UGI Corp (UGI) 2014 Q2 法說會逐字稿

Good morning, and welcome to the UGI AmeriGas Second Quarter 2014 Earnings Conference Call.

Please note that this call is being recorded today, May 8, 2014 at 9 AM Eastern Time. (Operator Instructions)

I would now like to turn the meeting over to Dan Platt, Treasurer of UGI Corporation. You may begin.

Thank you, Ryan.

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 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 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 trust that you've all had a chance to review our press releases reporting strong second quarter results for UGI and AmeriGas.

It was an exceptional quarter for the Company and for the energy sector, particularly for companies like ours with a significant concentration of assets, resources, and customers in the Mid-Atlantic region.

I'll comment on our key activities in the second quarter. Then I'll turn it over to Kirk, who will 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 Q2 GAAP EPS was $1.84, while our adjusted EPS, which reflects a $0.06 mark-to-market adjustment in our Midstream and Marketing business, was $1.90. This result compares very favorably with our adjusted EPS of $1.51 in the second quarter of FY13.

Accordingly, we increased our fiscal 2014 guidance range to $2.95 to $3.05 from the previously stated range of $2.60 to $2.70. Kirk will comment in more detail on guidance and our second quarter performance in a few minutes.

Turning back to Q2, these very strong results with adjusted net income up 28% reflect the positive impact of colder weather in most of our service territories, strong operational performance, and more critically, the return of significant volatility across the natural gas and electricity sectors in the Mid-Atlantic and Northeast.

It is worth noting that we delivered this strong quarterly performance despite extremely warm weather in Europe where several of our markets experienced their warmest winter on record.

While weather, as we all know so well, varies year to year, the factors impacting pipeline capacity values and delivered gas costs, particularly on peak days, are more fundamental and far-reaching. Kirk will share more details on the movement of capacity values in a few minutes, but I'd like to comment briefly on the fundamental changes underway in the markets we serve.

While the cold weather in January accentuated local volatility in the Mid-Atlantic and Northeast, the more critical factor from a strategic perspective was the increasingly high level of natural gas demand and the strain that demand has placed on the region's natural gas infrastructure.

We saw the benefits of that strong demand for capacity in our Midstream business in Q2, and we believe that the market will remain capacity constrained for a number of years as demand increases due to an improving economy and continued customer conversions to natural gas.

Our unique integrated asset portfolio in the region, which includes pipelines, pipeline capacity contracts, gathering systems, natural gas storage, LNG, and a large base of customer demand, provides us with an exceptional opportunity to deliver value during periods of volatility. I will comment further on the importance of this opportunity for UGI when I discuss our strategic initiatives later in the call.

Q2 was a noteworthy quarter in many respects as cold weather and winter storms provided our teams with numerous challenges as we focused on meeting enhanced customer demand.

Some highlights from the quarter --

Our Auburn II pipeline had its first full quarter in service and quickly ramped up, exceeding our throughput goal for Q2. We're very pleased with the financial performance of this project and see it as a clear validation of our strategy to own and operate assets which connect the abundant resources in the Marcellus with the major market hubs in the Mid-Atlantic region.

Our Gas Utility remained focused on delivering growth despite the challenge of severe winter weather.

New customer additions year to date are running 10% ahead of last year's record pace.

We are also making steady progress on our infrastructure replacement program for both cast iron and bare steel, which is moving forward on pace with our commitments.

Our supply, field services, and delivery teams at AmeriGas Utilities and Midstream did an extraordinary job serving our customers during the periods of peak demand in January and February. We recognize the importance of delivering on our commitments to customers, and our teams personified that commitment. We're very fortunate to have such a dedicated team and greatly appreciated their unwavering customer commitment.

The one final point I'd like to reiterate on the second quarter is the growing demand for natural gas. This demand is coming from our traditional residential and small commercial customer base, as well as some large industrial and municipal users. The market is also seeing unprecedented gas demand from the power generation sector.

As we demonstrated this quarter, this strong demand benefits both our Utilities and Midstream businesses. It also highlights the need for additional pipeline and storage capacity to serve the Mid-Atlantic and Northeast regions.

We hope this increased recognition of an infrastructure gap on the part of producers and consumers will enhance and accelerate our efforts to develop new capacity infrastructure projects. By virtue of its proximity to our markets, the Marcellus will play a significant role as we execute our strategy.

I'll return to that theme later on the call when I comment on our strategic initiatives, but I'd like to turn it over to Kirk at this point for the financial review.

Kirk?

Thanks, John, and good morning, everyone.

John mentioned that it was a much colder-than-normal winter for most of the US this quarter, but as this chart demonstrates, it was really a tale of two continents from a global perspective. While temperatures in North America were, on average, much colder than normal, temperatures in Europe were much warmer than normal, in many cases setting new records for warmth.

