UGI Corp (UGI) 2013 Q1 法說會逐字稿

Good afternoon, everyone, and welcome to the UGI Corporation and AmeriGas first quarter fiscal year 2013 earnings conference call. All participants will be in a listen only mode.

(Operator Instructions)

After today's presentation there will be an opportunity for you to ask questions.

(Operator Instructions)

Please also note that today's event is being recorded. At this time, I would like to turn the conference call over to Mr. Hugh Gallagher, Treasurer of UGI Corp. Sir, please go ahead.

Thanks, Jamie. Good afternoon everyone and thanks 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, including Heritage Propane, and achieve anticipated synergies. UGI and AmeriGas undertake no obligation 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 Jerry Sheridan, President and CEO of AmeriGas Propane; Kirk Oliver, CFO of UGI Corporation; John Walsh, President and COO of UGI; and your host, Chairman and CEO of UGI Corporation, Lon Greenberg. Lon?

Thanks as always, Hugh. Welcome, everyone, to our call.

I trust you've all had the opportunity to review our press releases reporting our first-quarter results. I won't take you through those. I'll leave that to Kirk to take you through the specifics of our results for both UGI and AmeriGas.

Warm weather played a role in this year's first quarter results, but it was not a dominant one. In fact, given our weather, one would have thought our results would be -- would not have been this good. That fact is best reflected in our guidance, which was only reduced modestly for both UGI and AmeriGas.

There are several reasons for our fine performance this quarter, among them are the Heritage acquisition in AmeriGas in the US, the low cost of propane prices in the US, which helped margins, as well as the overall competitiveness of propane as a fuel; excellent margin management overseas, despite a significant increase in LPG prices; and the benefits of customer growth in our Gas Utilities, growth investments in our Midstream and Marketing business, and acquisitions in our overseas businesses. You'll here more about of all of these things from Kirk, John, and Jerry. When they're finished, I'll give you a little bit more color on the quarter.

So, Kirk, let me turn it over to you.

Thanks, Lon. We've seen a significant increase in earnings across all of our businesses over last year's quarter. Earlier today, we reported net income of $102.6 million, or $0.90 per diluted share for the quarter, compared to $87 million or $0.77 per share for the first quarter last year.

Last year's quarter included a benefit of $5.5 million, or $0.05 per share, resulting from the recognition of certain foreign tax credits associated with the International Propane business. Excluding this prior-year tax adjustment, net income increased $21 million or nearly 26% year over year. Although warmer than normal, the weather experienced by each of our business units during the quarter was colder on average than what we experienced last year.

Still, earnings in our domestic businesses, driven entirely by the warm weather we experienced in December, came in modestly below our expectations for the quarter. Based upon these results and assuming relatively normal temperatures for the balance of the fiscal year, we are adjusting our 2013 guidance down $0.05. So, the new range for earnings is $2.40 to $2.50 per share.

AmeriGas experienced weather that was 9% warmer than normal, but 3.4% colder than last year. During the critical heating month of December, weather was 13.1% warmer than normal, and 1.5% warmer than last year. Despite the impact of warm weather, AmeriGas' operating income increased by $79.8 million over the prior-year quarter. Jerry will cover the results for AmeriGas in more detail later on this call.

International Propane also benefited from weather that was colder than last year. Weather in France was warmer than normal, but approximately 15% colder than last year, while weather in Flaga's service territory was slightly warmer than normal and slightly colder than in the prior-year period. International Propane's income before taxes increased by $15.9 million, or nearly 47% over the prior-year quarter.

Retail gallons sold were up by $8.7 million or 5.3% over the prior-year period, due to significantly colder weather and stronger crop drying volumes at Antargaz. Total margin increased by $15.6 million this quarter, reflecting greater retail volumes sold at Antargaz and higher retail unit margins at Flaga.

