UGI (NYSE:UGI) reported third-quarter financial results on Thursday. The transcript from the company's third-quarter earnings call has been provided below.

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The full earnings call is available at https://edge.media-server.com/mmc/p/fmzooz46/

Summary

UGI Corporation reported year-to-date EBIT of $1.2 billion, slightly higher than the previous year, despite challenges from LPG divestitures and unfavorable weather.

The company completed its cast iron replacement ahead of schedule, reflecting a commitment to safety and reliability in its natural gas businesses.

UGI Utilities' gas rate case settlement could lead to a $65 million rate increase phased over two years, supporting system investments and customer benefits.

AmeriGas showed improvements in operational metrics, with decreases in injuries and out-of-gas events, and an increase in Net Promoter Score by 63%.

UGI International maintained a strong EBITDA margin of 23%, with a focus on organic growth and operational efficiency.

The company reaffirmed its adjusted diluted EPS guidance range of $2.75 to $2.90 for fiscal 2026, highlighting the fundamentals of its business and strategic progress.

UGI reduced net debt at AmeriGas by $270 million and anticipates meaningful cash distributions from AmeriGas to the parent company in fiscal 2027.

Midstream business growth is expected with planned well pad expansions and increasing demand for natural gas, particularly for power generation.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to the UGI Corporation Q3 earnings conference call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Tameka Morris. Please go ahead.

Tameka Morris, Investor Relations

Good morning, everyone. Thank you for joining our fiscal 2026 third quarter earnings call. With me today are Bob Flexon, President and CEO, and Sean O'Brien, CFO. On today's call, we will review our third quarter and year-to-date financial results along with other key business highlights before concluding with a question and answer session. Before we begin, let me remind you that our comments today 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 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 will also describe our business using certain non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available within our presentation.

And now I'll turn the call over to Bob.

Bob Flexon, President and CEO

Thanks, Tameka, and good morning. Fiscal 2026 continues to be a year of disciplined execution against the strategic priorities we laid out at the start of the year. That focus is reflected in our financial performance, where solid operational results have absorbed the impact of portfolio actions, unfavorable weather, and slower growth in our domestic propane business. On a year-to-date basis, UGI delivered reportable segments EBIT of $1.2 billion, modestly ahead of the prior-year period.

This improvement resulted from growth at our utilities which more than offset roughly $40 million in year-over-year decline from the previously announced LPG divestitures and the effects of warmer weather across our LPG service territories. Importantly, the fundamentals of each of our businesses remain intact and the operational and financial progress we've made this year continues to strengthen the foundation of the company and support our long-term value creation strategy.

Year to date we directed approximately 76% of total capital expenditures to our natural gas businesses, advancing our commitment to pipeline safety, reliability and modernization, while adding more than 8,500 new heating customers across our regulated utilities service territories. Of note, we completed our cast iron replacement commitment several months ahead of schedule, reflecting our continued focus on safety. On July 31, the Administrative Law Judges recommended approval of UGI Utilities' Joint Petition for settlement of our gas rate case without modification, pending approval by the Pennsylvania Public Utility Commission.

The settlement would permit a two-step rate increase of $65 million, with approximately $40 million effective in October 2026 and approximately $25 million in October 2027, with a stay-out provision through January 2029. The terms of the settlement provide the company with the revenue needed to continue investing in its system, including maintaining its accelerated replacement of vintage materials, while providing substantial benefits and protections to customers.

As an example, the settlement includes a pilot that extends meaningful debt relief to a group of vulnerable customers who have historically fallen through the cracks, specifically individuals earning between 150% and 300% of the federal poverty level. These are households that don't qualify under the existing program, and so the pilot will help customers experiencing trouble paying their bills by providing an avenue to maintain service and manage their bills while mitigating bad debt risk for UGI.