You'll notice that even in the US, the utility with its Northeastern footprint experienced colder temperatures than AmeriGas did with its national footprint. While weather for most of the country was much colder than normal, a number of Western states, including California, experienced a very warm winter season.

Jerry will go into more detail on the operations for AmeriGas in the quarter, so I'll just summarize the financial performance here.

We are reporting operating income at AmeriGas of $285 million, an increase of $18 million over last year.

Total margin increased by $37 million, reflecting a modest increase in unit margins and higher retail volumes sold, offset somewhat by lower ancillary sales and services margin.

Operating expenses increased by $20 million, driven by increased retail volume, incremental distribution costs associated with supply shortages in certain regions, and a greater accrual for uncollectible accounts associated with the higher revenue.

We managed our pricing in this high-cost environment to achieve EBITDA of $0.70 per gallon, an increase of $0.03 over the prior year.

Operating expenses in the prior-year period included $5 million of transition expenses associated with the integration of Heritage Propane.

Finally, I'd also like to point out that effective April 2014, all propane hedges will be reported as mark-to-market hedges. Existing hedges, which have qualified for hedge accounting, will run off over time.

Going forward, we will highlight any mark-to-market impacts to our financial statements.

Income before taxes at UGI International was $56 million for the quarter, down $18 million from the prior-year period.

As previously noted, our European operations experienced record warm temperatures during this winter heating season.

Temperatures at Antargaz averaged 16.5% warmer than normal, while temperatures at Flaga were more than 18% warmer than normal. By contrast, temperatures in the prior-year period were colder than normal at both business units.

The UGI International management team did a great job managing the base LPG business through this warm winter season. As a point of reference, we went back and looked at 2012, which was also a very warm weather year.

Income before taxes this winter season year to date is up over $9 million versus the winter of 2012 despite the fact that our weather in 2014 was actually warmer than in 2012 -- 5% warmer at Antargaz and 12% warmer at Flaga.

Volumes for the quarter were 8.5% lower than in the prior period, reflecting the warm weather and partially offset by incremental retail gallons associated with the BP Poland acquisition we closed in September 2013.

The decrease in total margin is driven principally from the lower margin at Antargaz, due in large part to the extremely warm weather.

In spite of the much warmer weather at Flaga, total margin there was only slightly lower, reflecting incremental margin from the Poland acquisition.

Total margin at AvantiGas was slightly higher than the prior period.

Operating expenses decreased, reflecting lower expenses at Antargaz, offset somewhat by higher operating expenses at Flaga from the incremental effects of BP Poland.

The average [row]-to-dollar translation rate for the current quarter was approximately $1.37 per euro compared with $1.32 for the prior period.

Turning to slide 10, the Gas Utility is reporting income before taxes of $126 million, up $30 million, or almost 31% versus last year's quarters.

Throughput to core customers increased nearly 20%, reflecting the effects of colder weather. As John alluded to earlier, we believe that in addition to the effects of the colder weather, there has also been an increase in the base demand for natural gas.

The Utility experienced a new record throughput day in January at a mean temperature of 7 degrees Fahrenheit, which was 10 degrees warmer than its design peak day.

Total margin increased by $29 million, or 17%, reflecting higher core market margin of $23 million and greater firm delivery service margin of about $6 million.

Costs were up less than $2 million this quarter, primarily driven by higher uncollectible accounts and maintenance expenses, offset by lower pension and benefits expenses.

Midstream and Marketing posted an exceptionally strong quarter, reporting income before taxes of $120 million, an increase of $76 million over the prior-year quarter.

Total margin increased to $82 million in the quarter, reflecting significantly higher capacity management and peaking margin of $59 million, higher electric generation margin of $9 million, and greater retail gas marketing margin from the colder weather.

Natural gas gathering margin also increased by about $4 million this period, reflecting incremental margin from the Auburn Pipeline extension, which was placed in service during the first quarter.

The increase in expenses reflect increased gathering expenses associated with Auburn, higher uncollectible accounts, higher electric generation expenses, and a $1.4 million charge relating to the write-off of deferred pipeline development costs.

Our Midstream and Marketing business benefits from increased volatility in the Mid-Atlantic region of the United States.

This chart shows a spot price comparison for natural gas in Texas Eastern Zone 3 for the six most recent winter heating seasons prior to this season. The bold red line shows prices for the 2007/2008 season, demonstrating that until this year, as I'll show on the next slide, prices and volatility have been declining, reaching their low point in the 2011/2012 heating season.

Please note the scale for this graph, where the highest price shown on the vertical axis is $18 per Mcf, as we switched to a graph of the same zone with this winter added.