Gas Utility's contribution to income before taxes was up $9.1 million, or 17.8%, versus the prior-year quarter. Weather was 3.6% warmer than normal, but 9.6% colder than last year. System throughput increased by 10% to 54 BCF for the quarter. Throughput to core market customers increased by almost 12.5%, both as a result of colder weather and customer growth from conversions.

Total margin increased by approximately $11 million, or 10%, primarily as a result of greater volume in the core market, as well as higher firm delivery service margin. Operating expenses were $2.2 million higher on a year-over-year basis, due to, among other things, higher distribution and system maintenance expenses and greater pension expense.

Midstream and Marketing income before taxes increased by $3.7 million versus the prior-year quarter. Total margin increased by $5.1 million due to higher production from electric generation and greater combined margin from natural gas marketing, gas gathering, peaking and capacity management activities, partially offset by lower margin from storage activities. Operating expenses were slightly higher due to depreciation expense and higher operating and administrative cost.

Turning now to cash and liquidity resources, we remain committed to maintaining a strong balance sheet and plenty of liquidity to support our ongoing business activity and our growth initiatives. We use a combination of bank facilities and cash on hand to meet our liquidity needs. Total available liquidity at December 31, 2012, was about $1.2 billion, consisting of approximately $820 million in available bank capacity and $348 million in consolidated cash on hand, excluding restricted cash.

At December 31, AmeriGas had about $118 million of cash on hand and $294 million of available bank capacity for a total of over $412 million of liquidity. International Propane had around $92 million of available cash and $98 million of bank capacity, for a total of around $190 million of available liquidity. Gas Utility had about $8 million of cash and $225 million of bank capacity, for a total of approximately $233 million of liquidity.

Also during the quarter, we amended and extended revolving credit facility for our Midstream and Marketing business, increasing capacity from $170 million to $240 million and extending the maturity to 2016. Midstream and Marketing had about $8 million in cash and $204 million of capacity available under this revolver for a total of about $212 million of liquidity.

In addition to the revolver, we also have an accounts receivable facility that provides working capital funding for the Midstream and Marketing business. Excluding cash held by our operating subsidiaries, UGI also had about $100 million of cash available for investment and general corporate purposes at December 31, 2012.

Finally, I'd like to touch briefly on the shelf registration statement filed for AmeriGas yesterday. The shelf will register the 29.6 million units that were contributed to energy transfer partners pursuant to our acquisition of Heritage Propane in January of last year. Energy transfer was required to hold units for one year, and has recently exercised their right to have us register the units.

Based on our discussions with the ETP, we are confident that they intend to exit the position in a coordinated and orderly fashion, and their interest and ours are clearly aligned. I would also note that these units are already outstanding and we are already paying distributions on them. So, an offering of any of these registered units will not result in dilution or additional cash distribution.

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

Great. Thanks, Kirk.

The first quarter of FY '13 was a period of significant progress on a number of fronts. As we saw the benefits our major propane acquisitions that closed in FY '12, continued the expansion of our Midstream position in the Marcellus Shale, and accelerated the growth and infrastructure investment program at our Gas Utility. Each of our major businesses contributed to the strong progress in the quarter.

Our Gas Utility team continues to be focused on the execution of our enhanced infrastructure replacement program, and the continued growth in our customer base, primarily from fuel oil to natural gas conversions. Last week, the Pennsylvania PUC approved, with some modifications, the settlement agreement filed last fall on the Allentown explosion.

We'll submit our detailed planning response to the PUC decision in the near future, but we've already begun to execute the accelerated and expanded infrastructure program outlined in the PUC decision. Our Gas Utility infrastructure CapEx spend for FY '13 will be approximately 25% above our FY '12 level.

Demand for natural gas continues to be extremely strong. We added over 6,000 new customers in Q1, which was an approximately 10% increase above the record levels achieved in the same quarter last year. While this growth was primarily driven by conversions, we did see an improvement of almost 15% in the number of new homes added year on year. We expect demand to remain strong due to the large spread between natural gas and fuel oil.

