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Ferrellgas Yet to Make Total Recovery from Customer Loss

Zacks Equity Research

Ferrellgas Partners L.P. FGP currently has a Zacks Rank #4 (Sell). We believe the partnership is yet to recover fully from the loss of a major customer.  Unfavorable weather patterns are also hurting its prospects. However, the partnership is trying to cope with the difficult times under the new management.

Ferrellgas Partners’ second quarter fiscal earnings per unit and total revenues were both lower than the Zacks Consensus Estimate. Its fiscal second quarter performance was adversely impacted by a loss of a major customer and warmer winter temperatures, which was 14% warmer than normal.

In the reported quarter, the partnership sold higher propane volume compared to the last comparable year period. However, margins were lower than last year period primarily due to lower contribution from its midstream segment and termination of the Jamex transportation and logistics agreement last year.

Apart from competing with marketers of other fuels, Ferrellgas Partners has also to compete with other companies engaged in the propane distribution business, which may put pressure on sales volumes and operational results.

Acquisitions have driven Ferrellgas Partners’ performance over the years. Going forward, the partnership is expected to become one of the largest propane companies in the U.S. In Mar 2017, it announced the acquisition of Valley Center Propane, an independent propane retailer based in Valley Center, CA. The acquisition is expected to be immediately accretive to Ferrellgas’ earnings.

Amid the ongoing volatility in commodity prices, the partnership is working to improve its debt level and leverage ratio. At the end of the fiscal second quarter, its leverage ratio was 5.81x lower than the limit allowed under its credit facilities.

Price Movement

Over the last one year, Ferrellgas Partners' has underperformed the Zacks categorized  Oil & Gas-Refining & Marketing MLP industry. During this period, partnership’s unit lost 65.7%, compared with the industry’s return of 19.5%.

Ferrellgas Partners’ performance was adversely impacted by the loss of one of its largest customers. Incidentally, its performance in three out of the last four quarters were much lower than expected, resulting in an average negative earnings surprise of 136.6% in the last four quarters.

Ferrellgas Partners is not the only one lagging the industry return in the last 12 months. Sunoco LP’s SUN unit lost 11.1% in the last 12 months.  

Top Picks

Better ranked stocks in the same industry are Global Partners LP GLP and AmeriGas Partners, L.P. APU

Global Partners sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Global Partners’ 2017 Zacks Consensus Estimate moved up by 145.4% to 54 cents per unit in the last 60 days.

AmeriGas Partners is a Zacks Rank #2 (Buy) stock. Its fiscal 2017 estimate remained unchanged in last 60 days but fiscal 2018 estimate moved by 0.7% in the same time period.

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AmeriGas Partners, L.P. (APU): Free Stock Analysis Report
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