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Major propane distributor Ferrellgas Partners L.P. (FGP - Analyst Report) reported third quarter fiscal 2012 pro forma earnings of 26 cents per unit versus 32 cents per unit in the year-ago quarter. However, the quarterly earnings edged out the Zacks Consensus Estimate of 20 cents.

GAAP and pro forma earnings were identical due to absence of one-time items.

Total Revenue

Ferrellgas reported quarterly revenue of $629.6 million, down 14.0% from the year-ago figure of $732.3 million. The quarterly revenue surpassed the Zacks Consensus Estimate of $595.0 million.

During the quarter, overall propane and other gas liquids sales fell to $556.6 million compared with $647.7 million in the prior-year quarter.

Operational Highlights

On the cost side, Ferrellgas Partners’ results were positive, given its continuous drive towards cost control. Total operating expense dropped 7.7% to $95.8 million from $103.8 million in the prior-year quarter. Decline in cost of sales of 17% in conjunction with significantly lower general and administrative expenses of 50.0% was the major contributor.

The partnership’s operating income in the current quarter totaled $45.5 million compared with $39.1 million in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) dropped 4.7% year over year to $70.8 million from $74.3 million.

Financial Update

As of April 30, 2012, Ferrellgas had cash and cash equivalents of $12 million versus $7.5 million as of July 31, 2011.

Distributable cash flow to equity as of April 30, 2012 changed modestly to $48 million from $48.2 million in the prior-year quarter.

Long-term debt as of April 30, 2012 was $1,044.2 million compared with $1,050.9 million as of July 31, 2011.

Guidance

The partnership did not provide any specific guidance range for the fourth quarter and fiscal 2012. However, the partnership expects the results to benefit from cost reduction initiatives and a decline in wholesale propane costs.

Peer Comparison

Recently, Ferrellgas Partners’ foremost competitor Energy Transfer Partners  L.P.     (ETP - Analyst Report) posted a disappointing first quarter 2012. Earnings of 25 cents per unit declined 64.8% from 71 cents in the prior-year quarter and fell short of the Zacks Consensus Estimate of 48 cents.

Quarterly revenue declined to $1,350.9 million from $1,687.6 million a year ago and fell short of the Zacks Consensus Estimate of $1,748.0 million.

Our View

The partnership was able to register positive earnings surprise in the reported quarter, reversing the negative trend of the past three quarters. The cost control measures and lesser demand fluctuation for propane despite a warmer winter benefited results.

We anticipate positive outcomes ahead owing to its continued cost reduction efforts and improvement in operating income. However, volatile demand due to weather variations might act as a negative.

Ferrellgas Transfer Partners hold a Zacks #3 Rank which translates into a short-term Hold rating.

Based in Overland Park, Kansas Ferrellgas Transfer Partners engages in the distribution and sale of propane as well as related equipment and supplies primarily in the United States. It is also involved in the transportation of propane purchased from third parties to nationwide and local retailers.

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