We focused much of the last 15 months on driving the acquisition integration programs for AmeriGas and our European propane team. We met or exceeded all our critical synergy goals, and also achieved our objective of having our businesses well-positioned for the winter heating season.

AmeriGas will be executing the final phase of their integration plan over the course of this spring and summer, while the integration of the European businesses acquired from Shell at the start of FY '12 is now complete. AmeriGas delivered a very solid performance in the quarter, with adjusted EBITDA up $35 million, over 20% above the total recorded by the two companies on a pro forma basis in the first quarter of FY '12. Weather was about 3% colder than prior year, which was helpful, but the driver for this strong performance was the delivery of our targeted operational synergies.

The performance of our European team was equally strong. As noted earlier, the synergy programs were completed by the close of FY '12, and our teams benefited from weather that, while warmer than normal, was colder than the prior year. The significant increase in operating income, it was up almost 40%, reflects higher volumes, continued strong margin management, and operational efficiencies achieved within the businesses acquired last year.

This strong performance in Europe, give us great confidence as we look forward to the addition of BPs LPG distribution business in Poland. We announced this acquisition in late November, and expect to close sometime this spring. This acquisition will strengthen our position in one of Europe's largest LPG markets. Our European team is well prepared to integrate this quality business, once we receive the required regulatory approvals in Poland.

Our Midstream and Marketing business had an extremely active quarter, as we focused on utilizing our newly deployed assets, such as the expanded LNG storage facility Temple, Pennsylvania and on the execution of a broad range of business development projects in and around the Marcellus. As noted on our last call, we completed the expansion of our LNG peaking facility in late fiscal ' 12.

The plant is fully operational, and we're very encouraged by the strong demand for our gas peaking and liquid supply services. Peaking demand was particularly strong during the recent January cold spell, where capacity values in the mid-Atlantic region moved up sharply as natural gas demand peaked and pipelines imposed restrictions.

Our strategy for pipeline infrastructure investment continues to evolve as the market adjusts to the lower natural gas costs and increased supply within the Marcellus. We're making good progress on the execution of our Auburn 2 project, which will extend our existing Auburn line southward to connect with the Transco pipeline. We're in the permitting and field execution phase and the expected in-service date for Auburn 2 remains early fiscal year 2014.

We concluded the marketing phase for the Commonwealth pipeline and determined, in conjunction with our partners, WGL and Inergy, that initial demand for the project did not meet our expectations. This is primarily due to low gas prices, slow economic growth, and the short-term impact of several low-cost expansion projects on existing long-haul pipelines.

We continue to believe in the merits of a short-haul transportation option that connects the mid-Atlantic demand markets with the abundant gas supply in the Marcellus. We'll continue to evaluate projects such as this as market conditions evolve, but we're fortunate to have a number of current opportunities to pursue that are consistent with our long-term strategies.

We've made progress on multiple projects since our last call. On January 14, we announced the Marcellus Shale development agreement with Tenaska Resources. This will enhance our position as a midstream services provider in the eastern sector of the Marcellus where we have a strong network of existing assets including approximately 15 BCF of natural gas storage.

We completed a filing with the FERC to transfer an under utilized gas transmission line in central Pennsylvania to our Midstream and Marketing business. This additional pipeline will enable us to improve access to our storage for local Marcellus producers and provide our existing storage customers, including our Gas Utility, with additional supply options. We're also nearing completion of a compressor station project, which will enable us to move gas around pipeline bottlenecks in the Marcellus and increase pipeline delivery options for our storage customers.

Finally, we've made good progress in signing agreements with several Marcellus producers to supply LNG to their drilling locations. The LNG will be an economical, cleaner solution for these customers, as it displaces diesel. The recent expansion of our LNG storage provided us with the storage capacity required to support this new business. As Lon noted in his opening remarks, we're pleased with the progress made in Q1 and confident that our teams will execute well over the balance of the year. We look forward to keeping you apprised of our progress.

I'd now like to turn it over to Jerry, who will take you through AmeriGas' performance in Q1. Jerry?

