UGI Corp. Earnings Fueled by Strong Natural Gas Demand

By Markets Fool.com

UGI Corp. reported its fiscal second-quarter results after the closing bell on Monday. The energy distributor and marketer reported an excellent quarter, beating analysts' consensus estimates. Those solid results, when coupled with its outlook, led the company to increase its guidance for the full year.

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A look at the numbers
For the quarter, UGI reported adjusted net income of $215.7 million, or $1.23 per share. That was just a bit below last year's quarter, when the company delivered adjusted net income of $222.1 million, or $1.27 per share. However, the result was a nickel better than analysts were expecting.

One of the reason earnings were down a bit from the prior year is that the Midstream & Marketing segment came off a record high. The segment's operating income fell 16.1% over the prior year because of lower wholesale and retail natural gas prices, as the commodity wasn't quite as volatile this past winter. However, the segment still enjoyed the second best quarter in its history.

UGI's other three segments -- Gas Utility, UGI International, and AmeriGas Propane -- all reported solid growth in operating income, which helped to offset Midstream & Marketing's coming off its lofty peak. Operating earnings in the Gas Utility segment were up 3.6%, as it benefited from colder weather than normal, while earnings in the International segment grew 1.4% thanks to an increase in its operating margin, which helped to offset acquisition-related expenses and currency-exchange headwinds. Finally, AmeriGas Propane's earnings hit a new record, as operating income increased 4.2% even though warm winter weather in the western part of the country affected demand for residential propane as a heating fuel.

A look ahead
UGI sees continued robust demand in its natural gas businesses, which is expected to drive results the rest of the year. The company noted that so far this year it has signed up 11,000 new heating customers at its Gas Utility. In addition, the company recently completed the Temple LNG liquefaction plant expansion, which boosted capacity by 50%. Meanwhile, in its LPG business, it sees continued strong performance at AmeriGas, while its International segment is expected to be boosted by an acquisition in France that will close in its fiscal third quarter.

As a result of these strong business conditions, as well as its solid fiscal second-quarter results, UGI is bumping up its guidance for its fiscal 2015. The company new expects earnings per share to be in a range of $2.00 to $2.10, which is up from its previous guidance of $1.88 to $1.98 per share.

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Moreover, UGI sees strong growth momentum continuing beyond 2015. The company announced two new pipeline projects that will provide cheap natural gas to power generating facilities, and it continues to make progress on the PennWest pipeline. These projects are expected to drive incremental earnings growth for the company.

Investor takeaway
While UGI's earnings are down over the prior year, that was a bit of an aberration, as last year's results were buoyed by extremely volatile natural gas prices. In fact, the Midstream & Marketing segment enjoyed its second best quarter on record, while AmeriGas did set a new record. These strong results are leading the company to boost its full-year outlook as it expects to finish the year on a very strong note.

The article UGI Corp. Earnings Fueled by Strong Natural Gas Demand originally appeared on Fool.com.

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.