Ferrellgas Partners (FGP) posted improved results for the fourth quarter and the full fiscal year 2009, primarily driven by higher propane sales and lower costs. The partnership recorded a net loss of 51 cents per unit for the quarter, which was in line with the Zacks Consensus Estimate and better than 61 cents posted during the year-ago quarter. Fiscal net income was 79 cents per unit, slightly below the Zacks Consensus Estimate of 83 cents, but far better than 39 cents reported a year ago.

Ferrellgas sold 149.5 million gallons of propane during the quarter, up 7% from a year ago. However, revenues declined 25% to $312.7 million due to lower price realization. Gross margin expanded to 42% from 30% recorded during the year-ago quarter due to lower cost of sales (down 38%). Operating loss came down to $15.4 million from $16.9 million a year ago, largely driven by lower equipment lease expenses (down 33%) and stock-based compensation charges (down 31%).

Propane sales volume during the fiscal 2009 totaled 874.8 million, up 4% from last fiscal year. Revenues declined 10% to $2.0 billion indicating lower realized price per gallon of propane. Gross margin expanded to 34% from 29% recorded during previous fiscal because of lower cost of sales (down 16%). Operating income grew 32% to $146.5 million, primarily driven by lower stock-based compensation charges (down 46%), equipment lease expenses (down 25%) and general & administrative expenses (down 9%).

Ferrellgas has been striving to expand through a series of acquisitions and opening of more offices over last several years. It has also made significant progress in improving operating efficiencies and expanding margin. However, its highly levered balance sheet remains a concern. Ferrellgas had nearly $1.0 billion of debt at the end of fiscal 2009.

Ferrellgas has not raised its distributions. While recent acquisitions have the potential to generate strong cash flows, we believe that the first priority on excess cash will remain towards debt repayment and not higher distributions. We reiterate our Neutral recommendation for FGP, as we prefer other players in this space with better growth profile and less levered balance sheet.
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