Acquisitions Fuel a Meteoric Rise in UGI Corp.'s Earnings

By Markets Fool.com

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UGI (NYSE: UGI) reported a very strong fiscal third quarter after the market closed on Monday. Recent acquisitions, especially in its international segment, drove robust earnings growth for the company. Those acquisition-driven gains, as well as the impact of cooler weather across the company's service territories, put it on track to at least meet, if not exceed, its full-year guidance.

UGI results: The raw numbers

Metric

FQ3 2016 Actuals

FQ3 2015 Actuals

Growth (YOY)

Adjusted net income

$40.0 million

$12.4 million

222.6%

Adjusted EPS

$0.23

$0.07

228.6%

YOY = year over year. Data source: UGI Corporation.

What happened with UGI this quarter?

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Acquisitions were the story this quarter:

  • The UGI International segment reversed a year-ago loss to deliver $32.2 million in adjusted income during the quarter. Last May's acquisition of Finagaz drove that growth by nearly doubling the company's retail distribution business in France and fueling higher volumes and margins.
  • The company's AmeriGas Propane (NYSE: APU) subsidiary also delivered strong performance with operating income skyrocketing from $0.8 million to $18.3 million. This was partially due to higher volumes as a result of cooler temperatures year over year. Acquisitions also provided a boost to AmeriGas Propane, which closed two transactions during the quarter and six so far this year.
  • The UGI utilities segment, likewise, benefited from cooler weather in its service territories, with the average temperature 11.9% colder than normal and 38% colder year over year. This fueled a 13% increase in natural gas volumes and a 47.5% surge in operating income.
  • UGI's midstream and marketing segment was the only weak one in the group with its operating income slumping 42.1% to $11.3 million. This is due in large part to lower margins, driven by weaker prices for pipeline capacity and lower production volumes as a result of planned outages.

What management had to say

CEO John Walsh,commenting on the company's results, said:

This was a strong quarter for the company. Our adjusted earnings of $0.23 per share was $0.16 higher than the prior year, primarily reflecting the contributions from the strategic investments made in recent years as well as strong margin management amid colder weather in most of our service territories. The most significant driver of this performance was a $24 million increase in adjusted net income from our International segment, which reflects the full-period results of the Finagaz acquisition that we completed in May 2015, along with higher margins across the segment. Earnings from our Utility and AmeriGas segments were also higher as both businesses delivered higher total margin and lower operating expenses.

Acquisitions were the story during UGI's third quarter with the Finagaz acquisition paying the biggest dividends. The company expects to get even more out of that transaction in the future as it continues to integrate it into the mix. Last quarter, for example, the company spent $4.5 million on acquisition and transition expenses atFinagaz, which was down 8.2% year over year as the company's integration remains on track.

Looking forward

Because of the strong quarter UGI now expects that its adjusted earnings will be "at the upper end, or slightly above" its guidance range of $1.95 to $2.05 per share, according to Walsh. However, even an above guidance finish would still result in the company falling short of its initial guidance of $2.15 to $2.30 per share. That said, the company remains optimistic about its fiscal 2017 and beyond largely due to progress it is making on new investments, including starting construction on its Sunbury pipeline during the quarter.

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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.