Dan Platt - Treasurer John Walsh - President & CEO Kirk Oliver - CFO Jerry Sheridan - President & CEO, AmeriGas Propane.

Ben Brownlow - Raymond James Chris Sighinolfi - Jefferies Nathan Judge - Janney Montgomery Scott.

Good morning. My name is Ian and I will be your conference operator today. At this time, I would like to welcome everyone to the UGI AmeriGas Third Quarter 2015 Conference Call. [Operator Instructions]. Thank you. Dan Platt, Treasurer, UGI Corporation, you may begin your conference..

Thank you, Ian. Good morning and thank you for joining us. As we begin, let me remind you that our comments today will include certain forward-looking statements which management of UGI and AmeriGas believe to be reasonable as of today's date only.

Actual results may differ significantly because of risks and uncertainties that are difficult to predict and many of which are beyond management's control.

You should read our Annual Reports on Form 10-K for a more extensive list of factors that could affect results, but among them are adverse weather conditions, cost volatility and availability of all energy products, increased customer conservation measures, the impact of pending and future legal proceedings, domestic and international, political, regulatory and economic conditions, currency exchange rate fluctuations, the timing of development of Marcellus shale gas production, the timing and success of our commercial initiatives and investments to grow our business and our ability to successfully integrate acquired businesses and achieve anticipated synergies.

UGI and AmeriGas undertake no obligations to release revisions to their forward-looking statements to reflect events or circumstances occurring after today.

In addition, our remarks will reference certain non-GAAP financial measures that management believes provide useful information to investors to more effectively evaluate the year-over-year results of operations of the Companies.

These non-GAAP financial measures are not comparable to measures used by other companies and should be considered in conjunction with performance measures, such as cash flow from operating activities.

With me today are Hugh Gallagher, CFO of AmeriGas Propane, Kirk Oliver, CFO of UGI Corporation, Jerry Sheridan, President and CEO of AmeriGas Propane and your host, President and CEO of UGI Corporation, John Walsh.

John?.

Thanks, Dan. Good morning and welcome to our call. I hope that you've all had a chance to review our press releases reporting third quarter results for UGI and AmeriGas.

Our financial performance in the quarter was solid, particularly given the warmer-than-normal weather that we experienced in most of our service territories during the first half of Q3 when weather's still a significant factor impacting performance.

Our teams have been particularly busy in recent months as we accelerate our execution activity for existing projects and focus on the development of projects that are in earlier stages.

I'll comment on our financial performance and significant accomplishments in the third quarter, then turn it over to Kirk, who'll provide you with a more detailed review of UGI's financial performance. Jerry will follow with an overview on AmeriGas and I'll wrap up with an update on our strategic initiatives.

Our Q3 GAAP EPS was $0.05, while our adjusted EPS which reflects the combined $0.02 mark to market adjustment in the midstream marketing, AmeriGas and UGI International businesses, was $0.03.

The adjusted EPS includes the impact of approximately $0.06 related to the transaction expenses and first month's operating results for the Totalgaz acquisition. I'll comment on Totalgaz in more detail later in the call, but we're extremely pleased with our progress in the first 60 days of operation.

Based on our Q3 performance, we can confirm the updated FY '15 guidance of $2.00 to $2.10 that we provided with our Q2 earnings release. Earnings are likely to fall into the lower end of that range due to the impact of the warm spring weather that we experienced in Q3.

As noted last quarter, our guidance excludes the impact of the Totalgaz acquisition. FY '15 earnings are shaping up to be on par with last year's record EPS. The past two years comprised the strongest period of financial performance in UGI's history. Kirk will comment in more detail on guidance and our third quarter performance in a few minutes.

Before I turn it over to Kirk, I'd like to take a minute to comment on the ongoing evolution of the markets we serve in the Mid-Atlantic and Northeast U.S.. We continue to see escalation of demand within our core customer segments, as well as a major shift to gas-fired power generation in our region.