Combined with our increased contributions to Operation Share, where the company will ensure that a minimum of $1.5 million is available every year, we believe this settlement reflects a balanced outcome that strengthens the long-term relationship between the utility and the communities we serve. Beyond our regulated utilities, we also continue to position the midstream business for growth, with several well pad expansions planned on the UGI Appalachian system to increase throughput.

These investments position us to capitalize on rising natural gas demand across the region driven by continued economic development and the growing energy needs of data centers and power generation, ensuring we have the capacity in place to serve our customers and support long-term growth. Turning to slide five, at AmeriGas, the transformation is taking hold, driving improved volume retention and favorable trends across several leading indicators.

The team continues to strengthen the foundation of the business, materially improving trends in retail volumes sold when compared to pre-fiscal 2025 levels, as well as the balance sheet and free cash flow generation capabilities when compared to fiscal 2024. On a year-to-date basis, lost time injuries are down 50%, recordable injuries are down 44%, out-of-gas events are down 21%, and zero fills are down 17%, while our average net promoter score is up 63%.

This is meaningful and measurable progress. We remain focused on executing our active work streams across multiple focus areas, and with our call centers now back in the U.S., we are ramping up sales and marketing efforts, expanding our sales channels, and targeting new residential and B2B customers. These improvements all demonstrate that AmeriGas is now well positioned for the anticipated return of distributions to UGI Corporation in fiscal 2027.

Moving to UGI International, this year the team has done a tremendous job to offset the impact of non-core divestitures to deliver comparable year-to-date EBIT on a year-over-year basis, all while delivering a strong 23% EBITDA margin, which speaks to the quality and resilience of this business. With a leading market position across our remaining geographies, over 90% tank ownership, and a strong track record of operational excellence, the business continues to experience long-standing customer relationships, strong customer retention rates, top-tier return on capital employed, and attractive free cash flow conversion rates.

The embedded value and market potential of UGI International was recently underscored by an announced take-private transaction in Europe involving one of our primary competitors, a company with a similar business and a comparable footprint across our key markets. The valuation applied by that announcement reinforces the significant value in our international platform and the opportunity that lies ahead as we move forward. The team is focused on achieving organic growth through multiple initiatives, including heating oil to LPG conversion, where the market is roughly four times the size of the addressable LPG market.

Additionally, we will look to further optimize our operations to improve margins while maintaining the reliability and service our customers expect. And with that I'll hand the call over to Sean to walk through the financial results in more detail.

Sean O'Brien, Chief Financial Officer

Thanks, Bob, and good morning. I'll now provide more details on our financial performance for the third quarter. UGI delivered total reportable segment EBIT of $58 million compared to $72 million in the prior-year period. The year-over-year change reflects warmer weather across the U.S., primarily in April, and lower growth at AmeriGas, partially offset by continued strength at our utilities. The utility segment was up 10 million reflecting higher gas base rates that went into effect in October 2025. Midstream and Marketing was up 3 million driven by higher total margin from capacity management activities. UGI International was down 2 million as lower retail volumes from the previously announced non-core divestitures were partially offset by higher unit margins, and AmeriGas was down 25 million reflecting lower retail propane volumes from warmer weather and continuing customer attrition along with lower fee income.

Turning to the quarterly results for each reportable segment: at the Utilities, EBIT was up 10 million versus the prior year period, as increased margin from higher gas base rates was partially offset by increased depreciation and amortization expense reflecting the effects of continued investment in pipeline replacement activity. At the Midstream and Marketing segment, EBIT increased 3 million on a year-over-year basis. Total margin increased 13 million largely due to the timing of capacity margin and the recovery of higher pipeline costs as previously anticipated.

Operating and administrative expenses were 8 million higher, primarily due to LNG and renewable energy projects placed in service last year. Turning to the global LPG businesses: at UGI International, EBIT was 41 million for the quarter compared to 43 million in the prior year period. Retail volumes were 10% lower driven by the recent LPG divestitures in Austria and Eastern Europe. Total margin decreased 6 million, primarily reflecting the lower retail volumes sold, which were partially offset by higher average unit margins and the translation effects of stronger foreign currencies.

