh Gallagher, President and CEO of AmeriGas Propane and John Walsh, President and CEO of UGI.

Before we begin, let me remind you that our comments today will 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 on Form 10-K 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'll also describe our business using certain non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available in the appendix of our presentation.

Now, let me turn the call over to John.

John Walsh -- President and Chief Executive Officer

Thanks, Brendan. Good morning and welcome to our call. I hope that you've all had a chance to review our press releases reporting full-year results for UGI and AmeriGas. I'll comment briefly on major achievements over the course of fiscal '18 and then turn it over to Ted, who will provide more detail on UGI's financial performance. Hugh will cover AmeriGas's fiscal '18 performance and fiscal '19 outlook and I'll conclude by reviewing our fiscal '19 guidance and progress on our strategic projects.

We are pleased to once again report record earnings per share for UGI. Our full year GAAP EPS was $4.06, while our adjusted EPS was $2.74. Our adjusted EPS was roughly 20% above the prior record adjusted EPS of $2.29 which we achieved last year. Both years have been adjusted for the mark to market valuation of unsettled hedges and other items that Ted will cover later in the call. The outstanding results delivered in fiscal '18 were enabled by UGI's strong foundation for growth. This foundation is built on our commitment to identifying and developing investments that are aligned with our core business strategies. Our consistent, superior performance demonstrates the resiliency of our businesses and our determination to deliver on the performance commitments we made to our shareholders.

We are also a beneficiary of the positive impact from tax reform, although I should note that fiscal '18 adjusted EPS would have established a new record for the company even if the benefit of tax reform was excluded. We were extremely pleased with the progress made in fiscal '18 on our primary strategic initiatives such as the build-out of our LNG network in the mid-Atlantic and the continued expansion of our European footprint. Fiscal '18 was also noteworthy for the progress made in executing critical elements of our long-term strategies that will provide the foundation for growth over the next decade.

In addition to the progress on our LNG network and our European footprint, we acquired productive midstream assets in the Marcellus significantly expanded our gas and power marketing activities in Europe, grew ACE and National Accounts in AmeriGas and deployed record levels of capital in our utilities business. I'd like to briefly comment on our few key fiscal '18 achievements. The midstream and marketing team had another outstanding year as we strengthen our position as a major midstream operator in the Central and Eastern Marcellus with access to capacity constrained markets in the mid-Atlantic and New England. We completed the steels in Pennsylvania LNG storage facility and announced another new LNG storage facility for Bethlehem, Pennsylvania. These investments add critical storage and delivery capacity to our LNG network as we strive to meet the rapidly increasing demand for LNG peaking services.

We acquired the Texas Creek gathering systems in North Central Pennsylvania, and we're expanding that network as drilling activity increases. The PennEast project received its final FERC certificate in 2018 and is moving through the state level permitting process. The PennEast team is currently working through the details to gain access to all land parcels along the route in order to submit its final detailed surveys for permits. PennEast is expected to begin construction on the project in late 2019.

I'll comment further on PennEast later in the call, and share our perspective on the future outlook for pipeline capacity expansion. Our utilities team had a very productive year. The utility deployed a record $340 million of capital as we added new customers, replaced gas distribution infrastructure and upgraded our critical accounting systems. We added over 14,000 new residential heating and commercial customers and continue to execute our extensive infrastructure replacement and upgrade program.

We also received approval to merge our three gas utilities and successfully concluded the first rate case filing for our electric utility in over 20 years. Hugh will provide a detailed review of AmeriGas's performance in fiscal ' 18. And I'll briefly comment on the impressive progress with the ACE and National Accounts programs. Both of these programs leverage AmeriGas's unparalleled national distribution network and our ability to meet our customer commitments under the most challenging circumstances. Fiscal '18 was another very strong year as our nationals account volume rose over 11% and our ACE volumes increased by 4%.

UGI International was our only business that faced the challenge of warmer weather than the prior year, but still delivered a record level of operating income. Key accomplishments in the year included the successful integration of the Finagaz (ph) and UniverGas acquisitions in Sweden and Italy, which strengthened our position as one of the market leaders in European LPG. We also had a very successful first year at DVEP, our newly acquired natural gas and power marketing business in the Netherlands. One final key fiscal '18 achievement was the successful conclusion of our 3-year integration program for the Finagaz acquisition. Our team in France did an outstanding job on the Scrushy (ph) project with a sustained focus over the past three years. We have met or exceeded all the investment targets for Finagaz and the positive impact of the strategic investment is evident when you review the performance of our international business over the past three years.

