Image source: Suburban Propane Partners investor presentation.
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Whenever a comapny has a distribution yield as high as Suburban Propane Partners' (NYSE: SPH) payout, it is definitely worth taking a deeper dive into the company's business to see what the company is all about -- and whether this high yield is a fluke or something worth putting on your investing radar. One great place to start is to get a pulse of what management is thinking in the company's most recent conference call. Here are five of the most revealing quotes from Suburban Propane's most recent quarterly call.
Taking its lumps
Typically, when a company's CFO says "consistent" and "loss" in the same sentence, there is something fishy going on with the company. Surprisingly, though, this is something that is common in Suburban's results, and it isn't a bad thing. Here's what CFOMichael Kuglin said about the company's most recent results:
For someone who is new to the propane business, seeing losses a few quarters out of the year can be a little scary. For Suburban, though, this is pretty par for the course because its results are very lumpy based on the seasons. Basically, the company makes its hay in the winter months when home heating demand is the highest. As you can see in this chart, this has been a pretty consistent trend for the past decade.
Baby, it's not that cold outside
The majority of Suburban's propane transport and delivery is used for heating purposes. This means that the weather is a larger determining factor in the company's results than anything else. As Kuglin put it, this past quarter was slightly more favorable.
A real key of that statement is that this past quarter doesn't have as much impact as the heating season. As you can see from the chart above -- and if you remember this past winter -- this past heating season was pretty dismal.
Trying to stay balanced
Unlike many other master limited partnerships, Suburban hasn't been reliant on the capital markets for more than two years. A lot of that has to do with the fact that the company's business isn't as capital intensive as others, but it's also because the small amounts of capital spending the company has done have been funded by operational cash flow. That being said, the company does have a debt load that has become a little more onerous than normal, thanks mostly to the warm winter. According to Kuglin, this has put the company's debt metrics in a pinch, but he sees it as a rather manageable position.
A sign of confidence in an uncertain time
Despite the challenges of the recent winter and the deteriorating debt metrics, management still has quite a bit of confidence in the company's results because -- according to CEO Michael Stivala -- it saw an opportunity to raise its payout to shareholders.
With a distribution yield of 10.4%, investors shouldn't expect much dividend growth. Then again, with a yield that high, the company's distribution growth can be pretty slow, and investors can still generate a decent return over time.
Where will growth come from?
Wholesale and retail distribution of propane is a very mature business that doesn't exactly have a lot of organic growth. The good thing for investors, though, is that it is a very fragmentedmarket that provides lots of merger and acquisition opportunities to consolidate the market. According to Stivala, there are lots of opportunities on the radar that Suburban is ready to pounce on when the timing is right.
Mergers and acquisitions have been a big part of Suburban's business for some time. Based on this statement, investors shouldn't be itching for a deal to happen tomorrow, but the comapny does seem to have some irons in the fire that should lead to growth in the future.
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