Operating and administrative expenses were lower, reflecting the impact of the aforementioned divestitures and lower personnel expenses, substantially offset by the translation effects of stronger foreign currencies. At AmeriGas, EBIT was down 25 million over the prior year period, largely due to the decrease in total margin stemming from lower volumes. Retail gallons decreased 10%, reflecting April temperatures which were 16% warmer than the prior year, as well as continuing customer attrition.

On a weather-adjusted basis and excluding the Hawaii divestiture, retail gallons decreased 6% versus the prior year period and 2% on a year-to-date basis when compared to the prior year. While the seasonally weak third quarter pressured near-term earnings, the continuing operational improvement actions at AmeriGas better positions the business for the upcoming heating season. Turning to the fiscal year-to-date performance, total EBIT from our reportable segments was 1.187 billion, up 3 million over the prior year period, as higher Pennsylvania gas base rates and increased LPG unit margins more than offset the impact of lower production volumes in the Appalachian region, warmer weather, several LPG divestitures, and continuing low single-digit customer attrition at AmeriGas. On a per share basis year to date, adjusted diluted EPS was $3.17 compared to $3.55 in the prior year period. The year-over-year decline in adjusted EPS was largely driven by the absence of investment tax credits realized last year and higher interest expense as previously anticipated. In addition, the business saw approximately $0.05 of weather headwind across all segments when compared to the prior year period and $0.11 when compared to normal weather patterns.

As we look ahead to close fiscal 2026, we are reaffirming our adjusted diluted EPS guidance range of $2.75 to $2.90. The fundamentals of our business remain intact, and the strategic actions and operational progress we have made this year underscore our confidence in the long-term growth trajectory of the company. Moving to the balance sheet, we continue to make strong progress against our objectives, building financial strength and flexibility. This year we've completed several strategic debt transactions to extend our maturity profile and reduce borrowing costs by approximately 30 million on an annualized basis, and this included transactions at AmeriGas, UGI International, and UGI Energy Services. To give you a few highlights: at AmeriGas, our most recent transaction enabled us to issue debt at 6.875% and take out its 2027 maturity as well as a portion of their 2028 senior notes that had a coupon of 9.375%. Through these transactions, we reduced net debt at AmeriGas by approximately $270 million versus the prior quarter. Additionally, we amended UGI Energy Services' Term Loan Credit Agreement to reduce its applicable interest rate margin, saving approximately 4 million on an annualized basis.

We closed the quarter with consolidated leverage of 3.8x and AmeriGas Propane's leverage at 4.3x, the lowest point in 10 years, reflecting the continued deleveraging and capital structure actions underway across our global LPG platform. And with that, I'll turn the call over to Bob for his closing remarks.

Bob Flexon, President and CEO

Thanks, Sean. Before we move to Q&A, I want to leave you with a few key takeaways. As you see on the slide, our diversified energy footprint is a platform for creating sustainable long-term shareholder value. Our regulated natural gas businesses deliver weather-hedged earnings with a long runway of organic growth opportunities as regional demand for gas continues to increase. At UGI International, we remain the number one distributor in key markets, generating attractive returns and approximately 95% free cash flow conversion.

We also have tangible growth levers ahead. For instance, the heating oil to LPG conversion opportunity alone addresses a market several times the size of where we compete today. And I point to the progress we've made at AmeriGas over the past two years. This team has done meaningful work to stabilize the business with improvements in customer service and retention in a more disciplined operating model. Our focus is on finishing fiscal 2026 strong.

As you know, this is a highly seasonal business where winter matters, so a lot of the team's energy is focused on operational and winter preparedness to deliver through the upcoming heating season. Thank you for your time with us today, and we will open the line for questions.

OPERATOR

Thank you. At this time we will conduct the question and answer session. As a reminder, to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Konstantin Lednev with Wells Fargo Securities. Konstantin, your line is now open.