Fiscal '18 was a memorable year for UGI as we for the third consecutive year delivered the highest adjusted earnings per share in our history. We also made significant progress on a series of strategic investments that enhanced our position across our diversified set of businesses. Our strong performance was enabled by our team's ability to understand and address dynamic market conditions in our service areas, while maintaining our focus on identifying and securing attractive long-term growth opportunities. We also maintained our commitment to excel in the most critical activities we undertake; safety, customer service, building core capabilities and operational efficiency. I will return to comment on our fiscal ' 19 outlook, and our strategic initiatives. But I'd like to turn it over to Ted at this point for the financial review. Ted?

Thaddeus Jastrzebski -- Chief Financial Officer

Thanks, John. As John mentioned, fiscal year '18 was a very strong year with adjusted earnings of $2.74 per share, 20% higher than last year. This was our third consecutive year of record earnings. This table lays out our GAAP and adjusted earnings per share for fiscal '18 compared to fiscal '17. As you can see, our adjusted earnings exclude a number of items such as the impact of mark-to-market changes and commodity hedging instruments, a gain of $0.39 this year versus a gain of $0.29 last year. In fiscal 2018, we have $0.11 of unrealized gains on our foreign currency derivative instruments versus an $0.08 loss last year. You can also see the final integration expenses associated with Finagaz. The acquisition is now fully integrated and our team did a great job of delivering on their stated timeline. We cover the $0.08 impairment of trademarks and tradenames at AmeriGas in detail on our third quarter earnings call. Lastly, you can see the $0.07 and $0.93 deferred tax being measurement impacts of the French Finance Bill and the Tax Cuts and Jobs Act.

Turning to the bridge, adjusted earnings per share increased $0.45 versus last year. Our domestic businesses benefited from relatively normal weather, while our international business faced warmer weather conditions. The largest contributors to the $0.45 increase were midstream and marketing whose total margin increased 25% versus last year. leveraging our continued build-out of Marcellus infrastructure and utilities who increased margin 10% as a result of colder weather, new customer growth and an increase in PNG base rates. Lastly, we benefited across the businesses by $0.20 from the impacts of tax reform. First to the LPG side of the business. AmeriGas reported Adjusted EBITDA of $606 million, a 10% increase over last year on weather that was 13% colder than fiscal '17. Total margin was up $58 million, largely the result of higher retail volumes sold. Operating and admin expenses increased 1.7% less than half the rate of volume growth. Other income was higher in 2018 by $12 million. This reflects the absence of the $9 million negative adjustment recorded in fiscal '17 the correct previously recorded gains on sales of fixed assets. Hugh will discuss AmeriGas results in more detail in a few minutes.

UGI International achieved adjusted income before taxes of $219 million, up slightly versus last year, largely due to acquisitions. Total retail gallons sold increased primarily due to the UniverGas acquisition, but I should note that volumes from our existing businesses were only down slightly versus 2017 on weather that was 6% warmer than last year. Our margin and operating expenses were impacted by the strengthening euro and sterling. The stronger currencies affected the line items on the slide, but the benefits on net income were substantially offset by net losses on foreign currency exchange contracts.

Although not in fiscal '18, I wanted to point out that our international team completed a major financing in October of nearly EUR 1 billion. The team price EUR315 million of senior notes due 2025 at a 3.25% coupon. We were a first time issuer, and we're pleased with the -- with this outcome. Additionally, we announced a new EUR300 million term loan and a EUR300 million revolving credit facility. The team did a great job of introducing our business to many new investors and position the international business well for continued growth.

On the natural gas side of the house, midstream and marketing reported income before taxes of $176 million, an increase of $35 million over 2017. Total margin increased $66 million versus 2017 due to higher margins from midstream assets and higher electricity generation total margin. The $8 million increase in depreciation expense is related to the expansion of our pipeline gathering -- expansion of our pipeline, gathering, LNG and peaking assets. Other income is lower year-over-year because of the -- because 2017 includes allowance for funds used during construction income (ph) associated with the Sunbury Pipeline, which came on stream mid '17.

