UGI - NYSE

Good day, and thank you for standing by. Welcome to the UGI Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Tameka Morris, Vice President of Investor Relations and ESG. Please go ahead.

Good morning, everyone. Thank you for joining our fiscal 2025 fourth quarter earnings call. With me today are Bob Flexon, President and CEO; Sean O'Brien, CFO, and Mike Sharp, President of AmeriGas Propane. On today's call, we will review our fiscal '25 financial results and key accomplishments as well as the strategic priorities and financial outlook for fiscal '26 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 with that, I'll turn the call over to Bob.

Thanks, Tameka, and good morning. UGI delivered record adjusted earnings per share of $3.32 through strong execution across multiple fronts, surpassing our revised guidance range of $3 to $3.15. Continued improvements at AmeriGas, which led to its higher EBIT, coupled with solid operational performance from our utility segment and significant tax benefits drove these exceptional results. We strengthened our balance sheet. We generated approximately $530 million of free cash flow, inclusive of cash generated from asset sales of selected LPG territories and return value to shareholders through dividend payments. Within our natural gas businesses, we successfully upgraded critical pipeline infrastructure and completed several new LNG and renewable natural gas facilities. These investments not only enhance our system integrity, but also expand our revenue-generating capabilities for future growth. At AmeriGas, we continue to make great strides in streamlining and transforming key business processes, better positioning the company for the upcoming winter. At UGI International, we successfully advanced our portfolio optimization strategy. This will allow us to more effectively utilize our resources on core customer segments where we can have competitive advantage and achieve superior returns. Most importantly, I am proud that we have begun to transform our organizational capabilities by investing in our people and fostering a performance-driven culture focused on driving extraordinary outcomes. This cultural evolution defines the way we work and is a critical driver of continued success. Building on this strong foundation, we are raising our long-term EPS growth expectations with a new EPS compound annual growth rate target of 5% to 7%. This increase underscores the multitude of intrinsic opportunities and our confidence in executing on our strategic vision. During fiscal 2025, we delivered on the strategic priorities we set at the beginning of the year. We are transforming the culture of UGI and embedding greater accountability and operational discipline across our teams and businesses. This is improving our competitive advantage to accelerate and realize success going forward. Our portfolio optimization initiatives were successful. We achieved approximately $150 million from LPG divestitures, excluding the impact of divesting the Austrian business, which is expected to close before the end of this calendar year. This year, we deployed roughly $900 million of capital, primarily in the natural gas businesses. At the utilities, we invested approximately $560 million largely towards replacing and upgrading our gas distribution infrastructure, including replacing nearly 130 miles of pipeline. At AmeriGas, while the operational transformation is ongoing, we're seeing meaningful results that Mike will speak to shortly. Notably, this fiscal year, we achieved a 30% reduction in recordable incidents which not only inspires the safety environment but benefits the business. We have deployed stringent project management discipline to drive more efficient business processes through analysis and redesign while increasing technological adoption, including AI throughout the organization, beginning with AmeriGas. Ultimately, these initiatives are strengthening our overall financial profile better positioning the company to deliver long-term shareholder value, which leads me to our strategic vision. Our vision is to create sustainable shareholder value by driving operational excellence throughout our businesses. There are many opportunities to unlock intrinsic value throughout our portfolio. AmeriGas is at the forefront of this strategic evolution. The team has already made substantial progress in transforming operations that will cement AmeriGas as the premier propane company in the U.S., one that optimizes and takes advantage of our distribution network and establishes a business that is safe, reliable and highly efficient. At UGI International, we will maintain strong operational discipline while positioning LPG as a viable alternative to fuel oil. The strategic and operational transformations underway in our global LPG businesses will generate increased cash flows and provide greater flexibility for future capital allocation. Our natural gas businesses operate in a dynamic environment, and are well positioned to capitalize on the significant energy expansion happening, particularly in Pennsylvania. With the prolific investment coming into the region, we are capitalizing on the opportunities whether through increased throughput for our utilities business or incremental opportunities for our midstream assets. All of these operational pillars are underpinned by our commitment to strengthen our balance sheet. Now I'll hand the call over to Mike to provide you with an update on the progress and efforts we are making at AmeriGas.

Before we open the line for your questions, I want to reinforce 3 critical takeaways that demonstrate the strength of our current position and our trajectory going forward. First, this year, we delivered record adjusted diluted earnings backed by a stronger balance sheet and enhanced liquidity position. This improved earnings profile represents the fundamental strengthening of our financial foundation that positions us for sustained success. Second, the operational and financial improvements underway at AmeriGas and expanding throughout the company are showing meaningful results and will continue to drive year-over-year organic growth well into the future. Finally, our focused approach to talent management and development along with our structured framework for driving operational change is transforming our culture as to how we operate as a business. These initiatives will work together to unlock the intrinsic value within our portfolio as we strive to deliver positive energy every day. Thank you for your time with us today, and we will open the line for questions.

