We reiterate our Neutral recommendation on
Ferrellgas Partners L.P.
). 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.
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FERRELLGAS -LP (FGP): Free Stock Analysis
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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.
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.