UGI Utilities reported income before taxes of $195 million for 2018, a $6.5 million increase over last year. Core market throughput increased 14% as a result of weather that was 10% colder than last year and we saw continued customer growth. Total margin increased $73 million due to higher throughput, an increase in PNG base rates and higher large firm delivery service total margin.

As discussed last quarter, total margin was reduced by $23 million as a result of the Pennsylvania Utility Commission's May 2018 order requiring utilities to reduce revenues and establish a regulatory liability for tax savings associated with the Tax Cuts and Jobs Act. This had no impact on net income because there's an associated decrease in income taxes.

OpEx was up $21 million as a result of higher uncollectible accounts, contractor costs, IT maintenance and consulting expenses. Depreciation and amortization increased $12 million due to increased distribution system and IT expenses. Lastly, other income is lower year-over-year by $7 million because -- 2017 includes income from an environmental insurance settlement.

I'd like to thank our teams for all the innovation, hard work and commitment that went into delivering 2018. We believe these efforts set us up nicely to deliver another strong year in 2019. Before I conclude, I want to comment briefly on the AmeriGas MLP structure given recent movement in the sector. UGI and AmeriGas remain mindful of the balance sheet and remain aligned on the goal of a healthy, sustainable AmeriGas. We evaluate business plans with AmeriGas in all of our businesses as part of our annual strategic review process. As you'll recall, last year, our review process resulted in UGI putting in place a standby equity commitment agreement for $225 million.

UGI and AmeriGas and the respective boards regularly explore a range of options to optimize the business and will continue to do so in the future.

With that, I'll now turn the call over to Hugh for his report on AmeriGas. Hugh?

Hugh Gallagher -- Chief Financial Officer of AmeriGas Propane

Thanks, Ted. AmeriGas's fourth quarter EBITDA came in at $35 million, which was below our expectations. This was driven by a warm September, which as you know, makes up just about all the heating degree days in the fourth quarter. Volume for the quarter was 8 million gallons or 5% below last year and all of this shortfall occurred in the month of September. For the fiscal year, we finished with Adjusted EBITDA of $606 million, $54 million or 10% higher than last year and slightly below the low end of our revised guidance primarily due to the September results.

Weather for the fiscal year was just about normal the variable with a very cold period in late December, warm February and a cool spring. Year-over-year unit margin management was solid up $0.0140 (ph) over the prior year despite a 19% increase in the average cost of propane during the year. Adjusted operating expenses were slightly higher than the prior year, primarily related to an increase in sales activities and a return to more normal operating conditions during the year. However, adjusted operating expense per gallon, which we look at the key measure of operational efficiency was in fact lower than last year and as Ted alluded to, it's worth mentioning that these comparisons exclude the $75 million non-cash adjustment for tradenames, which we disclosed earlier this year and the $7.5 million environmental reserve adjustment recorded last year, both of which are also excluded from Adjusted EBITDA.

Capital spending was $3 million higher than last year. This is primarily driven by technology investments. Despite higher spending year-over-year, we ended the year $11 million below our planned level of capital spending for the year, largely due to our continued efforts to allocate capital efficiently.

Looking ahead to fiscal '19 , we do expect capital spending in the range of around $117 million with the increase primarily related to planned for placement of financial systems. Our growth thrust continued to deliver strong results. Our National Accounts program had a very strong year with volume up 11%. Our Cylinder Exchange program also had a nice year with volume up 4% and those National Accounts and Cylinder Exchange had record performance years this past year. We completed two acquisitions during the year, adding a 3 million gallon motor fuel business to our mix. And a bolt-on (ph) acquisition to our Cylinder Exchange program. And during the fourth quarter, we completed the divestiture of a small service business in the mid-Atlantic and 12 locations primarily in Southern New Mexico and portions of Missouri. Total proceeds from these sales were about $12 million.

Turning to the new fiscal year, we expect to report Adjusted EBITDA in the range of $610 million to $650 million given normal operating conditions. As you know, we typically issue initial guidance at this time and update guidance in May once the heating season is completed. I'd be remiss if I failed to thank the entire AmeriGas team for their energy, commitment and resilience throughout the year, particularly noteworthy was the outstanding performance and providing great customer service through the recent hurricanes in North Carolina and Florida, as well as the wild fires in the West and most recently in California . Our offices are a key part of the local communities at which we operate and our nationwide scale enables us to marshal resources and assets necessary to ensure security of supply when communities need it most. We take pride in playing a key role in getting these communities back on their feet after these difficult times .

