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We reiterate our Neutral recommendation on Ferrellgas Partners L.P. (FGP - Analyst Report). The partnership’s third quarter fiscal 2012 earnings surpassed the Zacks Consensus Estimate, but failed to beat the year-ago quarter earnings. Ferrellgas’s year-over-year results were impacted by lower sales of gas liquid and propane due to a soft winter.

Ferrellgas’s operations primarily depend on a few principal propane suppliers. In 2011, the partnership purchased 55% of its propane from six of its suppliers. Depending on a few suppliers increases the risk of interruption related to raw material supply. If one of the suppliers fails to provide the required propane in time, then the partnership’s operations might get hampered.

Ferrellgas follows an inorganic growth strategy. The partnership’s stable liquidity position with a credit facility of $400 million and cash balance of $12 million, as of April 30, 2012, enables it to support its existing business strategies. Till date, the partnership had completed more than 225 acquisitions. The partnership continued the trend by adding more propane and other businesses in the third quarter of 2012. Recent acquisitions include Rio Grande Valley Gas, Inc., Welch Propane, Polar Gas Company and Federal Petroleum Company.

In addition, Ferrellgas also adopted a restructuring plan for its balance sheet and aimed to lower its debt levels. The partnership repaid long-term debt of $52 million as of April 30, 2012. In the third quarter of fiscal 2012, Ferrellgas issued 1.4 million common units, worth $25.0 million to redeem its outstanding debts. These actions enable the partnership to strengthen its balance sheet and improve its future liquidity position.

On the flip side, we know that the propane distribution industry has matured and thus has limited growth opportunity. Ferrellgas can only improve its market share by acquiring other propane distributors. If the partnership does not perform well in the propane distribution industry or is unable to acquire new propane distributors, then it may gradually lose out its existing customers and even fail to acquire new ones.

Ferrellgas Partners L.P. currently retains a Zacks #1 Rank (short-term Strong Buy rating). The partnership competes with Energy Transfer Partners L.P. (ETP - Analyst Report).

Overland Park, Kansas-based Ferrellgas Partners L.P. is a master limited partnership. It engages in the distribution and sale of propane as well as related equipment primarily in the U.S. It is also involved in the transportation of propane purchased from third parties to nationwide and local retailers.

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