So turning now to this winter, you can see that we experienced exceptional volatility, with daily prices in the same zone reaching highs of over $80 per Mcf as a result of capacity shortages in the region.

During this time, our supply point pricing remained relatively stable. Interruptions by numerous LDCs and operational flow orders were quite extensive, and power generators, who typically rely on interruptible capacity, were bidding up values because they had to run.

This all came together to result in exceptionally strong results for our Midstream and Marketing business in the quarter. While we do not expect this kind of volatility to repeat itself any time soon, we do expect a return to more normal or pre-recession pipeline capacity values.

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.

Finally, as John mentioned earlier, we are revising our adjusted EPS guidance for F14 up to $2.95 to $3.05 per share, an increase of $0.35 across the range. And as I'm sure you've seen, we've raised the annual dividend from $1.13 to $1.18 per share. This marks the 130th consecutive year of dividend payments and the 27th consecutive year of dividend increases.

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

Thanks very much, Kirk.

EBITDA for the second quarter was $331 million for AmeriGas, or 7% above the $309 million earned last year on higher-volume end margins, offset somewhat by higher expenses.

We have raised the low end of our guidance by $15 million with a new range of $660 to $675 million in EBITDA for the year. At these levels, our new AmeriGas is literally delivering earnings almost double that of AmeriGas prior to the Heritage Propane acquisition.

Volume for the quarter was 475 million gallons, or 2.3% above last year. Temperatures were 9.7% colder than last year.

And although the news headlines for the quarter included reports of colder-than-normal winter weather, the actual weather was very different from the Eastern and Western halves of the country. Cold weather in the Eastern half of the country was a contrast to the Western US, which experienced warmer-than-normal temperatures during the quarter. In fact, a large part of California and Arizona, where we have significant operations, experienced the warmest January-to-March period since 1895. Our Western operations represent nearly one-third of our business.

Although the cold Eastern and Midwest weather is always welcome for our business, the much-publicized shortage of propane and a 51% increase in average propane costs at Mt. Belvieu from the same period last year created a difficult work environment for many of our locations. Customers, anxious about propane supply and the higher costs, created additional customer service challenges for our field teams.

Although this is only the second winter operating as a new company, following the Heritage acquisition, we're pleased with how the operation team responded to this challenge.

Our integrated operations shared resources and moved propane to where it was sorely needed. This included activating our AmeriGas Airborne division, a program that enables us to send experienced delivery personnel into areas of acute need during winter months.

This quarter, we were able to move drivers from the Western states to assist with the extraordinary challenges we were facing in the East and Midwest.

Drawing on these resources and our relationships with suppliers allowed AmeriGas to outperform many of our competitors, who simply ran out of propane for periods during this winter.

This performance came at a cost, however. I'd like to comment on the fact that this was a very expensive quarter for us to do business. Propane supply costs were up significantly, as were our distribution costs. With higher cost comes higher pricing requirements as we strive to recover these costs.

Higher revenue and increased sales result in higher levels of uncollectible accounts expense. The harsh winter also takes a toll on equipment, creating a material increase in vehicle, plant, and customer equipment, repair, and maintenance costs.

Finally, we experienced significant overtime and labor costs as we needed to deliver to our customers seven days a week in many cases.

Despite these challenges, our adjusted EBITDA per gallon stood at $0.70 versus $0.67 last year. Therefore, overall, we managed our pricing in line with these very high costs.

Some good news on cost, however. Mt. Belvieu now stands at about $1.04 per gallon, and that is 25% below the average cost in our second quarter, which is great news for our customers.

Turning to growth --

ACE, our AmeriGas Cylinder Exchange Program, increased volumes 16% in the quarter as the ACE team continues to grow this convenience channel for propane.

National Accounts had a very strong quarter, with volume up significantly on both the colder weather and new business. Our National Accounts team added over 20 new accounts this year, representing over 2 million additional annual gallons.

We closed two small acquisitions this year, and our Corporate Development team continues to review numerous opportunities as we exit the winter season and enter the more traditional acquisition season.

We're also pleased that our Board of Directors approved a distribution increase to $0.88 per quarter, or $3.52 annualized. This represents the 10th consecutive year that AmeriGas has increased the distribution and the 8th consecutive year the distribution has increased 5% or greater, keeping with our stated objective to increase the distribution 5% per year.

Finally, I very much admire and thank our field teams for demonstrating great stamina through this very challenging winter season.

And now let me turn the call back over to John.

Thanks, Jerry.

I'd like to briefly review progress on the strategic investments and programs that are critical to our future.

Our Midstream strategy is progressing rapidly with significant potential for additional investment to address the infrastructure gap created by the ramp-up in natural gas demand.