Thanks, John. Adjusted EBITDA for the first quarter of $193 million was significantly higher than the $87 million reported last year, due really to the addition of Heritage Propane and the related synergies. Volume for the quarter was up 59%. Total revenues were up $193 million, or 28%. Total margin increased $185 million or 77%, and operating expenses were up $83 million or 52%. All of these increases are largely attributable to the addition of Heritage Propane's operation, and the success of our integration program.

We think a better comparison can be made by looking at our current results versus what the AmeriGas and Heritage businesses combined would have been had they been together last year on a pro forma basis. Net income attributable to AmeriGas Partners was $96 million in the current year period compared with $58 million on a pro forma basis for the prior-year quarter. That's an increase of $38 million, or 66%.

Turning to adjusted EBITDA, if you start with the prior period pro forma net income of $58 million and add back taxes, interest, depreciation and amortization and the acquisition and transition expenses, adjusted EBITDA for the prior-year period was approximately $158 million on a pro forma basis. Therefore, the $193 million of adjusted EBITDA reported in Q1 of 2013 is $35 million, or 22%, above what the two companies recorded on a pro forma basis during the same period last year. This significant improvement in earnings, given weather that was only about 3% colder than the prior year, clearly demonstrates the benefits of the Heritage acquisition.

Notwithstanding our strong performance, warm weather was an issue for us during the quarter. After a good start in October and part of November, weather nationally, during the key heating month of December, was 13% warmer than normal and even 2% warmer than last December. In fact, in December we experienced weather in the Northeast that was 16% warmer than normal, and in the mid-Atlantic and Southeast, was over 20% warmer than normal. This resulted in overall Q1 weather that was about 9% warmer than normal, and 3% colder than last year. Again, using available information, the retail volume of AmeriGas and Heritage is down about 4% year over year due principally too very warm December weather, the exclusion of the Heritage Propane Express business, which we did not acquire from ETP and some customer losses, resulting from the acquisition, which we expected.

Propane costs continue to be a positive trend for us. The average Mount Belleview price during the quarter was $0.89 per gallon, which was $0.55 or 38% below last year. US propane inventories are currently 20% above last year and 30% above the five-year average. Propane is trading today at 37% of crude and well below the prior-year relationship of 54%.

This lower cost environment is really great for our customers, who are seeing lower bills for heating their homes and running their businesses, a very positive trend for the entire industry. The weak housing market is also turning with 2012 housing starts up approximately 28% from 2011. Propane typically realizes 5% to 6% of all new housing starts.

If we turn to our growth thrusts, our AmeriGas Cylinder Exchange business delivered volume growth in the quarter of 14% versus last year, and was bolstered by sales in the Northeast to mid-Atlantic following Hurricane Sandy, as well as the addition of 1,300 new locations in Q1. Our National Accounts business also increased volume by 7 million gallons, and benefited from new accounts, as well as the slightly colder weather versus last year. We did not close any small acquisitions in the quarter, but we remain active in seeking out high-quality, complementary propane distribution businesses.

The Heritage integration is currently in pause mode as we focus on the critical winter earnings cycle. However, behind the scenes we are preparing for the final field consolidations, which will be completed in the spring, and achieve the next $15 million in synergies. Our total synergy expectations from the Heritage deal remain north of $60 million in total.

We continues to be please with what we've accomplished with the integration and the performance of our new field management team, which is well represented with both AmeriGas and Heritage managers throughout the organization. The Heritage acquisition is the largest deal in the history of AmeriGas, and we're pleased with the quality of the business that we acquired and our substantial progress in integrating Heritage smoothly and effectively with AmeriGas.

The respective field management teams have become one, and we're working with great energy to further realize our vision of AmeriGas as the country's premier propane supplier, in service and customer experience. Our national platform allows our team to build enhancements for our customers and then roll them out to the more than 800 service centers we have in 50 states. These efforts have already begun to show improvements in strengthening our customer relationships, and we see great opportunities going forward.