[Operator Instructions] Our first question comes from Gabriel Moreen with Mizuho.

Just if I could just ask may be in terms of -- if I can ask maybe on the guidance, you gave some assumptions for what you're looking for next year out of some of your segments. It seems like the utility growth is awfully transparent over the next couple of years given the rate base growth. But can you talk about what you're expecting from midstream in the LPG businesses in the 5-year plan? Should we expect continued growth out of those businesses and just your expectations there a little bit more?

If I could maybe follow up on the natural gas side of things. Last quarter, Bob, you mentioned all the NDAs that you had signed around some of the activity happening in your backyard maybe if you can get an update on that. And then anything, I guess, data center adjacent that might be embedded within your midstream growth plan or utility growth plan over that outlook?

Yes, we still continue to see a lot of activity even more so than when we last spoke about it. We've advanced some of the projects with some interested parties. We have NDA so we can't necessarily go into it. But again, the amount of NDAs that we have with counterparties is north of 50. I mean, we've got significant discussions underway and in various stages with the various counterparties. So these things take time, but we are definitely keenly focused on it and looking to be part of all the growth that we're expected to see in Pennsylvania.

And then if I could just squeeze 1 last one in. I think there were some media reports about potentially putting your electric utility on the market. Just wondering if you could maybe comment on that and also within the role of just larger expectations around continued portfolio optimization either at utility, midstream or LPG businesses.

As you know, Gabe, we take a look at our portfolio all the time. We did a lot of that this past year on the LPG side of the business to see. Where do we have particular assets or opportunities to see there's greater value in holding or divesting. We will continuously look at our portfolio for those opportunities. I won't comment directly on anything in either the LPG side or the natural gas side. But looking at portfolio optimization continues to be one of the things that we will always consider. What I think really drives the value in this company for the next several years as we have just a lot of opportunities for intrinsic value growth. That's low risk, high return things that I'd love to find and you'll hear from Mike a little bit more this morning on what we're doing at AmeriGas, but I see that across our portfolio, these opportunities to really drive our growth rates that Sean was talking about by driving intrinsic value.

Our next question comes from Julien Dumoulin-Smith with Jefferies.

Can you guys hear me okay? So maybe just a follow-up on a few of these things. First off, look, I just wanted to understand a little bit more about the AmeriGas targets here. I mean how do you think about getting to that sub 4x. And specifically, is that deleveraging? Or is that principally going to be underlying adjusted EBITDA improvement? And how do you think about the time line to get there at those sub 4x target?

Well, I'll go first, and I'll let Mike chirp in. But AmeriGas has a lot of opportunities to really drive value. And we're going to grow the AmeriGas business by winning business. We're not going to go out and buy business. But a lot of the things that Mike and team are working on have just outstanding returns. And if I think things like routing and delivery, the kind of work that Mike and his team is doing there. When you look at the NPV or something like that, it goes according to my math, in triple digits. You're talking $100-plus million NPV on that type of work because we're driving efficiencies in the business and the work Mike and team are doing in these other work streams is just going to have AmeriGas growing throughout that time period. I'll let Mike maybe comment a little bit more of what's going on in AmeriGas since it's his first call since joining about a year ago when I joined and Mike and I have a history going backwards, and I knew he was the right person to drive the improvements in AmeriGas that we're seeing.

Our next question comes from Paul Fremont with Ladenburg Thalmann.

I just wanted to sort of follow up on the 45

It will be '26 will be the first time.

And then the other question I have is, were you using sort of a negative credit score to calculate the 45

Yes. Not sure about that one. We'll need to get back to you on that.

That concludes today's question-and-answer session. I'd like to turn the call back to Bob Flexon for closing remarks.

Well, thank you for dialing in. And just to reiterate, on our year, we had a very strong fiscal year '25, adjusted EPS $3.32, record earnings for us. Really love seeing the EBIT growth of 17%. Our leverage getting back in line and, of course, the TSR to our shareholders of 42%. So a great year for us. We continue to be focused very much on our operations across the board. We've got great progress in AmeriGas leading the way on improvement. So that's going to be driving our growth in these future years. Talent management, we've got new people in the right spots and combined with the existing workforce, we've got the right people to bring this forward. So I really look forward to more discussions with you in the future. We'll see a lot of intrinsic growth, we'll be capitalizing on what's happening in Pennsylvania with the data center investments and the future looks very bright for us. So with that, thank you very much for your time, and we'll be speaking to you more in the future. Thank you.