Weathering the energy storm;
UGI worried rising prices would curb demand, but it's faring well.
UGI Corp. warned investors in November of "a challenging environment for energy distributors," but the Valley Forge company's fortunes appear sunnier than anyone expected.
Investors sold UGI shares last fall, taking to heart chief executive officer Lon R. Greenberg's warning that high prices for natural gas and propane could prompt homeowners to conserve.
Instead, with warm weather taking the sting out of some energy prices, UGI's businesses have held up better than its stock. "We think it presents investors with an opportunity to buy," said David M. Schanzer, an analyst at Janney Montgomery Scott L.L.C.
UGI shares rose 5 cents, or 0.2 percent, to close yesterday at $21.55 on the New York Stock Exchange. Having hit a record of $29.98 in August, the stock had slipped as low as $20.21 in December.
Even so, investors had to squint to find the effects of conservation in UGI's first-quarter earnings announcement on Wednesday. The company holds subsidiaries that distribute propane, natural gas and electricity.
Greenberg told analysts that the higher prices for natural gas and propane are making up for small declines in volume, and that UGI is trimming costs as well. The company said Greenberg was not available this week for an interview.
UGI reaffirmed its forecast of fiscal 2006 earnings of $1.55 to $1.60 a share, assuming normal weather for the rest of the season.
Investors' worries are well-grounded in history. Users conserve in response to higher energy prices, and some don't pay their bills on time.
But things seemed much grimmer in September than they do now, said Ivan Feinseth, research director at New York's Matrix Investment Research L.L.C. "Last fall, the price of natural gas was $14 and going to $20, but now it is $8," said Feinseth, who rates UGI as a "buy."
A cold snap could still turn the situation around, said Stephen Schork, a newsletter editor in Villanova who writes about energy commodity prices. But "the window is closing fast," he said.
For the time being, unseasonable warmth worries area energy distributors more than price-driven conservation. Sunoco Logistics Partners L.P. attributes modest volume declines to mild temperatures rather than conservation efforts, spokesman Jeff Peters said. The Philadelphia pipeline operator, a spin-off of Sunoco Inc., is a distributor of heating oil.
Buckeye Partners L.P., in Emmaus, Pa., has its eye on the thermometer as well, said Stephen R. Milbourne, a spokesman for the pipeline operator.
Propane demand is the least predictable, said Ethan Bellamy, an analyst in Denver for Stifel, Nicolaus & Co. - a particular problem for UGI, which owns 44 percent of AmeriGas Partners L.P., a top national distributor based in King of Prussia.
AmeriGas' contributions to first-quarter earnings rose 43 percent year-over-year to $14.9 million, UGI reported, despite a modest decline in residential sales in gallons.
AmeriGas' profit jumped in part because propane prices are much higher. Propane cost an average of $2 a gallon on Jan. 31, or 16 percent higher than at the same point last year, according to a national survey by the U.S. Department of Energy.
UGI's natural-gas and electric utilities in northeastern and central Pennsylvania also made healthy gains for the quarter, contributing $18.4 million and $3.5 million in quarterly income, respectively.
UGI said last month that it would add 158,000 natural-gas customers in Pennsylvania in a $580 million purchase of PG Energy from Southern Union Co.
Not counting an extraordinary gain of $14.9 million, or 14 cents a share, in 2005 at Antagaz, UGI's French propane arm, UGI's earnings slipped to $57.5 million, or 54 cents a share, compared with $63.3 million, or 60 cents a share, in the prior-year quarter.
UGI needs the weather to cooperate, said Schanzer, the Janney Montgomery analyst. Bitter is better, he said. "Really cold weather tends to trump conservation."
Contact staff writer Todd Mason at 215-854-5679 or tmason@phillynews.com.