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Ferrellgas Partners Misses Overall

FGP

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Ferrellgas Partners LP (FGP - Analyst Report) reported fourth quarter and fiscal 2012 results. Pro forma loss for the quarter improved to 45 cents per unit versus a loss of 53 cents per unit in the year-ago quarter. However, the loss was above the Zacks Consensus Estimate of a loss of 39 cents per unit.

During fiscal year 2012, the company reported a loss of 14 cents per unit, which is a vast improvement versus the previous year loss of 60 cents per unit. However, it fell below our expectation of earnings of 30 cents per unit.

The year-over-year significant improvement denotes the company’s cost control initiatives.

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

Total Revenue

Ferrellgas reported quarterly revenue of $341.8 million, down 24% from the year-ago figure of $449.7 million. The quarterly revenue also missed the Zacks Consensus Estimate by $18.2 million. During fiscal year 2012, the top-line revenue declined 3.5% to $2,339 million. The fiscal year figure also fell below the Zacks Consensus Estimate by $100.2 million.

During the quarter, overall propane and other gas liquids sales dropped to $310.5 million compared with $421.7 million in the prior-year quarter.

Operational Highlights

Decline in cost of sales by 34.5% year over year in the fourth quarter of 2012, resulted in a gross profit of $130 million, up 3% from the year-ago period. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for the reported quarter increased 79.2% year over year to $18.1 million from $10.1 million in the year-ago comparable period.

Total operating expense dropped marginally by 0.6% to $100 million. General and administrative expenses also declined by 34.5% to $8.5 million. As a result, operating loss during the quarter declined to $13.9 million from $17.7 million in the year-ago quarter.

Financial Update

As of July 31, 2012, Ferrellgas had cash and cash equivalents of $8.5 million versus $7.5 million as of July 31, 2011. At the end of fiscal 2012, long-term debt was $1,059.1 million compared with $1,050.9 million at the end of the year-ago quarter.

Our View

Ferrellgas Partners missed both top line and bottom line. Though the company incurred a net loss, the expense and the gross profit demonstrate that the company has taken appropriate steps for cost control in this highly competitive operating environment. By the end of fiscal 2013, the company expects to surpass its cost savings goal of $20 million. It expects continuous organic gallon growth.

Going forward, the partnership’s strong acquisition strategy, lower cost of operation, debt minimization efforts and financial flexibility would help to overcome this tough environment. Last month, the company had acquired Capitol City Propane of Sacramento, California. Besides adding to the company’s customer base, the acquisition will strengthen the partnership's presence.

However, we remain concerned for highly competitive propane distribution business environment, seasonal variance in the demand for propane, reliance on few propane suppliers and higher degree of competition from other energy sources. Moreover, we believe that an increase in motor fuel prices is expected to negatively affect the partnership’s financial performance in terms of higher propane delivery costs. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Ferrellgas Partners L.P., a master limited partnership (“MLP”), is a leading distributor of propane and related equipment in the U.S. The partnership is headquartered in Overland Park, Kansas. Ferrellgas Inc. is the general partner and Ferrellgas L.P. is the operating partner of Ferrellgas Partners L.P.

Some of its main competitors are Star Gas Partners, L.P. and Adams Resources & Energy Inc. .

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