Ferrellgas Partners LP‘s (FGP) reported earnings per unit of 31 cents for the second quarter of fiscal 2011 was nowhere near the Zacks Consensus Estimate of $1.18. The quarter’s results also deteriorated from $1.10 per unit earned in the prior-year quarter.
Operating Highlights
Ferrellgas Partners’ total revenue of $840.9 million in the quarter was 8.1% higher than $777.8 million reported in the comparable year-ago period. On a segmental basis, propane and other gas liquids sales increased 6.9% to $774.2 million and other revenue increased 24.9% to $66.8 million.
However, Ferrellgas Partners’ gross profit declined 2.2% from the comparable quarter last year to $243.1 million. The 13% increase in input costs to $597.9 million was largely responsible for the decline in gross margin.
Operating expense in the quarter increased 3.0% year over year to $107.6 million. Equipment lease expense also increased to $3.6 million from $3.1 million in the prior-year quarter. However, general and administrative expenses declined marginally by 0.4% to $11.0 million.
The partnership incurred $26.4 million in interest expenses during the second quarter versus $26.2 million in the year-earlier quarter. The increase in interest expenses was due to a rise in the debt level.
Financial Highlights
Cash and cash equivalents were down marginally from the year-ago level. Cash and cash equivalents as of January 31, 2011 were $25.5 million versus $25.9 million as of January 31, 2010.
The partnership’s long-term debt as of January 31, 2011 was $1.14 billion compared to $1.08 billion as of January 31, 2010.
During the quarter, Ferrellgas Partners issued $500 million of 6.50% senior notes due 2021 and utilized the net proceeds to redeem its outstanding 6.75% senior notes due 2014 as well as reduce its outstanding debt under its existing credit facility.
These transactions have strengthened the partnership’s balance sheet and improved its liquidity position. The partnership has no public debt maturities until 2017 and has ample liquidity to continue its strategic growth initiatives while maintaining financial leverage.
Peer Comparison
Suburban Propane Partners L.P (SPH) competes directly with Ferrellgas Partners. Suburban announced operating earnings of $1.22 per common units for the first quarter fiscal 2011, versus $1.37 in the year-ago quarter.
Suburban’s first quarter was impacted by warm weather, particularly during the first six weeks, rising commodity prices and customer conservation resulting from continued weakness in the economy.
Our View
We like the partnership’ strategy to carry out acquisitions, which supplements its organic growth efforts. Since the beginning of this fiscal year, the partnership has already made four acquisitions. The most recent purchase was of propane dealer Ram Propane, which operated in Western Wyoming markets, catering to residential and industrial clients.
Ferrellgas Partners currently retains a Zacks #3 Rank (short-term Hold rating).
Overland Park, Kansas-based Ferrellgas Partners L.P. is a leading distributor of propane and related equipment in the U.S. The partnership provides propane services to Residential, Industrial, Portable Tank Exchange, Agricultural and Wholesale customers.
FERRELLGAS -LP (FGP): Free Stock Analysis Report
SUBURB PROPANE (SPH): Free Stock Analysis Report
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