Ferrellgas Misses Both Counts in 2Q

Zacks

Ferrellgas Partners L.P. (FGP) reported pro forma earnings per unit of 47 cents for the second quarter of fiscal 2012, ending on January 31, 2012 versus 31 cents reported on January 31, 2011. The quarterly earnings lagged the Zacks Consensus Estimate of 78 cents per unit.

The year-over-year growth in Ferrellgas result reflects the impact of increased wholesale propane costs, higher-than-expected sales in propane and other gas liquids sales segment, and lower general and administration (G&A) expenses; partially offset by warm weather.

Total Revenue

Ferrellgas Partners' total revenue of $829.3 million in the reported quarter was 1.4% lower than $841.0 million posted in the comparable year-ago period. In the reported quarter, propane and other gas liquids sales and other segments contributed $779.6 million and $49.7 million, respectively. The quarterly revenue fell short of the Zacks Consensus Estimate of $918 million.

Operating Highlights

Ferrellgas Partners' gross profit during the quarter declined 16% from the year-ago quarter to $204.2 million due to higher-than-expected wholesale propane costs and lower weather dependent retail sales. The 4.7% year-over-year increase in input costs to $625.1 million resulted in a decline in gross margin.

The partnership registered an 8% year-over-year drop in G&A expenses attributable to a reduction in back office expenses.

The partnership incurred $24.05 million as interest expenses during the second quarter versus $26.40 million in the prior-year quarter. The decrease in interest expenses was attributable to the positive impact of debt financing.

Financial Highlights

Ferrellgas Partners' cash and cash equivalents were $15.73 million as of January 31, 2012 versus $7.44 million as of July 31, 2011.

The partnership's long-term debt as of January 31, 2012, was $1,033.0 million, decreasing from the year-end figure of $1,051.0 million as of July 31, 2011.

Our View

Ferrellgas Partners continued with its long-term inorganic growth strategy and has already completed five acquisitions till date from the beginning of the fiscal year. It reflects the partnership’s plan to expand by an aggressive pursuit of well-operated propane companies.

We appreciate Ferrellgas’ attempts to slash its expenditure. This is reflected in lower G&A expenses and also a dip in operating expenses in the reported quarter. But, at the same time, the partnership’s growth is highly dependent on weather conditions, increasing competition in the domain of propane and high debt pressure on the partnership’s capital structure due to an increase in the number of acquisitions.

Ferrellgas Partners currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating.

Overland Park, Kansas-based Ferrellgas Partners L.P. is a leading distributor of propane gas solutions and related equipment in the U.S. The partnership provides propane services to residential, industrial, portable tank exchange, agricultural and wholesale customers. The major competitors of the partnership are AmeriGas Partners L.P. (APU), Energy Transfer Partners L.P. (ETP) and Suburban Propane Partners L.P. (SPH).

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