And I want to especially thank our people, both in the front lines and support roles who worked so diligently on these efforts. With that, I'll turn the call back over to John for his remarks.

John Walsh -- President and Chief Executive Officer

Thanks, Hugh. Our guidance for fiscal '19 of $2.75 to $2.95 assumes normal weather and volatility in our service territories. As with the case in fiscal '18, we're using 15 year normal weather as the basis for our guidance. The midpoint of our fiscal '19 guidance represents a 40% increase in EPS over just the past three years. Our strong EPS growth trajectory is directly linked to the contributions from our recent strategic investments and organic growth across our businesses, all further amplified by beneficial changes in tax laws. We've entered the new fiscal year in a strong position with a broad portfolio of new investment opportunities. We've made noteworthy progress on a range of strategic investments over the past five years as we focus on new opportunities that leverage our skills, capabilities and existing asset networks, while also pushing our boundaries to seize new opportunities as our markets evolve.

This relentless, but disciplined focus on growth has resulted in a 5-year EPS compound annual growth rate of 11.2% for the fiscal '13 through fiscal '18 period above the top end of our 6% to 10% long-term EPS growth target. We're excited about our pipeline of high quality investment opportunities. Our portfolio of projects in development and execution is stronger than ever, due to the scale and reach of our businesses. As we look forward and assess the growth drivers, we see continued opportunities to invest in new projects that serve the strong underlying demand for natural gas. Our midstream and utilities team see extremely strong natural gas demand across the mid-Atlantic region and in New England. Most natural gas LDCs are seeing growth in their customer base and setting new record daily send out levels each winter.

We saw this early in January 2018 during a 10-day cold period when record demand was experienced in the East. While the timelines for new pipeline projects such as PennEast have been extended, the demand for natural gas has continued to increase. The uncertainty regarding the timing of pipeline capacity additions has opened up new investment opportunities for us as LDCs, producers and end users search for solutions to this infrastructure gap.

UGI is working diligently to develop and execute new investments that address this critical gap. We recently announced another expansion of our Auburn system in Northeast Pennsylvania. This $50 million expansion project, the IV phase for Auburn will expand our capacity on the system to 5,000 dekatherms per day. As other Northeast takeaway options from the Marcellus are delayed, we see demand increasing on our existing systems. As I noted earlier, we've made a series of investments to expand our LNG network over the past 5 years. Our most recent investment spanning liquefaction, stealth (ph) and storage and Bethlehem storage survey rapidly increasing demand for peaking services as peak demand ramps up and pipeline capacity additions are delayed.

UGI works closely with a number of LDCs to ensure that we have a range of peaking services to meet their supply challenges. This is an attractive business for us, as the majority of the margin is derived from take-or-pay fees for our services. Our team at utilities is also seeing unprecedented levels of natural gas demand and this acceleration is reflected in our outlook for capital spending. Following our record CapEx spend of $340 million in fiscal '18, we expect total CapEx spend at utilities over the next 4 years to exceed $1.5 billion. Our team at utilities has done an exceptional job of achieving the step change in project execution while maintaining very high levels of customer service.

Our LPG businesses AmeriGas and UGI International are critically important to the execution of UGI's strategy. Our guidance reflects positive EPS growth contributions from both businesses. In addition, these businesses generate a significant level of free cash flow that is crucial to UGI's ability to fund our growth investments. AmeriGas' EBITDA guidance of $610 million to $650 million reflects continued growth in our ACE and National Accounts programs as well as contributions from the utilization of enhanced logistics and customer service tools. These tools enhance our service levels while reducing our cost to serve customers.

UGI International continues to expand its presence in Europe as we enhance our position in existing markets and enter new geographies and new markets as we did with UniverGas and DVEP. We remain excited about our growth prospects in Europe in fiscal '19 and beyond. Our recent very successful European financing that Ted referenced, reflects the strength of our business in Europe and provides us with a very solid foundation for funding future investments. In addition to the excellent work we've done integrating our recent acquisitions. We've also made great strides aligning our critical functions in Europe, such as supply, finance and IT. We're in a much better position to leverage our scale in Europe, and to identify opportunities for our European and US LPG teams to collaborate.