As you've seen in the press release, our guidance for the year has been adjusted to a range of $620 million to $645 million, assuming relatively normal weather and continued stability in propane wholesale costs. This modest reduction in guidance is the direct result of warmer weather in Q1 and warmer than normal weather experienced in January, particularly in the eastern half of the country. We remain optimistic, however, about the earnings potential of this business and we look forward to demonstrating that earnings potential with more normal winter weather that is forecast for the remainder of the heating season.

In closing, I also just want to thank the over 9,000 AmeriGas colleagues who have performed extremely well during our first year together as the new AmeriGas. So, now let me turn the call back over to Lon.

Thanks, Jerry.

Kirk and Jerry took you through our guidance numbers for UGI and AmeriGas respectively for the fiscal year. As both indicated, that guidance assumes relatively normal weather this winter, certainly the remaining part of the winter. As importantly, it also reflects our confidence in the Company's ability to execute on our strategies. In addition, we are on track for the kind of growth that we identified during our analyst day last October.

Let me take you through that a minute. Our Gas Utility, as John noted, continues its customer growth, driven by the large spread between natural gas and oil. At the same time, it is accelerating its infrastructure replacement plan, and consistent with our agreement with the Public Utility Commission. AmeriGas, too, is making excellent progress, as Jerry described. This was demonstrated this quarter, in the assimilation of the Heritage transaction, and I encourage you to carefully consider the comments Jerry made regarding the pro forma performance versus our actual performance this year, which demonstrates that that transaction is added value to our customers.

With respect to our overseas businesses, they also clearly demonstrated that the acquisitions completed in late fiscal '11 and fiscal '12 were excellent transactions in earning good returns. Lastly, our Midstream and Marketing business, you can see that that business is building earnings from investments made over the last few years, as John described. At that same October analyst meeting, we also talked about future investments and acquisition opportunities. Well, we're making progress they are, as well.

John described the Auburn 2 pipeline. We noted -- we discussed that at the analyst meeting and John gave you an update that we still continue to believe that that will come on stream in early fiscal year '14 and contribute earnings to us during that year. We also announced two other transactions, the acquisition of BPs LPG business in Poland. That is a very synergistic acquisition for us, as we have a large business in propane. Also, the Tenaska joint development agreement. Both of those transactions should add to our earnings potential in 2014.

In summary, we're on track to meet the goals and objectives we laid out for you at the analyst meeting on October. As we stated then, and will reiterate today, that certainly paints a bright future for our Company in 2014 and beyond. Importantly, we're doing all this without sacrificing our balance sheet strength. Kirk described that strength to you. Our balance sheets are strong. Equally importantly, our cash generation is as good as ever. As I've said many times on these calls, generating free cash flow for investment is really a terrific thing for a company.

In summary, we're on track, not only for this year, but for the future years. We're making strong progress. Our future is pretty bright. As John concluded, I'll say the same sentiment, we look forward to reporting more progress to you at our next quarterly earnings report. With that, we'll open it up for questions.

(Operator Instructions)

Carl Kirst, BMO Capital.

First question -- really, Lon, I just wanted to -- from a very high-level standpoint, with respect to first quarter and the fact that you guys really only had to reduce the guidance by a nickel, and that as you characterized it, weather was not a dominant factor, shall we say, in the quarter -- with the risk of maybe going down semantics, is this just that the net impact was not as bad? Or is that the weather from a volumetric standpoint was in fact having a large negative, but the fact that because of the unit margins and the like, operations in fact are going maybe a little bit better than expected that helped to offset that? I'm only asking in that way, because I'm wondering if some of the better unit margins, for instance, might persist through the rest of the year?

Yes, I think you summarized it ready well, Carl.