Lack of available pipeline capacity during peak demand periods continues to be an issue and the infrastructure gap that we've been highlighting for the past two to three years is driving delivered gas cost volatility during peak periods.

Our midstream business has benefited from strong demand for pipeline capacity over the past two years and we believe that, for the foreseeable future, pipeline capacity in the markets we serve will remain constrained.

Our integrated asset portfolio in the region, now being augmented with new investments, provides us with the capability to deliver significant value during periods of volatility. While Q3 tends to be a period of reduced distribution activity as we ease out of winter, our teams were quite busy.

Our gas utility team continues to focus on growing our customer base while executing an extensive infrastructure replacement program. We've added nearly 14,000 new heating customer year-to-date and expect that total to increase to approximately 18,000 by year-end.

Our infrastructure replacement program for both cast-iron and bare steel is moving forward on pace with our commitments and we're maximizing our project efforts in the warm summer weather months. AmeriGas continues to have great success in building its network of national accounts.

Despite warmer-than-normal weather, our national accounts Q3 volume increased 15% over Q3 FY '14. Our national service offering is a clear differentiator in this key segment. Jerry will provide you with the details on AmeriGas's performance during his remarks.

One other item of note is the continued downward trend in energy commodity costs, particularly LPG. Costs in Europe have fallen by over 50% in the past 24 months, with a majority of that decline occurring in fiscal year 2015.

Similarly, AmeriGas has seen a significant decline, with Mont Belvieu average costs in June more than 60% below the June 2015 costs. These lower costs are great news for our customers as we near the 2015-2016 heating season.

I'll return to discuss progress on major new projects and the Totalgaz acquisition later on the call, but I'd like to turn it over to Kirk at this point for the financial review.

Kirk?.

Thanks, John and good morning, everyone. As John mentioned, when we adjust for the expenses related to the Totalgaz acquisition, earnings are in line with what we posted last year in spite of significantly warmer weather this quarter.

This chart shows adjusted earnings for the quarter, costs associated with the acquisition of Totalgaz and adjusted earnings when excluding the impacts of Totalgaz acquisition. As you can see on the chart, after adjusting for the acquisition and the mark to market impact on commodity hedges, earnings were down $0.01 per share versus last year.

Weather was significantly warmer this year in the U.S. and in France, putting downward pressure on volumes and margins at AmeriGas, utilities and UGI International. Flaga's weather was slightly warmer than normal for the period, but significantly colder than last year.

Moving now to AmeriGas, we're reporting operating income for the quarter of $0.8 million, a decrease of $6.4 million versus last year. Total margin decreased by $5.8 million, reflecting a decrease in retail volumes sold, partially offset by modestly higher retail propane unit margins.

Operating expenses decreased slightly, reflecting lower vehicle fuel expense and lower uncollectable accounts expense. Jerry will go into more detail on AmeriGas operations later on in the call. We reported a loss in income before taxes at UGI International of $16.9 million. This is down $15.9 million from the prior year period.

As I reference earlier, UGI International results were impacted by transaction-related costs and, to a much lesser extent, a seasonal loss on the business subsequent to closing the acquisition on May 29.

Transaction-related expenses [indiscernible] a pretax loss of $10.3 million related to the settlement of interest rate derivatives and the associated early extinguishment of debt at Antargaz and approximately $9 million related to the acquisition expenses, transition costs and the seasonal loss on the business.

Excluding these costs, UGI International would have recorded an increase in income before taxes of about $3 million in the quarter. Volumes for this quarter were 16.4% higher than the prior period, principally reflecting 12.5 million incremental gallons associated with the Totalgaz acquisition.

Total margin increased over the prior year as higher local currency gross margin was marginally offset by the impact of a weaker euro and British pound-sterling. Operating and administrative expenses were higher than the prior year, primarily due to the effects of the Totalgaz acquisition.

The average euro to dollar translation rate for the current quarter was approximately $1.11 per euro compared with $1.37 for the prior year period. We lost the foreign exchange rate on a portion of our LPG commodity purchases in Europe.