Fiscal '18 was another truly memorable year for UGI. We continue to expand our base of operations while once again delivering record EPS. We developed and executed a range of attractive new investments that enhance our foundation for future growth. We also made several key executive appointments with an eye to the future. We were delighted to have Ted join us as CFO in the late spring. He has been a great addition to our senior leadership team. We're also pleased to appoint Roger Perreault and Bob Beard to their roles as Executive VPs with overall responsibility for our LPG and natural gas businesses respectively.

Finally, Hugh Gallagher was named CEO of AmeriGas in Q4, and I'm delighted to have you in that crucial role. These appointments were made with an eye to the future, as we plan for continued growth and strive to leverage the common ground that exists in many of our businesses, while maintaining the sharp focus on local markets that has been a -- the hallmark of UGI success. We start fiscal '19 with a cash flow and balance sheet capacity to fund our full range of active projects and significant spare capacity to support additional new investments. In addition to funding our growth projects, we also remain very committed to growing our dividend. Our dividend increase announced in April 2018 represented our 31st consecutive year with a dividend increase and the 134th consecutive year that UGI has paid a dividend.

I can say with confidence that we're in an outstanding position to deliver on our commitments for future earnings growth. Looking forward to keeping you updated on our progress throughout the year. With that, I'll turn the call back over to Heidi, who will open it up for your questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And your first question in the queue comes from the line of Chris Sighinolfi with Jefferies. Please go ahead.

Chris Sighinolfi -- Jefferies -- Analyst

Hey, good morning, guys.

John Walsh -- President and Chief Executive Officer

Good morning.

Chris Sighinolfi -- Jefferies -- Analyst

John, lots of successes obviously in 2018. I think you laid them out well. And I appreciate, Ted, the comments with regard to AmeriGas structure. It's obviously become, I think more in focus, just given some of the weather patterns and performances in the last year. I was curious, I trust, you're going to have more to offer on this dynamic at the Analyst Day, next month. But I was just curious, AmeriGas is the only -- UGI's that trades publicly. And so I'm just curious if we could just revisit that for a moment, what sort of the rationale was for that and if that view has changed over the course of time, it's clearly outside of Heritage at least in the time I've covered the company, not really accessed public equity markets. And so I'm just curious if the Board's view, if your guy's view has changed on whether it still make sense to have if you trade separately given that none of the other entities do.

John Walsh -- President and Chief Executive Officer

Sure, Chris, I would say, the rationale for launching AmeriGas as an MLP in the mid '90s kind of remained the same rationale that underpins why it's still a really positive and constructive story in terms of basic cash flow engine that's represented by AmeriGas. As opposed to many other MLPs that were created over the last 20 plus years. AmeriGas is a company that consistently generates cash, so it's ideally -- what's ideally suited and remains well suited to our MLP structure where you share that cash flow with your partners. That fundamental characteristic for the business remains unchanged. So rationale or having it as a separate entity that trades as an MLP is still there. We look at weather closely. One thing -- one conclusion I've drawn about weather after looking at it closely for the last 13 years is it's very difficult -- it's really impossible to use any weather patterns, recent patterns to predict future weather. So we basically use, as I noted, the 15 year weather as our norm for planning, which we think is the soundest basis for making our plans for all our businesses next year as opposed to using a much shorter time frame. So we feel good about our ability to meet our commitments in AmeriGas that underpin the MLP based on the plan for '19 and kind of the focus in the year is that Hugh outlined.

Chris Sighinolfi -- Jefferies -- Analyst

Okay, that's helpful. Thanks, John. I guess as my follow-up. You guys did talk about in fiscal '18, it being sort of the first year in the last 3 year or 4 year where HDDs were normal as an aggregate total. But the way in which they occurred, changed customer consumption behavior versus how you had anticipated. I'm just curious, as we think about fiscal '19 guidance maybe both for AmeriGas and UGI Utility, was there some -- becasue you had switched to a 15 year NOA, changed from a 30 year NOA set last year. So I'm just curious as you think about '19, having experienced that volatility in '18, was there some adjustment made for the fact that customer consumption was different, given the volatility and whether that may have not been fully captured by just the aggregate 15 year trailing NOA dataset.

