Ferrellgas Reports Mixed 1Q

Ferrellgas Partners LP's (FGP - Analyst Report) reported net loss per unit of 42 cents for the first quarter of fiscal 2012, ending October 31, wider than the Zacks Consensus Estimate of a loss of 30 cents. The quarter’s loss was 2 cents higher than the prior-year quarter loss of 40 cents.

The results of the partnership reflect the impacts of the seasonal retail propane distribution business, and the historical nature of the partnership’s performance during the first and fourth quarters of the fiscal year.

Total Revenue

Ferrellgas Partners' total revenue of $538.4 million in the quarter was 34.5% higher than $400.2 million reported in the comparable year-ago period. The favorable outcome in the quarter was driven by propane and other gas liquids sales which increased 39.5% to $514.2 million while other revenue decreased 23.3% to $24.2 million.

The top line beat the Zacks Consensus Estimate of $450 million.

Operating Highlights

Ferrellgas Partners' gross profit during the quarter declined 1.7% from the comparable quarter last year to $128.7 million. The 57.2% year-over-year increase in input costs to $403.1 million led to the decline in gross margin.

Amidst rising expenses, the partnership registered a 9.8% year-over-year drop in general and administrative (G&A) expenses due to areduction in back office expenses.

The partnership incurred $23.38 million as interest expense during the first quarter versus $26.87 million in the year-earlier quarter. The decrease in interest expenses was attributable to the positive impact of debt financing.

Financial Highlights

Cash and cash equivalents of the partnership were up from the year-end level. Cash and cash equivalents as of October 31, 2011, were $13.14 million versus $7.4 million as of July 31, 2011.

The partnership's long-term debt as of October 31, 2011, was $1.07 billion, increasing from the year-end level of $1.05 billion as of July 31, 2011.

Peer Comparison

Suburban Propane Partners L.P. (SPH - Snapshot Report) competes directly with Ferrellgas Partners. Suburban announced a net loss of 61 cents per common units for the fourth quarter of fiscal 2011, in line with our expectation.

Our View

The partnership continued with its acquisition based growth strategy and completed four buys till date from the beginning of the fiscal year. These acquisitions are part of the partnership’s long-term strategy to grow by an aggressive pursuit of well-run propane companies.

The partnership’s attempt to curb its expenditures is amply reflected in lower G&A expenses in the quarter. Operating expenses of the partnership increased year over year but was lower as a percentage of total revenue from the prior-year quarter.

We believe the cost reduction initiatives, along with its growth through acquisition strategy and via organic means will stand this propane provider in good stead.

Ferrellgas Partners currently retains a Zacks #3 Rank, which translates into a 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.

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