As a result, the difference in currency translation rates did not have a material impact on reported results for the period. Turning to slide 11, the gas utility is reporting income before taxes of $5.6 million compared to $7.3 million in last year's quarter.

Throughput to core customers decreased 3% in spite of weather that was 17% warmer than last year, reflecting the offsetting effects of customer growth due primarily to customer conversions from fuel oil to natural gas.

Total margin decreased by $1 million or 1.3%, reflecting lower margin from interruptible delivery service customers and the effect of lower core market margin. Costs were up $1.6 million this quarter primarily due to higher system maintenance and general and administrative expenses.

Depreciation expense increased by just over $1 million due to the ongoing increase in capital expenditures related primarily to our pipe replacement program and other income is up $1.7 million due to an increase in construction services in the quarter.

Midstream and marketing posted income before taxes of $18.1 million, a decrease of $7.5 million versus the record $25.6 million posted for the third quarter last year.

Total margin decreased by $6.8, primarily reflecting lower capacity management margin which was down $7.7 million versus last year, partially offset by slightly higher natural gas and retail power margin. Depreciation expense was slightly higher due to incremental depreciation expense associated with our interest in the Conemaugh generating station.

Looking now at liquidity and cash resources, we use a combination of bank facilities and cash on hand to meet our liquidity needs. Total liquidity by business in the form of cash on hand and available credit capacity are laid out in the table on this slide.

You can see from this table that the businesses have sufficient capacity to meet their liquidity needs. On the whole, we feel good about the quarter and are affirming our guidance for adjusted earnings of $2.00 to $2.10 per share, although, given the warmer weather experienced this quarter, we expect to come in at the lower end of this range.

That completes my prepared remarks and I'll now turn the call over to Jerry for his report on AmeriGas..

Okay. Thank you, Kirk. Adjusted EBITDA for AmeriGas in the third quarter was $49 million compared to $55 million reported in the third quarter last year. The lower earnings were related to relatively warm weather in April and May which serve as shoulder months for our heating customers.

Weather for the third quarter was 18% warmer than normal and 10% warmer than the prior year. Retail volume was 6% below last year's Q3. When you consider that March was 18% warmer than the prior year, the result was a somewhat abrupt end to the heating season, something we have not experienced since 2016.

ACE or AmeriGas Cylinder Exchange program, saw volume decrease about 2%. This is something that we're certainly not accustomed to and is primarily the result of near-record wet weather during the quarter. Nationally, the quarter ended June 30th was the second wettest on record and this is over 121 years.

And during the month of May which includes the critical Memorial Day weekend, we experienced record precipitation nationally. Year-to-date, however, ACE volume is up 1%. Despite the weather challenges, our national accounts program continued to grow, adding 15% higher volume quarter-to-quarter.

And we continue to grow the number of accounts we're serving with this national service offering which takes advantage of our large national footprint. Average propane prices in the quarter were $0.47 per gallon of Mont Belvieu which was 55% below the third quarter last year.

This lower cost environment is good for our customers, as they're seeing smaller bills and good for the propane industry as a whole. Unit margins expanded by $0.04 per gallon as we were able to keep a portion of the decline in propane costs. Operating expenses were $0.01 below last year due primarily to lower vehicle fuel costs.

Year-to-date, we've also completed seven small-scale acquisitions and the pipeline remains strong through the late summer into the fall. Given the impact of the spring weather on our business, we're tightening our guidance to $635 million to $645 million in EBITDA for the year. And with that, I'll turn the call back over to John..

Thanks, Jerry. I would like to review our progress on the strategic investments and programs that are so critical to our future. Our acquisition of Total's LPG distribution business in France received regulatory approval in late May and the deal closed on May 29.

Our teams did an extensive amount of preplanning over the past nine months and we got right to work on executing our plan for bringing the Totalgaz team and customer base into UGI France.