Earlier this week, we announced two additional phases for our Auburn pipeline project and another project in Northeast Pennsylvania, as well. When completed in late 2015, these investments at Auburn will nearly double the capacity of the system and raise the total capital invested on the Auburn project to roughly $230 million. We're excited by the opportunity to further expand our Midstream network in the Marcellus, and we're actively pursuing a range of new investments.

The Gas Utility received approval from the Pennsylvania Public Utility Commission for our GET Gas program. These growth extension tariffs enable us to economically serve previously unserved or underserved municipalities within our existing service territory. The program calls for a $75 million spend over the first five years. The initial response to the program has been tremendous, and we're launching the execution phase for the first wave of main extensions.

As Jerry just noted in his remarks, AmeriGas had a strong quarter with adjusted EBITDA up 7% despite significant challenges related to the propane shortage in the Eastern and Midwest states. We're continuing to see very strong performance from our National Accounts in the cylinder exchange segments where our ability to serve major regional and national customers is a clear differentiator.

While our domestic business has benefited from cold weather, our European team was faced with some of the warmest weather in recorded history. Weather in France was 16.5% warmer than normal, while weather across Flaga was 18% warmer than normal.

As Kirk noted in his remarks, our performance in Europe compared very favorably with our most recent warm European winter season in fiscal 2012. Overall, our European businesses delivered a very solid performance in this ultra-warm weather environment.

Finally, I'd like to conclude by commenting on our updated guidance and the future prospects for UGI.

Over the past few years, we've often referred to the earnings capacity of UGI's balanced portfolio of businesses. That earnings capacity was clearly evident in Q2. The capital investment program in our Midstream business and our strategic propane acquisitions in the US and Europe have pushed UGI's strategic boundaries while we also remain focused on reinforcing our traditional strengths as an energy marketer and distributor.

While extraordinary weather, which is nonrecurring, was the most significant factor in driving our increased guidance, it's also important to note that the positive impact of increased volatility in delivered gas costs due to the infrastructure gap in the Mid-Atlantic and Northeast was also an important factor.

This infrastructure gap is likely to be enduring and will provide positive momentum for new UGI infrastructure projects while enhancing the value of our existing network of Midstream assets strategically deployed in the region.

Needless to say, we're excited about the opportunities that lie ahead for us and look forward to keeping you updated on our future calls.

With that, I'll turn the call back over to Ryan, who will open it up for questions.

(Operator Instructions)

Carl Kirst, BMO Capital.

Congrats on a great quarter.

John, obviously want to focus a little bit on the Midstream and Marketing and some of the themes you've hit as far as the enduring infrastructure gap, the sustainability, notwithstanding the severity of the cold weather. And I guess one of the things I'm trying to grapple with a little bit is how much of this is, for instance, basis-oriented versus the significant demand that we've seen in this past quarter?

And perhaps maybe the best way to ask the question is that we continue to see very wide basis today in the Marcellus, at least relative to Gulf Coast, and so as we roll forward the normal optimization activities that are ongoing, are you seeing a significant structural uplift as we go into the fiscal third quarter relative to the same time last year, or is this primarily going to be when there are opportunities to really take advantage and outperform, if you will, that it's going to be in these peak demand stress periods?

Yes, as you know, Carl, it's a complicated equation; you've got a lot of variables. So there's no sort of absolute view. I think these charts that Kirk showed, particularly the one that showed the years leading up to this year and kind of reinforced or highlighted the fact we had really been in a dormant period as we went through the recession in terms of volatility and values, and certainly we see that coming back on the back of significant demand.

I do think -- our view, as I mentioned in the comments, is that it's going to be enduring, it will be variable, and there will be volatility, but what's been striking to us, and we've commented on it a number of times in calls, is the strength of demand.

So I think there's new capacity that's coming on-stream that will certainly help in meeting the requirements as they exist today, but we also see a continuing strength in demand that will be a little bit of a moving target in terms of having sufficient infrastructure to satisfy that demand.

So that's what gives us a lot of confidence in seeing continuing value from the existing network of assets that we have but also in the fact that there's going to be ongoing opportunities for investment.

So from our standpoint -- and, again, we're historically a marketing and distribution company, so we're tied pretty closely to the demand side of the equation -- for the last three or four years, we've been really impressed and sort of impacted by the strength of demand. So I think, in my mind, that's the thing that's most often underestimated is just how much that demand is increasing and the impact that that has on infrastructure and then, obviously, the values on that infrastructure. And it's particularly intense in the Mid-Atlantic and Northeast, and it's going to take time to address it in terms of investments in projects across the industry that will fulfill the need and normalize again.

That's very helpful. So I mean, basically, even as there are some regional de-bottlenecking projects coming via [Constitution] or a slew of others, you think what the market potentially is missing is just the demand component, that that is really -- that need to serve, if you will, is going to be the enduring piece?

