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Ferrellgas (FGP) Hit by Warm Weather, Buyouts Bode Well


On Oct 14, 2016, we issued an updated research report on Ferrellgas Partners L.P. FGP. Demand for propone was hurt by warmer-than-usual weather, which in turn impacted the partnership’s bottom line. To be precise, temperature was 19% warmer than normal and 16% higher than the prior-year period. Nevertheless, the partnership is working to drive growth through organic and inorganic strategies.

Due to these headwinds, Ferrellgas Partners reported a much wider-than-anticipated loss in the fiscal fourth quarter. Moreover, revenues fell significantly short of expectations.

Despite these negatives, Ferrellgas Partners’ efforts on entering the midstream business have been commendable. Furthermore, in 2015, the partnership acquired Bridger Logistics, LLC for nearly $822.5 million in an attempt to expand its midstream business. In fiscal 2016, Ferrellgas Partners’ gross profit improved 9.8% year over year primarily on the back of strong contribution from the Bridger acquisition.

Amid the ongoing volatility in commodity prices, the partnership is working to improve its debt level and leverage ratio. To this end, management is contemplating a reduction in the annual cash distribution rates.



As evident from the fiscal fourth-quarter results, weather conditions have a significant impact on the demand of propane. In the fiscal fourth quarter, total propane sales volume were down 3.6% year over year to 143.7 million gallons due to lower wholesale and retail sales. Warm weather reduced the need for heating, thereby dampening demand for propane.

Moreover, the highly competitive nature of the propane distribution business may put pressure on Ferrellgas Partners’ sales volumes and/or operational results. Profitability is, to a large extent, dependent on the degree of competition.

Zacks Rank & Key Picks

Ferrellgas Partners currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include AmeriGas Partners LP APU, Western Gas Equity Partners, LP WGP and CVR Refining, LP CVRR.

AmeriGas Partners recorded a positive earnings surprise of 14.29% last quarter. The company’s share price has jumped 30.9% year to date. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Western Gas Equity has a Zacks Rank #2 (Buy). The company’s earnings estimates for 2016 and 2017 moved up 3.8% and 2.6%, respectively, in the last 60 days.

CVR Refining, a Zacks Rank #2 stock, saw its earnings estimates for 2016 move up 38.9% in the last 60 days.

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