John Walsh -- President and Chief Executive Officer

Chris, it's a good question, because you never get an ideal for the spacing and delivery of heating degree days, it's always -- they got some unique movements within the heating season. So we did take the opportunity to -- in over the past years since we had relatively normal national weather to look at our forecast basis for volume consumption related to degree days and incorporate some of the learning from the abnormal but reoccurring degree day pattern, so that's reflected particularly in AmeriGas where we have national weather patterns to use and Hugh, if you want to comment all on that for the --

Hugh Gallagher -- Chief Financial Officer of AmeriGas Propane

No, I would just say, John, just sustain modest cold is always better than the Arctic blast, but it -- when -- if and when it happens perfectly, it will be the first time. So I think you put it well, John.

John Walsh -- President and Chief Executive Officer

Yeah. So we did try to address that -- incorporate the learning we have from this past winter in our forecast or basis for budget -- budgeted volumes for FY '19.

Chris Sighinolfi -- Jefferies -- Analyst

Okay, great. I'll hop back in the queue. Thank you guys very much.

John Walsh -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Ben Brownlow with Raymond James. Please go ahead.

Ben Brownlow -- Raymond James -- Analyst

Hi, good morning.

John Walsh -- President and Chief Executive Officer

Good morning.

Ben Brownlow -- Raymond James -- Analyst

Hugh, on the CapEx -- in the CapEx, the $11 million variance versus your plan. Can you talk about what shifted there? And then on the $117 million guidance for next year, just the split between maintenance and growth?

Hugh Gallagher -- Chief Financial Officer of AmeriGas Propane

I'll take the second one, first. The split between maintenance and growth is usually around 50/50, it doesn't vary all that much. The main reason for the reduction this year we had a few -- primarily a terminal project that we had planned that had -- that we delayed in the Northeast. And we're planning on spending that capital this coming year. But that was the largest part and the rest of it was just continued efforts to better allocate capital and scrutinize capital more closely.

Ben Brownlow -- Raymond James -- Analyst

That's helpful. And when you think about '15 -- fiscal year '19, just how are you structurally thinking about propane unit margins, given the growth in the National Accounts business and the Cylinder Exchange. Just can you talk about around that and tie that into the competitive landscape as well.

Hugh Gallagher -- Chief Financial Officer of AmeriGas Propane

Yeah. So it's a highly competitive market as always 3,000 competitors all over the place and we compete -- we have competitors at every space we operate at. We are good at margin management and we will -- I wouldn't expect that to change. The cost landscape has become favorable more recently with the drop in Mt. Belvieu, that's -- lower prices are good for our customers. Therefore, they're good for us as a distributor. So we always prefer that. Although our history -- our history indicates that we will manage margin in whatever market comes our way, high price, low price, coal, warm. So I wouldn't expect you to see us change our -- change our way of managing margins and competing in the business, you should see modest margin increase over the long term.

Ben Brownlow -- Raymond James -- Analyst

And so I guess, one -- when you look at the September quarter, was there anything when you're trying to manage margin against the 19% growth in propane costs, was there anything structural year-over-year that benefited that, or was that just purely, just inventory, better inventory. And was there a shift over to residential or anything notable there?

Hugh Gallagher -- Chief Financial Officer of AmeriGas Propane

No. I would say the -- you probably had a modest mix impact, because it was a more normal winter, so you probably have that -- you'd have a mixed impact of a little bit more on the residential side of the house. So that might have been a nice tailwind. But the headwind of a 19% (ph) increase in cost, that's real. So it's just, it's just what we do. And it's nothing, nothing fancy, it's just rolling up-the-sleeves and getting after that reduction (ph).

Ben Brownlow -- Raymond James -- Analyst

Great. Thank you and congrats on the promotion.

Hugh Gallagher -- Chief Financial Officer of AmeriGas Propane

Thank you.

Operator

There are no further questions in the queue. I turn the call back over to the presenters .

John Walsh -- President and Chief Executive Officer

Okay. Thank you all for your time and attention this morning. We look forward to seeing you -- many of you at the Analyst Day and to speaking with you on the next call. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 37 minutes

Call participants:

Brendan Heck -- Director of Investor Relations

John Walsh -- President and Chief Executive Officer

Thaddeus Jastrzebski -- Chief Financial Officer

Hugh Gallagher -- Chief Financial Officer of AmeriGas Propane

Chris Sighinolfi -- Jefferies -- Analyst

Ben Brownlow -- Raymond James -- Analyst

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