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Shares of Ferrellgas Partners (NYSE: FGP) fell 18% in October. While there was no specific news from the company during the month, the company is still reeling from its earnings announcement on Sept. 28th, in which it shared several discouraging news tidbits that included a major distribution cut.
When Ferrellgas Partners announced its most recent earnings results, it was apparent that the company had put itself in hot water. The acquisition of midstream company Bridger Logistics a year prior was supposed to diversify Ferrellgas away from the very seasonal business of selling and distributing propane. Bridger, however, was a deeply troubled business with customers that could no longer pay the bills, which put it at serious counterparty risk. It also didn't help that Ferrellgas used debt to fund that acquisition. So when cash flow from that particular business evaporated, the company was left with a debt load so high that it started to violate some of its debt covenants.
As a result, the company decided to cut its distribution to shareholders -- although the actual amount of that cut is not finalized -- and take a large writedown of almost the entirety of the Bridger acquisition. As you can imagine, with so many surprises packed into this earnings report, a lot of class-action lawsuits have been filed, stating that Ferrellgas didn't adequately disclose issues with the acquisition or its debt issues, which led to big losses for investors.
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These kinds of class-action lawsuits aren't uncommon when a company announces surprisingly disappointing news, but very rarely do they ever come to anything. So investors should probably not give too much credit to these suits.
As a result of the recent troubles, the company's CEO has been ousted and former CEO James Ferrell has taken the helm of Ferrellgas until a new CEO can be found. The goal of the company's announced distribution cut is to use internally generated cash to pay down its debt load and get its financial house in order. The propane distribution business is headed into its most profitable part of the year, as colder temperatures means more propane for home heating, and a good winter with a lower payout could help to trim that debt load pretty quick.
It's way too soon for investors to make any assumptions about this stock, though. So until we see some tangible debt reduction and signs that Ferrellgas Partners is back on the right track, it's hard to see this massive crash in share price over the past couple months as a time to buy.
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