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Warm Weather Cools Off UGI Corp.'s Earnings

By Matthew DiLallo – Aug 3, 2015 at 5:38PM

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The energy distributor and marketer now expects its earnings to be at the lower end of its guidance range.

UGI Corp. (UGI 2.25%) reported its fiscal third-quarter results after the market closed on Monday. The energy-distribution company was affected by warmer weather, as well as a loss stemming from its Totalgaz acquisition. The company now expects full-year earnings to come in at the lower end of its guidance range.

A look at the numbers
UGI reported adjusted net income of $4.7 million, or $0.03 per share. Not only was that figure lower than the year-ago quarter, when the company reported adjusted net income of $17.1 million, or $0.10 per share, but it also missed the consensus estimate by $0.12 per share. During the current quarter, the company was affected by a $0.06-per-share loss as a result of the Totalgaz acquisitions, which if stripped away would have resulted in roughly flat year-over-year results.

That acquisition adjustment aside, the company's operations were negatively affected by much warmer weather during the quarter in both the U.S. and France. The company's Gas Utility segment reported that the weather was 17% warmer than in the prior year, resulting in a 3% year-over-year drop in  throughput volumes. However, the impact would have been much worse if not for the addition of nearly 14,000 new heating customers. The weather also hit the company's AmeriGas Propane (NYSE: AGU) segment. Not only was the weather in its operating area 10% warmer than last year, but it was also much wetter, resulting in lower barbecue cylinder exchange volumes. Finally, the company's international segment reported a loss because of warmer weather, the incremental acquisition and transition-related expenses as a result of the Totalgaz acquisition, and the strong dollar.

A look at the outlook
As a result of that weakness, UGI is now guiding investors toward the lower end of its guidance range of $2.00 to $2.10 per share in earnings, assuming the weather does normalize during its fiscal fourth quarter. That said, even the lower end of that range is above what the company had expected to earn this year, as its previous guidance, which it just bumped up last quarter, was for earnings of $1.88 to $1.98 per share.

Looking even further ahead, the company continues to make progress on some long-term growth projects that will drive future results. In its Gas Utilities segment, the company achieved several milestones in the quarter, making significant progress on two pipeline projects that will bring natural gas to power plants in Pennsylvania. Meanwhile, its Midstream & Marketing segment continues to make regulatory progress on the Sunbury and PennEast pipelines, while it began construction on the Auburn Loop pipeline, which should be in service by the end of the year. Further, the company's Temple LNG expansion was completed in June, and it also announced a $60 million project to construct an LNG facility next to its Manning Compression station.

Further, the company expects to see a longer-term improvement in its LPG-related business, not only as the weather normalizes but also as its operations continue to grow. The company thus remains excited about the recent completion of the Totalgaz acquisition, which doubled its retail distribution business in France, as it should pay off in the future despite the higher costs this quarter. Further, despite weakness this quarter, AmeriGas Propane continues to build its network of national accounts, which surged year over year. 

Investor takeaway
After a strong showing last quarter, UGI's growth was cooled off by significantly warmer weather. But the company's underlying operations were solid, as the company was able to mitigate some of the weather weakness by growing its customer base. It expects that underlying growth to continue, with several projects in the pipeline that should help offset some of the future impact from the unpredictable weather.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends UGI. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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