Yes, and I think what was pretty striking this winter -- and we did have -- I mean it was quite cold in periods, but it wasn't sort of design cold, as Kirk noted, from a utilities standpoint. It was cold but it was not the extremes that you plan for. But what was striking was the combination of sort of fundamental demand to serve our customers' needs, which is primarily for heating, coupled with this ramping demand on the power-generation side to provide power.

So you have this winter peak now that's pretty intense, which is -- so you saw that, coupled with almost every utility in the Eastern United States announcing record throughputs and records that were not 1% above the prior records but like ours, where we were at 12% above, and we were not unique.

So you see, again, the strength of demand across a large portion of the Eastern and Midwest US that is pretty intense, and it's a great thing. We're excited about it, but certainly, there's a need for a lot more infrastructure to serve the demand, which I think is -- will be ongoing for several years, a number of years.

Excellent. If I could ask one other question, and it relates to the potential investment, the potential for additional infrastructure investment that you cited, and certainly, congratulations on Auburn III. Always good to kind of see that continuing.

And so I guess maybe my question on that is as you see opportunities or perhaps even coming out of this winter and having renewed conversations with producers, do you see the additional pathways that you all can provide or services you all can provide primarily being more in that upstream camp, like expanding Auburn, or does that even potentially put the longer mileage pipeline systems that you guys have visited in the past back up in play?

Yes, we would be looking at larger projects and projects that would enable us to serve other portions of our service territory. Obviously, we bring that customer demand, and I think -- so we'd be looking at additional pipeline solutions and opportunities that would enable us to address the need across the remainder of our territories and elsewhere in the region.

And I think one thing that this winter did was heighten the focus from among producers and among sort of on the customer side, on the distribution side, heighten the focus on the need for clarity around your solution for capacity.

So that's helpful from a project development standpoint to have that heightened awareness and focus because after this winter, I don't think it's clear to anybody in the market that -- it's clear that the capacity may not be there, so they can't assume the capacity's going to be available because, clearly, this winter they saw that trying to access capacity at the peak was extremely costly.

Great. I appreciate all the color. Thanks, guys.

Thank you, Carl.

Chris Sighinolfi, Jefferies.

Thanks for these slides and the added color. It's always helpful to understand the magnitude of the relative deltas and drivers, so appreciate that.

Just one quick question maybe for Jerry first. On APU guidance, obviously I appreciate it's tough to forecast the future, but if I just look at sort of the trailing 12-month or 4-quarter number, EBITDA generation from APU, I find myself above the high end of the new guidance range. And so I'm just wondering -- you did highlight some equipment repairs and maintenance issues maybe stemming from the challenges this winter, but I was wondering if you could spend a little bit more time on maybe the cautious stance year on year with the back of the year?

Yes, I think what you're going to find is Q3 will be the delta from last year, and we've already seen, now that April is complete, that the weather in April year over year is 12% warmer, so we really did have a terrific spring last year that seems to be unrepeatable, and we do have the flop-over, all the things I described, with the collections process and fixing our equipment. So, really, I think it's Q3 gives us concern.

Okay. And then in terms of -- I know that there was the need to short-fill some customers and do some things like that just based on constrained supplies and inventories over the course of the winter. Does that lead -- I guess do you have a sense of sort of where maybe customer inventory balances reside now? And does that leave an opportunity for maybe the first quarter of next year?

Yes, great question, and we talk about this all the time, whether customers are at the point where they are very low in the field inventory and we don't have complete visibility to that or not.

I am hopeful, though, that we could, in fact, have a very good Q4 if that is the case, but we're not -- because I think, for the most part, our customers are reasonably happy that the heating season is over because of the larger bills that they faced, we really just don't have clear visibility as to whether there's going to be a big pop in Q4 or not.

So not knowing it, I really can't project it. I'd say the only thing that's really good at this point is that cost has stabilized and the winter is starting to become a rear-view mirror thing for most of our customers. Our collections are strong, and I really believe once we get into summer that the winter will be something that's somewhat forgotten by a lot of our customers, and we'll be ready for next year.

Okay, great. Jerry, one more for me for you if that's all right. When we had visited, the site visit in October, we were talking about sort of a pilot program on the technology side that you guys might be looking to implement. Probably that took a back burner, I would imagine, over the winter, but as we move through the spring, anything to update on that initiative?

Are you talking about the tank monitoring or--?

Yes, no, what you were doing in terms of driver behavior and iPads and things like that.

Oh, yes; no, we're not slowing that down at all. What we're doing is going systematically through the country, and we've got a rollout that is almost complete of our underlying SAP enterprise software.