Whitney Mutalemo, Analyst at Wells Fargo Securities

Hi team, good morning. It's actually Whitney Mutalemo on for Konstantin. On midstream, the guidance cut was primarily tied to delays in growth investments and lower production volumes. You're now showing well pad expansions on the system as well as that growth plan. Has that delay been resolved or does it push into fiscal year 27? And just a follow-on, does that change your confidence in the 5 to 7 consolidated EPS CAGR through 29?

Sean O'Brien, Chief Financial Officer

Thanks, Whitney.

Bob Flexon, President and CEO

So what we're seeing is more production coming out of the Appalachia Basin. So we have a couple well pad expansions, one that starts early in fiscal 27, a second one that starts towards the latter part of fiscal 27. We have the Auburn pipeline that's going to be FERC regulated that we expect also towards the end of 27 as well. So we're seeing a good return of production to the territory from what we saw in the current year. So we feel good about the growth prospects for our midstream business.

And you add to that the demand for power generation that'll come later in the decade, we're seeing a good funnel of opportunities for our midstream business.

Sean O'Brien, Chief Financial Officer

And Whitney, this is Sean. Maybe in terms of the 5 to 7, I'll give you a little bit of color, but we'll give more obviously at the end of the year when we give guidance. But the 5 to 7% remains intact. There are moving pieces. We've seen some of the business units, even since we gave that guidance, with stronger outlooks. I would say midstream in the long run, the outlook still remains very strong based on the comments Bob made, and even as we think about potential opportunities in the future, which they have a pretty good pipeline.

But I do think the midstream is still—if I was looking at their long-term growth—it's a little more mid to back-end loaded than it would have been. But for the company, we have—again, more guidance down the road—other divisions that will probably make up some of that in the interim.

Whitney Mutalemo, Analyst at Wells Fargo Securities

I see, thank you. And then just a tiny question, if I could squeeze in just on AmeriGas performance, can you help us reconcile that with the improving volume retention that you're describing? Is this quarter's result solely weather, or are there more moving pieces to consider?

Bob Flexon, President and CEO

The way that I think about it, Whitney, is that I look at what's going on on a year-to-date basis. Year to date, our net attrition of lost customers is about 2%, which is about the lowest it's been for a very long time. So we're in the planning process for AmeriGas now. I think we've positioned the business very well for this coming winter. Next week, I'm on the road visiting our different sales channels that we're pursuing. So our goal for this coming winter is to take it from net attrition to net growth.

And I'm optimistic from the standpoint our attrition is getting much, much better. That's what's driving it down. And as we approach the winter, when we see customers coming online, that should start using the volume lever as well. Between March and April, and April being—both March end of March and April at the beginning—considerably warmer than normal, there's some volumes that kind of straddle the end of a quarter. But that's why I look at things on a year-to-date basis.

I think showing that we have a net attrition of 2% reinforces that we have absolutely stabilized this business. And you take a look at a lot of the things that I view as leading indicators—safety being one, certainly our net promoter scores—if I compare to where we were in July of 2024, significantly better, a 63% uptick. If I look at a year earlier than that, at July '23 year-to-date versus where we are today, four and a half times better. With the call centers back in the U.S., safety better.

We're ahead of where we were last year on having sufficient drivers, and we're actively preparing our drivers for the coming winter. I feel so much better going into this winter than I did last winter, and last winter we were in better shape than the prior. So I think we've positioned it well. And I think the net 2% decline—I'm certainly not happy with that, but glad to see the attrition is definitely slowing down. And then we're targeting volume growth for the winter.

So we'll see what happens, but we're working on the processes that will deliver that.

Whitney Mutalemo, Analyst at Wells Fargo Securities

Well said. Thank you, Bob. Thank you, Sean.

Bob Flexon, President and CEO

Thanks, Whitney.

OPERATOR

Thank you. Our next question comes from the line of Julian Dumoulin-Smith of Jefferies. Julian, your line is now open.

