Key analysis: The most important trends in propane right now (Part 1 of 7)
Winter and propane
Propane is a major fuel used for home heating. Given that this winter has seen much more severe and cold weather than normal, U.S. propane demand from residential customers has been much higher than normal.
AmeriGas Partners (APU, market cap: $3.9 billion, enterprise value: $6.5 billion) is the largest publicly traded propane distributor. A large proportion of its customers is retail and commercial end users who buy propane for heating. The company noted on its last earnings call in early February that it sold 7% more propane for the quarter ended December 31 than for the corresponding quarter last year. This was largely due to weather that was 14% colder than normal in APU’s areas of distribution. APU noted that for December specifically, weather was abnormally cold. Amerigas’s volume in December was up 19%, on weather that was 22% colder than the prior December.
Suburban Propane (SPH, market cap: $2.7 billion, enterprise value: $3.9 billion), the second largest propane distributor, also noted on its last earnings call:
- “For the month of December, average temperatures were 6% colder than normal (in the company’s service areas), and as a result for the quarter, average temperatures across our service territories were reported as normal and 9% colder than the prior-year first quarter. Volumes responded nicely when the colder temperatures arrived.”
One way to measure how cold average temperatures are is through heating degree days (see Propane demand increases amid frigid temperatures). As APU and SPH noted on their earnings calls, cold December temperatures have spurred higher volumes of propane sales. For January and February to date, nationwide heating degree days have totaled 1,542, compared to 1,419 for a “normal” first six weeks of the year. This also bodes well for propane sales volumes, which in itself is a positive for propane distribution companies. All else equal, the more gallons of propane sold, the better revenues and earnings should be.
Continue on to the following parts of this series to see what other trends have been affecting propane demand over the past few months, as well as why propane distributors might not necessarily see better earnings this season despite higher customer demand.
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