Clearly, we would have performed better had there been more normal weather, particularly in December. December was the problem in the quarter, not only here, but overseas. December is an important month for us. There were, in terms of the expectations on the south side outside, there was a little bit of -- we would have on an absolute basis, probably reordered the earnings that the analysts had for us -- that all of you had for us, with a little bit less than the first quarter in our expectation, a little bit more in the second quarter, and rebalancing third and fourth a little bit, as well. We definitely left money on the table because of the weather. Yet, as you describe well, the Businesses performed well.

AmeriGas, really, has done a great job in executing the Heritage transactions. We got the synergies. As we've said before, we got probably a little more synergies than we thought we would when we did the acquisition. That helped for that business.

Overseas, our folks executed particularly well in a rising cost environment. Cost overseas was up 30%, which was very difficult, in our Businesses, to keep up in margin. They did a great job. Looking forward, cost has come off in January compared to December. In February, it looks like it'll be flat to down a little more. That bodes well for those Businesses, as we look forward.

In our Midstream and Marketing Business, we certainly left money on the table. There wasn't the kind of volatility that we would normally see. However, in January, when we had a week of very cold weather in the East, we saw that volatility hit and hit hard. So, what I think is the important message to everybody, is that our strategies are intact. When weather is close to normal, we see the kinds of things happening in our businesses through execution by our teams -- very good execution by our teams -- that leads us to believe that we should put our earnings estimate for this year where it is, and it makes us feel good about the future.

I appreciate all that color. If I could ask two other questions?

The first, on Commonwealth. My question is, with the dynamics that were cited, is that a situation of trying to get the remaining capacity by -- was the producer the marginal shipper there that did not come aboard? Or was it even that incremental LDC customers were not able to be captured to push that over? I was just trying to get a sense of, relative to the first time we went after a larger inch Marcellus pipeline it was producer-driven. This was utility-driven. I just want to make sure I understand, perhaps, the differences as to why maybe this one didn't quite hit critical mass?

Carl, this is John.

The demand is there, in total, but as I noted, there was some additional capacity that came on to the market with expansion on some existing long-haul pipes that helped, in the short-term, meet that demand of certain LDCs. I think -- I noted, I think that's sort of a short-term solution. As the market turns up, all of us -- and then we're part of that -- on the demand side, LDCs are going to need additional capacity to serve demand. So, I think it's a short-term issue.

Where that additional capacity met the demand, particularly when there's still some uncertainty about the overall economic development and the pace of it. But, we clearly believe that there are opportunities moving forward and additional infrastructure is going to be needed. We'll look into continue to invest and be part of that. It's more on the demand side being a little bit uncertain, due to the general economy and the fact that there were some incremental options for capacity that soaked up what new demand was there.

Great. Last question, if I could.

Just on -- you mentioned Tenaska, and Tenaska would look like both a midstream as well as an upstream component to it? I think, Lon, when we were talking last about this, I think you'd used the phrase of one plus one equals three. I didn't know if there was anything of particular note with respect to the E&P side of where you saw -- aside from, obviously, just being perhaps the price of entry of doing the midstream deal -- if you saw something in particular that gave you the confidence of what returns might be and the persistently low gas price environment we are in?

Yes, in terms of the attraction of the Tenaska Resources deal -- first, it's a great partner. We've worked with Tenaska in different capacities over a pretty extended period of time. The balance is right. The investment on the production side really is an enabler for a larger investment on the Midstream Services side, particularly as the build out of the gathering systems. Just the geography -- if you look at the locations we're talking about in Tioga and Potter County, it's a great fit with our existing asset base, adjacent to our storage facilities. It made sense. The scale of that was attractive as well. We think it's a nice step forward for us, in terms of enhancing our Midstream Services Business with a direct overlay with the core of our asset base in the Marcellus.

Great, thank you.

Sharon Lui, Wells Fargo.

A question on the $60 million of synergies with Heritage. Just wondering how much of that was actually realized in the first quarter?

I guess, total in the first quarter, since it's relatively spread over the course of the year -- so a lot of this is just payroll -- I think you're looking at maybe 30% of the $60 million is going to come through Q1 and about the same in Q2 and a little less in the summer months.

