4 Things Ferrellgas Partners' Management Wants You to Know
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At a time where investors are looking harder and harder for a decent yield on and investment, the sight of Ferrellgas Partners'(NYSE: FGP) 10.1% yield seems almost too good to be true. After seeing so many other master limited partnership structured companies cut their payouts recently, it's perfectly natural to approach that yield with a dose of skepticism. If Ferrellgas' yield has piqued your interest, one great place to start your research is to check out the company's most recent results and conference call to see what management is thinking for the future. With that in mind, here are four of the most revealing quotes from Ferrellgas' most recent quarterly results and why they matter for the company's future.
Having a hard time beating the heat
In the propane business, the largest determining factor for a company's success is the weather. Residential and commercial heating is Ferrellgas' bread-and-butter business. Most of us experienced the warmer winter this past year but CEOStephen Wambold put some numbers to it to make sure everyone knew haw bad it really was:
With such an increase in temperatures, it led to lower heating needs and lower propane volumes across Ferrellgas' markets. There were somecommodityprice fluctuations, but Ferrellgas' business asadistributorand retailer of propane means the company is slightly insulated from the full impact of commodity prices.
Spreading its wings
Last year, Ferrellgas made a pretty transformative acquisition by acquiring Bridger, a oil and gas midstream company that mostly focuses on truck and rail transport as well as storage terminals. This is the first time that Ferrellgas has branched away from the propane business, but it may not be the last. According to Wambold, the company is on the prowl to expand both businesses via acquisitions:
This could be a good move for the company as it makes it less of a season-dependent business. The way for it to work, though, is that managementcannot overspend onacquisitions.
Righting the cash flow ship
The recent Bridger acquisition and the warm winter led to a pretty big hit to Ferrellgas Partners' cash flows. On a trailing-12-month basis, the company's distributable cash flow hasn't covered its payout. This is always a major red flag for MLP investors, but CFOAlan Heitmann wanted to reassure investors that this is a temporary thing:
Since the business is so seasonal, and results from the past couple quarters have generated excess cash flow, we can probably give Ferrellgas the benefit of the doubt for a quarter or two. If it can't improve those distribution metrics, though, then it may be time to consider other options.
Smoothing out results
The Bridger acquisition is one method in which Ferrellgas is diversifying and smoothing out its quarterly results, but the company is pulling other levers as well, such as the expansion of its retail propane sales through tank exchanges and branded sales such as Blue Rhino. According to Executive Vice Presidentof Ferrellgas and President of Blue RhinoTod Brown,results from these efforts are starting to pay off:
If Ferrellgas can get larger contributions from these other markets, it will take some pressure off of the residential and commercial delivery business delivering the bulk of the company's results for the year in a little more than a quarter. That could go a long way in allowing the company to maintaining better cash flow metrics and even possibly lead to increasing distributions over time.
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Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.comor on Twitter@TylerCroweFool.
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