I think I’m going to sell before earnings, since I think they’re going to be a problem. High energy prices haven’t done much for GLP’s quarterly earning s in the past, and the high fixed costs of the gas station purchase will be a problem, I think.
In recent years, Q1 of 2007 and 2009 had relatively low energy prices, and GLP did well in those Qs. In Q1 of 2008 and 2011, prices rose significantly, and GLP suffered. So Q1 2007 net profit was $ 18 MM (ex extraordinary items), dropping to $ 8.5 MM in Q1 2008 when prices were similar to the Q that just ended in March 2011. Q1 2009 showed a large increase in profits, to $ 18.5 MM, as prices dropped substantially. In Q1 2010, prices bounced back, and earnings dropped to $ 14.7 MM. So there seems to be an inverse correlation between high prices and GLP’s profits. And in Q4 2010, as prices rose, GLP had the same problem, but because of the gas station deal, interest expense and operating expenses rose quite a bit, making the situation worse.
Per the NY Merc web site, the wholesale prices of heating oil and gasoline rose about 20% (as of March 31, 2011) versus the 12/31/10 prices, and between 30% and 50% when compared to 3/31/10. This leads to higher prices for GLP (no-brainer), but lower gross and net margins. Couple this with the recent sales of units by the company and lack of any real discussion of the gas station deal’s profitability, and I’m getting nervous. Normally, I’d hold on for long-term capital gain treatment, but I don’t think so this time.
Does anyone with better knowledge of the business (which means just about anyone, since I don’t know much) think I’m wrong? The yield isn’t enough to keep me here. I can get similar yields on lots of MLPs.
Like I said, Q1 numbers are pretty bad. I should have sold all my GLP instead of half. Extremely high energy prices aren't good for them, and I don't see this changing any time soon. The heating oil season is over, and they don't have much to show for it. Now the gasoline season is starting, and at $ 4 - $ 5 per gallon, I think volumes will hurt quite a bit. Hopefully the price holds up today, especially if the overall market rebounds (about time), and I get another chance to exit completely.
Quote from GPL: "Competitive bids from GMGC for fuel oil can be obtained at a locked-in price for a set period of time with downside price protection (at the purchaser’s option), or at a set price over a predetermined time period. In addition, GMGC can provide bid quotations that rely on pricing benchmarks or indices to establish pricing at time of delivery or contract settlement."
Always wondered what GLP's exposure was on these contracts and to what extent (if any) they hedged at their purchase side.
As to whether they hedge, they do - the 10-K says "We actively manage our business to minimize commodity price exposure by using hedging techniques. We seek to maintain a position that is substantially balanced between purchases and sales by establishing an offsetting sales position with a positive margin each time we commit to purchase a volume of product." The hedging program is described in greater detail later in the Commodity Risk section of the 10-K, and the numbers are in footnote 3 to the financial statements. They try to take the price risk out of the business as much as they can.