Once a district has SAP and distribution on SAP, we move to roll out iPads to drivers. The drivers love it. It gives us great visibility to what they're doing, control over routes, and so forth. So, really, it's just a matter of how quick physically can we roll this out. So it's going to be a multi-year, but we've made great progress. I think by end of this year, we'll have half of our locations fully iPaded out with drivers.

Oh, great. Okay.

(Inaudible) love it.

That's phenomenal. Thanks so much, Jerry.

John, one question, I guess, to dovetail off the back of Carl's questions. Obviously, the weather is great when we can get it and pads the results and, I imagine, the cash flows, as well. We'll see when the Q comes. But just wondering, given that sort of the use of proceeds at this point -- maybe not proceeds but use of cash at this point given this strength from the winter, obviously we saw the additions of Auburn [Loop] and the Midstream projects, but you did have last fall the authorization on share repurchase. So I'm just wondering how things stack up maybe now that you have a little bit more cash than we anticipated given the weather?

Yes, I'll comment briefly and maybe turn it over to Kirk, who can comment on the share repurchase activity.

Briefly, we consider the share repurchases fundamentally just part of an overall capital allocation program we have in the Company. The good news for us, and it's sort of highlighted in our comments, we've got a great range of potential opportunities out there with everything that's happening. So we feel like we have avenues we can pursue in terms of putting this cash to good use, which is, I think, primarily what our shareholders expect of us, and with all the changes happening and the evolution that we see in the energy market, particularly in the Northeast and Mid-Atlantic, we're excited about putting a lot of that capital to work in the market on high-quality projects. But we're also utilizing, as you noted, in a share repurchase program as part of that capital allocation process.

I'll let Kirk give just a brief update on that.

Yes, Chris, we've repurchased about 110,000 shares at the end of the quarter, and we just keep kind of slowly buying them in. We might be more opportunistic down the road if we feel like it's a good idea, but we don't have any plans to be more or less aggressive than what we've been so far.

As always with us, it's a balanced view on capital allocation. We want to make sure we're making good decisions and using that cash wisely. It's great for us that with the results we have this year, we've got a strong major opportunity in terms of incremental cash flows coming in, and we'll work just as hard to put that cash to good use.

Okay, great. And I guess to just feed off of that with one quick additional, John, as we think about -- you guys have spent or deployed quite a bit of capital over the last several years sort of beefing up and building out the European LPG distribution business.

I'm just curious, as it pertains to some of the things we see occurring in Eastern Europe now, does that change -- from a political standpoint, does that change at all your view, the Board's view, as to incremental investments on the continent, or is this just headline risk that you're not seeing has any impact on the actual operations or appetite to continue growing there?

Yes, it's a good question. We're still very focused on opportunities for future or further investment in Europe. We have seen no impact to date in terms of any of the issues that are occurring in the Ukraine or the Crimea region.

One of the things we've said over the years about Europe that is important to us is supply diversity, so that's an area we'll focus on. It's the flip side of kind of the US export question, is looking at it from the European perspective, and the more supply diversity we have in Europe, from our standpoint as a distributor, the better.

So we'll continue to look at our sort of supply portfolio, look at smart ways to diversify, and then plan accordingly for any potential disruptions that could occur in supply chains, but we have seen nothing to date; there's nothing that we see looking ahead that would indicate there's going to be disruptions.

But like a lot of things we do, you plan for alternatives, and you, over the long term, look to diversify and spread in terms of any kind of sourcing strategy, so that's a fundamental direction in Europe, as well.

Guys, I really appreciate all the added color this morning. Thanks.

Thanks, Chris, yes.

Theresa Chen, Barclays Capital.

I have a couple questions on AmeriGas. Now that the winter is behind us, can you give us some color on what you saw in terms of customer conservation, their response to price increases, and if there was any difference between residential versus commercial?

Well, we do a pretty in-depth conservation study, but we usually let the whole month of April go by, so we haven't done that yet. So I don't have hard data to give you.

Certainly, the winter did create on the residential side some anxiousness around -- by our customers. If you short-fill and it's cold outside, customers are concerned you're not going to come back. It was a great opportunity for AmeriGas, though, I think to demonstrate to our customers that we just have more resources than most of the smaller independent marketers, we're able to get our hands on propane, number one, but also bring drivers from other parts of the country and make sure that we were, in fact, fully in business and keeping them warm through the winter.

I don't have hard data, but I think probably in our next quarter call we'd have a good sense for whether we really did see year-over-year a decrement in consumption, but it will be a tough one this year just because of what you mentioned.

Got it. And in terms of the margin outlook, have you worked (inaudible - technical difficulty) through passing most of the higher wholesale costs through, or should we see some more work to be done in the later quarters? Is that what you were referring to in terms of the collection process?

