UGI Corporation 2026 Q3 Earnings Call

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. Now I'll turn the call over to Bob.

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 31st, 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. 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 wellpad expansions planned on the UGI Appalachia 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 volume sold when compared to pre-FY 2025 levels, as well as the balance sheet and free cash flow generation capabilities. When compared to FY 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. 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 FY 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% EBITA 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 implied 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. With that, I'll hand the call over to Sean to walk through the financial results in more detail.

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. 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.