Ferrellgas Witnesses Sagging Volumes On Unreliable Weather

On Jun 13, 2016, we issued an updated research report on Ferrellgas Partners L.P. (NYSE:FGP) , a leading distributor of propane and related equipment in the U.S. Milder winter temperatures and persistent pricing pressure in the commodities market had an adverse impact on propane sales volume. Despite the headwinds, the partnership is focused on driving growth through organic means and strategic acquisitions.

Ferrellgas Partners’ third-quarter fiscal 2016 adjusted earnings of 19 cents per unit were significantly below the Zacks Consensus Estimate of 47 cents. Lower-than-expected earnings in the reported quarter were due to the impact of warm weather and the increase in interest expense as well as depreciation and amortization expenses related primarily to the Bridger transaction.

In the fiscal third quarter, total propane sales volume declined 9% year over year to 223 million gallons from 246 million gallons due to lower wholesale and retail sales. The decline was primarily due to milder winter temperatures which were 18% warmer than normal and 21% warmer than the year-ago quarter.

In the last fiscal, Ferrellgas purchased 64% of its propane from seven suppliers. If the partnership fails to procure adequate supplies, it may have to look for alternate vendors which might temporarily increase costs and impact margins.

Low barriers to entry and competitive pricing possibilities are major concerns for the partnership. Amid pricing pressure and declining sales volume, the partnership resorted to strong cost controls, which will have a positive impact on margins over the long run.

Ferrellgas Partners is relying on organic projects and strategic acquisitions to counter the challenges posed by rising competition and inconsistent weather patterns.

Ferrellgas Partners currently has a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the broader oil refining and marketing space are CVR Refining, LP (NYSE:CVRR) , Galp Energia, SGPS, S.A. (OTC:GLPEY) and Murphy USA Inc. (NYSE:MUSA) , all three currently carrying a Zacks Rank #2 (Buy).

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