Well, collections is just really bringing the cash in. We laid out all the cash for the propane; we delivered it; we need to get paid. That has gone extremely well, actually. I mean it's been very routine for us to collect $25 million to $30 million a day, so it's been a good spring for us cash-flow-wise. So I'm not concerned at all about the collection side of things. Customers are paying, and we're following up.

And as I said on the previous question, it's feeling to us like this whole winter event is becoming a rear-view mirror event for a lot of our customers as we talk to them about signing up for next year.

Got it. And, lastly, given the difficult operating environment over the winter, do you think this has accelerated some consolidation in the industry? Have smaller players put themselves up for sale at better prices, or is it still too early to see that?

We're seeing activity. I wouldn't call it unusual. Usually coming out of the spring, there's many marketers, whether it's a retirement event or they found the business to be difficult, offer themselves up to be bought. But I wouldn't say the quantity of targets is any larger than we've seen any random year over the last five.

Great. Thank you very much.

(Operator Instructions)

Brian Brazinski, Bank of America.

Congratulations on the quarter.

Thank you.

So, John, you've talked a lot about the infrastructure gap and how enduring it could be. I was wondering if you think it provides sufficient-enough growth potential for UGI that you'd revise up the 6% to 10% annual EPS growth target?

Well, we look at that every year, so obviously, as we come out in the fall, we'll be able to update that guidance. It's intentionally a pretty wide range, the 6% to 10%, so it sort of assumes ramp-up in growth and change. So, no, we wouldn't comment on that at all. Then it will get a hard look this summer, and we'll update all of you in the fall when we talk about our guidance for FY15.

Okay, understood. Shifting a little bit, just if you could touch on repatriation. Does the weaker-than-expected quarter in Europe affect your plans at all or how you see that going forward?

No, it doesn't. Doesn't change our plans in terms of repatriation there. We tend to bring the cash -- we tend to leave the cash there unless we have some need for it here. So we're building some cash in Europe right now, but the performance doesn't really affect the decision making on that.

Okay. And then the last thing for me, given your guys' targeted payout ratio and the dividend or potential for dividend increase is at 4% or above, given the windfall from this winter, can you discuss the potential for dividend increase? And I know you touched on capital allocation a little bit in regards to share buybacks, but from the dividend side, as well, if you could just discuss that?

Yes, we will step back, as we do every year, and talk to our Board about sort of the outlook for the business. We have our targeted payout ratio and our current dividend policy. That all gets reviewed as part of our sort of annual budget and planning cycle that we undertake in the summer. So it will be reviewed in detail.

We'll look at future prospects, which are, as we noted, positive, and that's when we'll make that assessment. And in doing so, the Board certainly will be looking for us for a mid- to long-term perspective and view in terms of the Company's performance. So that will all be taken into account as they review and assess the recommended approach on dividend payout ratios, etcetera.

Okay, great. I appreciate the color.

Okay. Thanks, Brian.

Roger Young, Miller/Howard Investments.

Could you update us on the relationship with Tenaska and the opportunities there? And, secondly, how much capital involved in the Auburn [loop-in]?

Yes, in terms of Tenaska, that relationship is ongoing. We have both the -- it's a relatively small investment but an important one, important relationship for us. We're working with them, and they are driving the production schedule.

Obviously, as natural gas values move up, the view -- the future view on production levels is impacted, and they're also looking at timing of when their second set of dedicated acreage will ramp up in terms of production. On that acreage, that's where we have the gathering -- contract to supply the gathering services. So we'll look at that.

And on Auburn, we announced the total spend of $80 million. About three-quarters of that is the Auburn project, the Auburn portion of the project, yes.

Speaking of the infrastructure gap, how valuable is UGI's right-of-way and its total gross consumption of natural gas in your getting into deals?

The way we think about our position or opportunities, we think that balanced set of capability -- the position we have in the region, I think of the two items you mentioned, the demand, customer demand, is the more critical one.

The rights-of-way, for the most part, we are secure, and we're acquiring those rights-of-way as we put projects in place.

So of the two pieces, the demand we service is very important, and fundamentally, what we've done for the Northeast portion of our service territory now through these investments is convert that customer base from long-haul supply from the Gulf to Marcellus supply on a short-haul pipe at a much lower cost. So it's a great solution for our customers, and it's turned into a very attractive project for us.

And we'd like to continue to develop projects that enable us to develop a new investment opportunity for the Company and provide an attractive solution for customers. So that is what makes that customer demand side so critical for us in terms of us executing our strategies.

Thank you.

Thanks.

Edward Rowe, Raymond James.

A quick question on UGI, and this has probably been asked before but wanted to get some further insights.