We're very pleased with our progress over the first 60 days and look forward to providing information on the positive impact of this new business when we provide our fiscal year 2016 guidance. One of the key areas for growth for our midstream and marketing business over the past five years has been the expansion of our LNG peaking activities.

We've seen a dramatic increase in peak demand for most LDCs and, in addition to peaking, we've seen the emergence of new demand segments for LNG, including transport, marine and distributed generation. In May, we announced a $60 million investment for a new LNG liquefaction facility in Manning, Pennsylvania.

The unit which will be ideally located for access to low-cost Marcellus gas, will double our overall liquefaction capacity at a time when demand for LNG, particularly for peaking, is rising sharply. We expect the Manning facility to come online in early 2017.

We're making good progress on the range of pipeline projects announced over the past 12 months. The PennEast project is progressing through the FERC preapproval process and the partnership expects to submit the formal FERC filing in September. This project is expected to be onstream late in calendar 2017.

Our $160 million project to serve a new 1,000 megawatt power generation facility in Sunbury, Pennsylvania is also on track, with our FERC filings submitted last month. The Sunbury pipeline is targeted to come onstream early in 2017. Our utilities team is also making good progress on two major pipeline projects serving gas-fired power generation units.

Our team has achieved mechanical completion of the $25 million project and will serve a new Panda Energy 1,000 megawatt plant in Clinton Township, Pennsylvania and is executing the early-stage activities of the pipeline project to serve the new Invenergy 1,300 megawatt unit in Jessup, Pennsylvania which is expected to come online in the summer of 2017.

Our strong performance in fiscal 2015 is another clear demonstration of the strength and earnings capacity of UGI's balanced portfolio of businesses. Our teams are highly focused on executing on a broad range of critical activities.

We're working diligently to excel in customer service and distribution efficiency while also making significant progress on new opportunities, both capital projects and acquisitions which will provide a strong foundation for earnings growth in fiscal 2016 and beyond.

As noted earlier on the call, we're on track to deliver earnings that are on par with last year's record levels. The past two years have been particularly noteworthy for us as this very strong financial performance has been coupled with an unprecedented level of new investments.

While there is still much work to be done in fiscal 2015, we're hard at work on our fiscal 2016 plan. With roughly $600 million of major capital projects recently completed or in process and with the Totalgaz acquisition now in the integration phase, we've never had a stronger foundation for future growth.

In our gas utility, UGI Gas is approaching its first rate case filing in nearly 20 years. All of this progress contributes to a very strong outlook for earnings growth in the coming years.

We're excited about the continued opportunities provided by the growth in the natural gas sector and our slate of new projects which will address the infrastructure gap in the Mid-Atlantic and Northeast. We're also excited about the opportunities to utilize the increased scale of our LPG distribution business in the U.S.

with AmeriGas and Europe, with a particular focus on the effective integration of the Totalgaz acquisition. All of these factors position us well to deliver on our long-term earnings commitments we make to our shareholders.

We look forward to keeping you updated on our progress, on our existing set of new projects and on emerging opportunities for new investments. With that, I'll turn the call back over to Ian, who will open it up for questions..

[Operator Instructions]. Your first question comes from Ben Brownlow with Raymond James. Your line is open..

Jerry, on the national account program, you've had an impressive track record of growth there.

Aside from the geographic footprint, how are you differentiating from competitors there and how long do you think that you can sustain a double-digit growth rate there?.

Well, I mean, we're having success with both national accounts and also large regional accounts. So, it might be a business that just does -- longer locations in the Northeast only or the western part of the country. So, I just think we're selling primarily because of the effectiveness of our sales team.

I don't think we've ever had a group as strong as they are and with the pipeline that's continually refreshed. So, we don't really see an end to it. We've got, every year, several hundred new targets. So, I'd expect the success to continue. And they've also been able to garner, though modest, price increases.

Customers are obviously very tough because of their buying power..