Luke Finker, Analyst at Jefferies

Hey, good morning, guys. Luke Finker on for Julian. You highlighted recent take-private activity among your European LPG peers as evidence of value in your international platform. Any change in how you think about potential divestitures within International, or should we assume the portfolio pruning is largely complete at this point?

Bob Flexon, President and CEO

Thanks. Well, it's a good question. I kind of expected this one because of the light that's been shined on our main competitor. The international business is a very good business and very, very proud of our team over in France on how they've kind of changed the paradigm there from a shrinking business to one with growth. As we look to expand into the heating oil market, we constantly will look and evaluate our portfolio on what's the best thing to do for the overall portfolio for the company and what drives the most shareholder value.

So I wouldn't say now the direction, what we would do. Certainly we're focused on having that business prepared as we go into the winter and expanding the growth. But it is a very valuable franchise and I would also say that because of what's happened with our main competitor over there that we do get some calls as well because people are recognizing the value of the franchise over there, the stability of the business, the strength of the business and the model is very efficient over in Paris and our team runs it very well.

So again, just to summarize, I mean we always want to look at our portfolio to see what's the best way to drive our shareholder value. And the international—the value of that has been somewhat hidden in the proposed transaction with DCC highlighted recently with KKR and ECP, which are both two fabulous investors and companies. A lot of smart money sees the value of this business. DCC is a good competitor run very well and yeah, it's good to see the value being shown for what this business is really worth and how well our team runs it over there.

Luke Finker, Analyst at Jefferies

Totally. Yeah. Thank you. And then maybe on utilities with the gas settlement including a stay-out through January '29, how important is using the DSIC as, you know, sort of bridge recovery in 2028 and 2029? Is there any potential for maybe changing capex during the stay-out? Thanks.

Sean O'Brien, Chief Financial Officer

Well, I think you hit it right on the head on that, Luke. It is important in the latter part of the year for the DSIC to kick in. And so it's been structured that way where we've got a two-stage increase, but after the second tranche kicks in then we'll be relying in the third year on the DSIC.

Luke Finker, Analyst at Jefferies

Makes sense. Thanks, guys. Leave it there.

Bob Flexon, President and CEO

Great. Thank you.

OPERATOR

Thank you. As a reminder to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Our next question comes from the line of Gabriel Morian of Mizuho. Gabriel, your line is now open.

Gabriel Morian, Analyst at Mizuho

Hey, good morning everyone. I just had a quick follow-up. Hey, morning, just a quick follow-up question on APU. I think, Bob, you mentioned the expectation that AmeriGas would be in position to be able to distribute cash upstairs to UGI in '27. You know, can you talk about how that may work? Would that be formulaic to the extent that AmeriGas leverage is four times or lower, I guess given the variability in AmeriGas results even from things like weather?

And then also as a follow-up to that, your view on whether you need to put any growth capital into AmeriGas, you know, as results hopefully continue to improve there.

Bob Flexon, President and CEO

Thanks, Gabe. And I'll make a quick comment and I'll turn it to Sean. I'm glad you asked that question because it really shows that we have stabilized this business. We plan on having meaningful cash distributions to the parent in 2027, which is something that hasn't been done for some time. But let me turn it to Sean to give you a little bit more color.

Sean O'Brien, Chief Financial Officer

Yeah. Maybe to reiterate what Bob said, in my tenure here, that would be the first time the dividends are going from AmeriGas to the parent. So, Gabe, a couple things. In terms of the formulaic nature, obviously we have—and we'll share more at the end of the year—we have an outlook. I'll point out AmeriGas is generating meaningful cash this year, over $100 million of free cash flow this year, but we're utilizing that still one more year to delever.

So I think a couple things to keep in mind, and we've told you, we've given you some indicators. We think the leverage—we're very confident the leverage is going to be sub-4. We got closer in Q3. We think by the end of the year we have a shot to be sub-4. We'll be really close. And that's a key milestone. And then I think that continues to build as we go into next year and we continue to approach even the mid to low 3s at some point. So I feel very comfortable with the outlook we have on the leverage side that it's time to start returning distributions.