We've seen a trend of the so-called movement toward MLPs and value enhancement from [C Corp.] utilities using a carve-out of pipelines and Midstream assets and carving them out into MLP vehicles. Can you share with us maybe your thoughts on some of the strength and weaknesses on using this strategy for some of the pipeline or Midstream assets in order to maybe get some uplift in valuations and use the MLP vehicle as a monetization for some of your growth projects?

We have certainly as UGI, given the relationship with AmeriGas, as a corporation, we're very comfortable with that structure. We've been associated with (inaudible) gas MLP since its inception, and in the mid-1990s, so we think we fully understand kind of the benefits of and the attractiveness of the MLP structure.

We don't have a stated intent to -- we haven't said that we have an intent to create a midstream MLP. We look at it as one option that we have as a company. In terms of if it's attractive in enhancing our ability to access capital at an attractive rate, it would certainly be looked at.

The good news for us at the present time is we are busily developing projects. We have exceptionally good cash generation. As a company, we can fund a lot of our projects with no debt just from cash we generate from operations. So that's the good news, and we have attractive projects coming our way, so we tend to focus primarily on the fundamentals of the project and the projects and the investment opportunities. But having said that, we will look at any option that makes sense for us.

As I noted, we're very familiar with the MLP structure and it is there as an option, and we would consider that in conjunction with the Board if it made sense for us.

Great. Thanks on that. And the second question, just kind of a macro kind of question in regards to Northeast and NGLs.

With no really [wide-grade] takeaway capacity coming online within that region and the cold winter has brought propane inventories down, but now we're seeing inventories in [Pad 1] trend at an accelerated rate upwards, are you guys seeing an increased demand from producers on using trucking within the region? And how do you guys think that's going to ultimately play out within the Northeast? Thanks.

I'll comment briefly, and certainly Jerry can comment with a lot more detail and knowledge than I on the propane side.

But just in general -- this is from UGI's perspective on both natural gas and propane, even though logistics obviously are quite different -- having significant demand, whether it's for natural gas or propane, adjacent to or basically on top of these significant production levels is quite important and generates opportunities for us to enhance margin, reduce costs, etcetera, by sourcing effectively.

So it's one of the strengths of the Company. In general, we focus a lot of attention on supply, supply strategies, and making sure we're linking our operational execution to our supply position. And over the last three or four years now, we've seen a huge change in our supply environment, and the great thing about it is the new sources that are coming on-stream are right adjacent to significant demand for UGI or AmeriGas. So that's a great thing, and the key for us has been sort of executing on those opportunities, and we're doing that in both the natural gas side of the house and on the AmeriGas side.

And I'll turn it over to Jerry, who can comment on the AmeriGas specifically.

Sure. Yes, we're talking to all of our suppliers now about next winter, and there does seem to be almost an insatiable demand to push propane outside the country as fast as they can deal with the problem. As you cited, they can't do it as fast as they'd like to.

We're hopeful that there's going to be some stranded propane going into next season, which will just gives us great stability on the price itself, and absent the kind of crop-drying crisis that we had last winter, I don't see that there's any reason why we'd experience another shortage situation as long as we're smart about getting our storage filled going into the season. But I think we're hopeful that this kind of stranded situation is only going to help us get propane under $1.

Eric Schuh, Wells Fargo.

Just had two quick questions on AmeriGas.

First, can you quantify the incremental OpEx that was required to procure the additional propane supplies?

And then, second, the quarter reflected higher uncollectibles. Can you provide your expectations for the balance of the year?

Okay. Well, as you saw, there was a -- I mean we're a middle man, right? So we don't make the propane; we just resell it. So the market price for propane grew by 50% in the quarter. So I mean that's the kind of easy quantification of our cost.

And as you saw in our EBITDA per gallon, we had to recover not only that cost but the additional operating expenses, which really you could point to as being completely represented by overtime, which was working seven days a week, the bad debt that you mentioned, and all the repair and maintenance items that I cited. But our OpEx quarter to quarter was up about 6%, it was about $14 million, and we were able to price accordingly.

Okay, great. And then just your expectations for the balance of the year on collectibles?

Okay, I'm sorry. I mean collections have been very strong. As I said, the last few weeks have been terrific. We had -- during the winter season itself, as I mentioned, we did have anxious customers wondering why are the prices going up as they did, and we had to explain that the costs were up 50% and we were simply passing it on. So that's often hard for customers to understand, but once we're able to at least describe it, and maybe lucky for us it was in the news enough that they understood it, we've been able to, I think, solve that problem just by virtue of the fact that the customers are, in fact, paying well.

Okay, great. Thank you.

We have no further questions in queue. I would now like to turn our call back to the presenters.

Okay. Thanks very much, Ryan; appreciate it. Appreciate all your time on the call this morning, and we look forward to talking to you next quarter on the call. Thank you.

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