UGI - NYSE

Good day, and thank you for standing by. Welcome to the UGI Corporation Q2 2024 Earnings Conference Call.[Operator Instructions] 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, Senior Director of Investor Relations. Please go ahead.

Good morning, everyone. Thank you for joining our fiscal 2024 second quarter earnings call. With me today are Mario Longhi, Interim President and CEO; Sean O'Brien, CFO; and Bob Beard, COO. On today's call, we will provide a strategic update on the business and discuss our financial results for the quarter 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 most recent 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'm pleased to turn the call over to Mario.

Thank you, Tameka, and good morning, everyone. I'd like to begin by commenting on UGI's second quarter and year-to-date financial results before providing a broader strategic update. UGI had a strong fiscal 2024 second quarter, reporting adjusted earnings per share of $1.97, which was a $0.29 increase over the prior year. This performance reflects the resilience of our portfolio and the dedication of our people, and was largely driven by the natural gas businesses. These natural gas businesses delivered record second quarter earnings, a 32% increase in adjusted net income over the prior year. We also implemented effective cost control across the enterprise, and this resulted in a $27 million year-over-year reduction in operating and administrative expenses. With a robust performance in the first half of the fiscal year, we are on track to deliver within our fiscal 2024 adjusted EPS guidance range of $2.70 to $3. We are also pleased to mark the 140th year of consecutively paying dividends, demonstrating our commitment to returning value to shareholders. Sean will provide further commentary on the financial performance shortly, but now I will pivot to the broader strategic update. As we announced yesterday, we completed the strategic review of the LPG businesses, primarily focused on AmeriGas that was launched at the end of August 2023. The process was extensive, and together with our financial advisers, we considered different scenarios, including a potential sale, spin and joint venture of AmeriGas. Although we conducted a due diligence process with multiple strategic and financial parties, the Board decided that in the current market, the company should focus on a restructuring and operational improvement plan for AmeriGas. The Board remains open to all opportunities to maximize shareholder value. Also, in conjunction with the review, over the past few months, we have reassessed our operating strategy, evaluated whether there are opportunities to change the way we work to achieve greater operational efficiencies and scrutinize how we allocate and prioritize capital. This assessment was based on our objective to create sustainable shareholder value by improving the earnings quality of our businesses to enable reliable earnings growth, strength in the balance sheet and prudently allocate capital. As we move forward, we firmly believe that disciplined execution of our repositioned strategy will accomplish these objectives. We must operate as a high-performing, customer-centered and results-driven organization, where we capitalize on our market-leading positions, optimize our strategically located assets and sustainably grow earnings through strong execution, effective cost control and disciplined capital deployment. It is clear to us that we have an attractive business portfolio: our growth-oriented regulated utilities business, operating constructive regulatory environments and have a long runway of investment opportunities that provide top-tier return on equity. Our Midstream & Marketing business holds LNG peaking facilities, natural gas and propane storage, gathering systems and pipeline assets that enable the business to sustain earnings growth, as evidenced in the second quarter results. While these natural gas businesses continue to deliver strong results, we are committed to further optimizing their performance, holding the businesses to higher levels of operational excellence. Turning to the global LPG business. At UGI International, we have market-leading positions and strong brand loyalty in select markets, which supports our ability to achieve strong margins and attractive free cash flow generation. Similarly, in the U.S., AmeriGas has a market-leading position in retail propane distribution in a highly competitive market. We must run that business differently and better to realize the benefits of that position. And so shortly, Bob will walk you through the basic approach to accomplish that objective. Moving forward, we will pursue opportunities to streamline our global LPG footprint and create more operational efficiencies. And specifically at AmeriGas, we will share an overview of our plan to turn around that business with the intent to achieve stability and growth. Ultimately, through organic growth and continued investment, we intend to further shift the portfolio to become more predominantly the natural gas business in the future. And now that takes me to 4 strategic actions culminating from the review, and these strategic actions are: one, to pursue opportunities to enhance our portfolio and drive reliable earnings growth; two, stabilize and optimize AmeriGas; three, achieve operational efficiencies; and four, strengthen the balance sheet. Looking at our footprint. We operate in 18 countries in the U.S. and Europe as well as across several customer segments. Within the portfolio, particularly in the LPG businesses, we will continue to explore options for the underperforming and less strategic areas or customer segments. As an example, in April, we entered into an agreement to divest of our LPG businesses in Switzerland, which service approximately 3,800 customers, and we anticipate receiving net cash proceeds of approximately $27 million. Next, over the past few months, we have shared our intention to permanently reduce costs and strengthen the balance sheet. We have made clear progress in both areas, as evidenced by a $16 million decline in our year-to-date operating expenses as well as various financing and debt reduction actions taken in the past year. Those efforts will continue, and the team will provide further insight shortly. I will now hand the call to Bob, who was integrally involved in this strategic review. He will take the lead in implementing the action plan to stabilize and optimize AmeriGas.

Thanks, Sean. As I close, I want to emphasize our conviction that diligent execution of the fundamentals will enable UGI to build a strong momentum of balanced growth and value creation. We have embarked on that journey and are taking the necessary actions to achieve the financial commitments that we have outlined. We have the financial capacity to maintain investments in the natural gas businesses, particularly in the regulated utilities, which are expected to deliver 9% plus in rate base growth. . These businesses provide strong return and benefit from the free cash flow-generating LPG businesses. With this model, between fiscal 2024 and 2027, we will target a 4% to 6% EPS growth rate and leverage ratio between 3.5 to 4x. We will also preserve our commitment to the dividend, which has been synonymous with our brand over the past 140 years, keeping the amount flat through fiscal 2026. Our intent is to return to a long-term dividend growth rate of 4% in fiscal 2027. I thank you for your continued interest and support of UGI. And I'll now turn the call back to our operator to open the line for questions.

[Operator Instructions] Our first question comes from the line of Christopher Jeffrey of Mizuho Securities.

Congratulations on the announcement and all the help throughout the process.

[Operator Instructions] Our next question comes from the line of Paul Fremont of Ladenburg.

I am showing no further questions at this time. I would now like to turn it back to Mario Longhi for closing remarks.

I want to thank everyone for taking the time to participate with us in this call, and we look forward to the next conversation we're going to have. So I wish everyone a good day.