You mentioned weather. We always have that as a lever. That doesn't just apply to AmeriGas; that applies to International, to Energy Services. You know, if one is having a really tough weather year, we can always look at where we're pulling the distributions from. But with a very modest weather outlook, I think we still feel pretty comfortable that we're going to be pulling distributions out of AmeriGas in 2027.

Bob Flexon, President and CEO

And, Gabe, on your other question regarding capex, when I think about allocating capital to AmeriGas, think of it this way: we want to continue to bring the average age of our delivery down, so we continue to do that each year, and we're making good progress with that. And then also I want AmeriGas to be the gold standard out there of propane companies. And I want our facilities to look good. I want to make sure we're making the right investment into how we appear to the public.

We're a local business. We're becoming more local and doing what we need to do to drive efficiency in the business. There's no big spikes in capex that I'd expect at all in AmeriGas. It's just kind of a continued modest level of investment to get AmeriGas back to where it should be. And again, we'll just keep doing that day in and day out, along with driving how we perform and our processes every single day to get that business better. There's some physical improvements that we'll make as well to some of our delivery equipment and our facilities, our storage facilities and the like, but nothing extraordinary, nothing that really stands out as significant, but just a continued focus on that business to let it be what it can be.

Gabriel Morian, Analyst at Mizuho

Got it. Appreciate the answer. Bob and Sean, thank you so much.

Bob Flexon, President and CEO

Thanks, Gabe.

OPERATOR

I'm showing no further questions at this time. I would now like to turn it back to Bob Flexon for closing remarks.

Bob Flexon, President and CEO

Thank you. Let me just want to focus on a couple of things. First and foremost, AmeriGas, which certainly gets a lot of attention. We've done an awful lot over the past year and a half to two years on improving the outlook for this business. I feel very good in terms of our winter preparation. I've been talking about that a lot to our investors over the past year. We're ready. We've got the call centers back, our call centers, the employees trained.

We're becoming a local business again, like we should be. Our customer net promoter scores are surging. Our safety is dramatically better. We're listening to our customers. We're fixing the things that tended to be irritations to them. So we're really focused on driving the processes in that business. As Gabe just asked and Sean and myself answered, we expect meaningful cash distributions to the parent in 2027. Something, as Sean highlighted, is not something he's seen since he's been here and he's been here longer than me.

I appreciated also the question on International. Again, excited about International, with the mindset over there shifting from we're no longer shrinking, we have an opportunity to grow. We have a heating oil market that is significantly larger than the LPG market. And the LPG market offers environmental advantages over there and even more price stability. So we see some really good opportunities to grow that business. And there's a return on capital employed in the mid-teens, an EBITDA margin in the low to mid-twenties, free cash flow conversion of 95%.

It's a stellar business. And then finally on the natural gas side, we have the utilities in for their rate case settlement. We expect the PUC to take that up in end of September, early October. We've tried to be sensitive and thoughtful on that rate case to listen to what the governor is saying about affordability and supporting households that need the support. So we've tried to be very thoughtful on this rate case and listen to what the governor and governor's team has to say.

So we're optimistic that that comes through. And finally, on midstream business again, we see the need for power within the state of Pennsylvania over the coming years for general power demand consumption. You see the capacity clears of PJM keep clearing at the max. You’ve got, obviously, data centers. And our midstream business is right in the center of all of that. So we've got a pretty large funnel of opportunities. And I think, as Sean highlighted, why a lot of that tends to be a little bit later in our planning horizon—because we've got to get the power generation and the like needs to go through their permitting processes and interconnection processes—we're very well positioned within our midstream business to really benefit from that in the years to come. So I'm very bullish on the outlook, very excited where we are and we are absolutely focused on having a great winter. And with that, I'll conclude the call and thank everyone for dialing in, listening, and the questions that we received.

OPERATOR

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.