I would just add a point. This is John, I would add that Jerry and the AmeriGas team do an exceptional job operationally serving these accounts and some of them are very challenging, if you look at accounts such as railroads, with thousands of remote locations.

I think the scale of AmeriGas, coupled with its operational effectiveness, really differentiates us from others..

And switching over to the OpEx side, can you quantify what the benefit year-over-year was from lower vehicle fuel cost? And then, the guidance that you gave, while the top end was lowered for the fiscal year, the midpoint implies a pretty healthy growth in the fiscal fourth quarter.

I'm just assuming -- I know you don't want to dive too deeply into the line items, but are you assuming OpEx reductions in the fourth quarter?.

Well, I think when you look at the quarter in isolation, sometimes you'll see blips because of one-time events that occur with either medical costs or legal costs and those kinds of things that are not really in the run rate. But, our expectation for the full year is that OpEx per gallon is generally flat with what we saw in 2014..

And can you quantify the lower vehicle fuel costs in the quarter?.

Well, we try not to go into a line item-by-line item review of the P&L, but I think we did say vehicle fuel costs in general were down about 25% to 30%..

[Operator Instructions]. Your next question comes from Chris Sighinolfi from Jefferies. Your line is open..

Just wanted to follow-up on, you had made a guidance change at UGI last quarter and I think there was some back-and-forth with Carl on that call as to sort of the tenants of what maybe had moved in the confidence in the midstream.

And then, looking at midstream, I think quarter-on-quarter in the third quarter was down, in fact the biggest delta on slide 12 is the capacity management.

Just wondering how you think about the shoulder seasons for that business, given what you just went through and if there's any maybe more explanation as to what transpired this quarter versus what you were thinking about when you made the guidance change last quarter and as it relates how we should be thinking about that business in particular in 4Q..

Sure. I think for this quarter, no big surprises and the business performed kind of very much in line with our expectations. Last year for the midstream marketing business is a challenging market, given that it was just such an extraordinary year. And this year has been a great year, as well.

But the difference in Q3 last year and this year, weather was certainly a difference and the early part of the winter, with the warmer weather, you just didn't have the volatility that you would see if we had normal weather.

One of the really important attributes that we saw of the market this winter was that, although we didn't see the peak in capacity values that we saw in fiscal year 2014, we actually had volatility of much longer duration which really speaks to the underlying increase in demand.

So, as we look forward for that business in particular, the outlook in terms of value of the assets and opportunity to generate margin, both through fixed fees and incremental opportunities related to volatility, is extremely strong. And as I noted in my remarks, bringing additional assets onstream in that business help in two ways.

They help because they are bringing fixed fees and attractive returns on the investments, but they also help in that they augment the network of assets in the region that we can utilize when we see volatility.

So, I think this quarter showed the business performing actually extremely well, given the weather in April and early May and continued progress in terms of building up the asset base that positions us really well for FY '16 and beyond..

And I guess with regard to the guidance, just a quick reminder, Kirk, the guidance you've given, it entirely excludes transaction costs related to Totalgaz, is that correct? And then, assuming the $0.06 gets added, I think you had said $0.04 in year-to-date in the second quarter call.

So, broadly speaking, is that about $0.10 year-to-date that we should be sort of excluding to get to a normalized consistent with your guidance? Is that right?.

Yes, that's absolutely correct. We're excluding both the transaction cost and the operations of the business in those numbers..

Your next question comes from Nathan Judge with Janney. Your line is open..

I have a question. Just as you guys have done a great job of expanding your midstream opportunities and investment opportunities there. I see that you're now at $600 million. I think you were talking about $450 million about this time last year in November. I just want to kind of get an idea of the longer-term run rates here.

As you look out now, you see clearly identified $600 million of opportunities.

But, if we're here a year from now, what are the deltas? Where are the areas that you see that may be better or worse than you expect?.

The key thing we see and it just gets reinforced with each winter, this winter was certainly no exception, is the strength of underlying demand. And that's true in terms of the customers we serve, but it's also true across certainly entire Mid-Atlantic, Northeast region.

