Ferrellgas Stays Neutral - Analyst Blog

By Zacks | January 03, 2013 AAA

We reiterate our Neutral recommendation on Ferrellgas Partners LP (FGP) primarily due to its overdependence on a few propane suppliers; highly competitive propane distribution business environment and seasonal variance in the demand for propane, which may extensively impact the partnership's operational and financial performance going forward.

In the first quarter of fiscal 2013, Ferrellgas reported net loss per unit of 22 cents compared with a loss of 42 cents in the prior-year quarter. Quarterly result was narrower than the Zacks Consensus Estimate of a loss of 23 cents. Ferrellgas' total revenue of $362.9 million in the quarter was down 33% from $538.4 million reported in the comparable year-ago period. Reported revenue was lower than the Zacks Consensus Estimate of $452 million.

Ferrellgas is dependent on a few major propane suppliers. If one of the suppliers fail to provide required propane in time, then its operations might get hampered. Subsequently, this will negatively affect the partnership's overall results.

Weather conditions also have a significant impact on the demand for propane. This makes the partnership's financial performance vulnerable to warm winters and unfavorable weather in the grilling season. Warmer-than-normal temperatures during winter or dry or warm weather during the harvest season would result in reduced propane usage, thus significantly impacting partnership's propane sales.

However, Ferrellgas strongly follows an inorganic growth strategy. Recently, the partnership made numerous significant acquisitions including IGS Propane and El Paso. In addition, the partnership has adopted a balance sheet restructuring plan and debt level minimization strategy.

Like its peer Suburban Propane Partners L.P. (SPH), Ferrellgas Partners LP also has a short-term Zacks #3 Rank (Hold).

Overland Park, Kansas-based Ferrellgas Partners 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 has a market capitalization of $1.40 billion.

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