Okay. That's helpful.

Then, Sharon, when we look at the expenses, year over year, comparing our expenses this year to what they were last year, on a pro forma basis, they're down about $15 million.

And this is all reflected in the operating and admin expense line, primarily?

The synergies? No.

No. If you break it down, we have, of the $60 million about $25 million came out of what you'd call G&A functions, really collapsing the two corporate headquarters. But $35 million is all field operations.

Okay. Great.

Again, Jerry, am I right? We've got about $15 million this year of more transition expenses, then we'll get the full benefit of everything --

$20 million.

$20 million this year.

Okay. And then, just looking at the retail volumes, from a year ago, just adding up AmeriGas and Heritage versus the first quarter volumes, it looks like it declined about 5%, despite, a little bit colder weather relative to the prior period? Just wondering if this is primarily due to customer attrition? Or you mentioned that you didn't acquire all of the Heritage assets? How should we think about that 5% decline?

Okay. Our calculation was 4%, because if you really look at the true numbers ETP reported, the Cylinder Exchange Business was in there and we didn't acquire that. So, we really had a 4% year-over-year decline in volume. But so much of that was related to December being, in fact, warmer than last December, which was just an unusual event.

So, most of it was the December weather, but there was some customer loss. You remember at Analyst Day we talked about what is the $60 million. That's net of an expectation of customer loss in transition that is always experienced when we change the name on the sign and the way customers react to that when we put operations together.

Sharon, we have been, as you know, and others who followed us for a while, we're always very transparent on that. We know that we're not always able to put our best foot forward, despite tremendous efforts in the field, when you blend locations. Sometimes you get service issues. Sometimes you get former customers who don't want to come back to you on each side of a transaction. So we always build in and assume some customer attrition.

It's not that we forgive it and not that we are happy about it, but in terms of how we approach all of you, our investors, we recognize that, that is a cost of doing a propane transaction. We want to be forthright in that regard. A good piece of what you're seeing, as Jerry said, is December weather and losses consistent with our expectations in the acquisition.

That's helpful. Then, I guess my last question is in terms of your updated guidance. Does that assume a continued improvement in the unit margins?

Yes. Across the board on the propane side, we see nothing which would suggest that margins will contract. Remember, our customers are seeing lower prices, and significantly lower prices. Cost, as Jerry said, is down $0.55, was it Jerry?

$0.55. So, the vast bulk of this price reduction has been passed onto customers. Given the economics of the business, we, of course, kept a little for ourselves. So, we don't see anything right now which would suggest cost would rise dramatically for the remainder of this winter. We're very comfortable with the level of margins, I would say, generally speaking.

Overseas, as I said, cost has come off somewhat. It's always a good thing for the LPG business, either domestically or overseas, when cost comes off during the winter, because you have a lot of your volume. If the environment allows us to pass on some to our customers and keep some for ourselves, of course we will do that as well.

Okay. Great, thank you.

(Operator Instructions)

Chris Sighinolfi, UBS.

Just a quick question following up on Carl's questions on Commonwealth. Just curious -- I think this was, if I remember correctly, a 2015 in-service? I doubt there was a whole lot in the way of planned CapEx this fiscal year for it? Can you just update me on that, Kirk? Did you have anything in there that maybe is freed up now that we're not going forward with that project?

No.

No, Chris. That was, from an earnings standpoint, it was FY '16 earnings impact. So, no. We were just in the development -- marketing stage.

Okay, great.

And, with regards to Energy Transfer, Kirk -- and I appreciate your comments about a coordinated and orderly fashion on the divestiture of those units by Energy Transfer. If you had to bucket it, do you think, knowing that the registration statement just was filed, is this a later on in fiscal 2Q event, or is this a midsummer? Do you have a sense of how that might play out over the first half of the year or back half of the year?

It's going to depend some on when it goes effective, which we expect that will happen pretty quickly. Then, really, it will be ETP will be calling the shots on that. But I think they've indicated that they are not a long-term holder, so they'll probably go sooner rather than later.