So, underpinning everything is this tremendous strength in natural gas demand to serve core customers, but also for power generation. We see that continuing which just creates opportunities for us and others to invest in infrastructure and expand to further utilize our existing asset network.

So, from my standpoint, I see us pursuing, continue to pursue, new Greenfield investments that serve our core customers, but also serve our generation sector, as well. And I see us and the LNG sector's a good example, I see us continuing to invest, to expand and position ourselves in an effective way to serve the increased demand. So, really positive.

I don't think we've seen -- we're just, I think, in terms of the energy sector, we're just seeing the ramp on natural gas demand. And for us, I see continued opportunities. I see infrastructure chasing demand for a number of [indiscernible] which means we'll be active in pursuing those opportunities to participate.

So, I'm really positive as we look forward and, for us, we're in the stage where we look at the next four years or so and planning and we're excited about the range of opportunities, what we've got on the plate, the $600 million, but also opportunities to add to that with both new assets and expansion around existing facilities..

I just wanted to ask about the margins, actually, in Europe.

With regard to the cents per gallon, could you kind of give us a breakout of what mix impact there was related to some of the acquisitions you've made, getting obviously -- it's gone down on an absolute cents per gallon, so I just wanted to kind of get a better waterfall chart, basically year-to-year reconciliation there..

Sure. Yes. Nathan, there is a mix effect that's primarily related to acquisitions we made, Poland being the most significant, where you have relatively large market where historic margins have been much lower than average across Europe. So, you have this mix effect as you blend that in.

As you step back from that and you look across each business or each country and then break it out into segments, obviously we don't break out that kind of detail. But, this year was a good year, a year of progress for us in terms of unit margin management.

Jerry noted [indiscernible] but across Europe when you break that out in market-by-market and in each segment, we saw unit margin improvement pretty much across the board by segment which was helped by the fact that we had falling product costs and so it's a little bit easier environment. You get a bit of a parachute effect.

So, we'll have the mix effect, moving forward. Next year or this coming year, we'll add Total which is attractive in terms of unit margins. And as we've said before, it's kind of consistent with what you see already in Antargaz in France. So, there is that mix effect, but I can tell you it's something we and the businesses put a lot of effort in.

We're very comfortable with the commitment that we make or the statement that we make, that our goal is to increase unit margins in line with inflation. We've been doing that for the last 20 years and intend to continue. And I would say for Europe this year, it was a year of good progress in terms of managing unit margins..

On a longer-term basis, if you look at that unit margin and that growth rate, clearly global LPG prices have fallen.

Is this uptick more sustainable or is this just an uplift based upon this falling environment?.

We view it as sustainable and the reason we have that view is because, if you look back over the last decade or two decades if you're talking about the U.S., we've shown the ability to manage unit margins as commodities kind of ebb and flow in terms of the underlying costs.

And I think the reason for that is LPG distribution is such a service-intensive business that, from a customer standpoint, service, reliability, responsiveness, is really what is the priority for the vast majority of customers. And clearly we're focused on that to make sure we're meeting customer needs and demands.

And if we do that well, we should be able to attract and retain customers that will provide us with unit margins moving up with inflation. So, we're confident that we can do it, because we have done it and because of the nature of the relationship with customers. And we focus a lot of effort on it. We in no way take that for granted.

So, there's a huge focus on making sure service levels are continually addressed and assessed and we're deploying new technology to serve our customers more effectively. So, we know we need to earn those margins every day from the customers' perspective and we work hard at it. And that gives us confidence that we can stay on the path we're on..

[Operator Instructions]. There are no further questions. I will turn the call back over to the presenters..

Okay, thank you very much. Thank you all for your participation in the call. It was great catching up with you. We look forward to the next call, where we'll update you on Q4 and talk about our outlook for fiscal 2016. Thanks very much..

This concludes today's conference call. You may now disconnect..