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Ferrellgas' U.S. Footprint to Fuel Growth, Weather Still a Risk

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On Jan 2, we issued an updated research report on Ferrellgas Partners, L.P. . The partnership’s widespread presence across the U.S. puts it in an advantageous position compared to other small-scale propane distributors. However, warmer-than-normal temperatures in its service territories are adversely impacting Ferrellgas Partners’ propane revenues.

Ferrellgas Partners reported a loss of 44 cents per unit in the first quarter of fiscal 2017, narrower than the Zacks Consensus Estimate of a loss of 51 cents. Its total revenue came in at $379.5 million, reflecting a year-over-year decline of 44.2%, primarily due to weak midstream operations, and lower sales of propane and other gas liquids, which resulted from above-average temperatures.

Ferrellgas Partners’ extensive presence across the U.S., with as many as 855 propane distribution locations (as of Jul 31, 2016), renders it a competitive edge. In addition, the partnership’s consistent investments in technology bode well for long-term growth.

Acquisitions have driven Ferrellgas Partners’ performance over the years. The partnership has completed more than 240 acquisitions to date, growing from a single-location, independently owned propane retailer to a publicly traded organization.

On the flip side, weather fluctuations have a material impact on the demand of propane. Propane is used for several purposes, including space and water heating, agriculture, drying clothes and fueling gas fireplaces and barbecue grills. During the quarter, temperatures in the company’s service areas were 35% warmer than normal and 6% warmer than the prior-year levels, which had an adverse impact on propane revenues.

In fiscal 2016, the partnership purchased 73% of its propane from seven suppliers. If the partnership fails to procure adequate supplies in the future, it may have to look for alternate vendors, which temporarily increase costs and impact margins.

Price Movement

Over the last one year, Ferrellgas Partners has underperformed the Zacks categorized Oil & Gas-Refining & Marketing MLP industry. During this period, company’s unit lost 59.1%, compared with the industry’s return of 9.7%.



Since Sep 2016, the partnership saw a significant decline in its unit price due to the loss of one of its largest customers. This also led to a 14.9% year-over-year drop in gross profit to $154 million.

In comparison, two of its peers, AmeriGas Partners, L.P. and NGL Energy Partners LP (NGL - Free Report) have returned 39.8% and 95.2%, respectively, in the last 12 months period, thereby outperforming the broader industry.

Zacks Rank & Key Picks

Ferrellgas Partners currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Sprague Resources LP , which has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sprague Resources’ units gained 17.8% in the last 60 days. The Zacks Consensus Estimate for 2017 improved 1.6% to $3.17 during this period.

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