Okay, thanks. Then, one quick one for Jerry.

I appreciate the comments about focusing on delivering consistent service this winter, so maybe taking a break from the integration work for the next short little bit. Was curious -- with weak weather last year, with this focus on a weak December weatherwise, if, from a roll-up strategy perspective, if perhaps some independents are weakened by that and if there might be an opportunity to more forward on maybe some smaller roll-ups? If you would just speak to the strategy on that for fiscal '13?

Sure. Well, I think we've talked about this before, that so many of these independents are not highly levered. They tend to be in family businesses, many without any debt. They can weather a lot of storms. But, we've had lots of interest. The pipeline's pretty good. We're just being very careful about, do we get a certain geography too busy with too much activity?

So, we want to digest what we've got. That will all be done in the spring. Then we can come back to our acquisition program. We're out there and we're making contact and we do have a pipeline. We just haven't acted yet.

Okay. Great. Thanks to you guys and thanks to Simon for the website upgrades. Really helpful on additional information that's available there. Thanks.

Mark Barnett, Morningstar.

Just a quick question on when we get the -- for AmeriGas, when we get the full CapEx numbers for the quarter? Second would be with the combined businesses, both on growth and maintenance, maybe ex acquisitions? Is that going to be a good run rate to look forward to the rest of the year and maybe into 2014?

It will be a good run rate for the year. But, we've got to see how the weather goes. Because, if we get warm weather in March or April, we'll probably reduce some capital spend. So, yet to be seen. There is nothing unusual, high or low, with what happened in Q1 spend versus what we expected for the full year.

With regard to '14, Mark, we would expect it come off a little bit in '14 from '13. You've got synergy capital and stuff still in there.

About $20 million in transition capital --

Yes.

Great. Just a quick question on propane dynamics. When you look at the more favorable falling price environment, do you attribute pretty much that entirely to the glut due to lower usage from the weather? Or are there any other more infrastructure-driven or, perhaps, from -- any other forces you see driving that?

I think it's more structural than it is weather-related. The weather hasn't been that far off that you'd see a significant weather impact on it. It's really all about the liquids and natural gas drilling. We saw the trend, if you go back five, seven years in the propane industry, you would've saw propane traded 75% to 80% of crude oil, sort of an industry lore. It was down into the 50%s last year. We predicted at Analyst Day that we thought it would fall into the 30%s, maybe high 20%s, and certainly seems to be going in that direction. We believe that a long-term trend.

There are lots of people investing a lot of money believing that the liquids in this country are going to provide a competitive advantage to industry, as well as others, because of our location and the amount of the liquids that we have. Of course, there's going to be more demand, here. There's going to be a lot of chemical business that's built here. There is going to be some export, but virtually everything we've seen suggests that lower, more consistent, less volatile pricing is here in the domestic propane business. We think it'll also help our overseas propane business, as well. So, I would say it's a secular trend, rather than a short-term weather-driven event.

The fact that it's in the Northeast/mid-Atlantic region is tremendously advantageous, as a propane distributor, as opposed to having to move it from the Gulf. It's a great development in the industry, for us.

Thanks for your comments.

(Operator Instructions)

At this time, in showing no additional questions I'd like to turn the conference call back over to Management for any closing remarks.

Okay. Good. Thank you.

It's great to be sitting here from Management's standpoint and tell you that, gee, the weather wasn't great, but it wasn't a dominant factor in our performance. And also tell you that we're on the road we laid out for you in October with doing the kind of things that we said we would do, executing in the manner that we said we would execute. So, we not only feel good about this year, as I indicated, but feel pretty good about '14 and beyond, as we continue to make progress in all facets of our Business, keep our balance sheets strong, and have the right people in place to move the Company forward.

So, we look forward to reporting more to you and we'll talk to you soon.

Ladies and gentlemen, thank you for joining today's conference call. It has now concluded. You may now disconnect your telephone lines.