AmeriGas Partners and Suburban Propane fiscal 1Q14 earnings analysis

Market Realist

AmeriGas Partners and Suburban Propane

Recently, AmeriGas Partners (APU) and Suburban Propane (SPH) reported results for October, November, and December of 2013. These companies are propane distributors that sell the fuel to residential, commercial, agricultural, and industrial customers in the U.S. The largest proportion of propane sales generally goes to residential customers, and propane demand is greatest during the winter, when customers use propane for home heating.

Suburban Propane missed consensus expectations

Suburban Propane reported adjusted EBITDA for the three months ended December 28, 2013, of $118 million, compared to consensus EBITDA of $123 million and compared to $117 million for the same period last year. Distributable cash flow for the quarter was $92.9 million, compared to $91.4 million last year.

SPH noted that weather during this period in its service territories was normal and 9% colder than the prior year. However, December was considerably colder than average, which offset a warmer-than-normal October and November. During the quarter, SPH sold 157.9 thousand gallons of retail propane (compared to 153.9 thousand last year), and 14.0 thousand gallons of refined fuels (compared to 15.9 thousand gallons last year). In its 10-Q, Suburban Propane breaks out operating income for propane and fuel oil or refined fuels separately. Using this data, propane segment operating income ($106.4 million) per gallon of retail propane sold was $0.67 for the last reported quarter, compared to the year prior’s operating income ($104.2 million) per gallon of retail propane sold at $0.68. Suburban noted that it didn’t typically provide guidance, but that it expected better results for this fiscal year than last year.

AmeriGas beat estimates but maintained EBITDA guidance

AmeriGas Partners reported adjusted EBITDA for the three months ended December 31, 2013, of $230 million, compared to consensus EBITDA of $202 million and compared to $193 million for the same period last year. Distributable cash flow was $173.5 million, compared to $141.5 million last year.

APU noted that weather for the quarter was 3.8% colder than normal and 14.0% colder than the prior year. During the quarter, APU sold 374.1 million retail gallons (compared to 350.7 million last year) and 37.5 million wholesale gallons (compared to 26.3 million). EBITDA per gallon sold was $0.56 per gallon, compared to $0.51 per gallon last year (note that this measure does not distinguish between retail and wholesale gallons sold, and likely margins on wholesale gallons are significantly smaller than on retail gallons). Gross margins on propane sales were 42% for the quarter, compared to 46% the prior year.

Despite strong performance during the quarter, APU didn’t change its adjusted EBITDA guidance of $645 million to $675 million for the current fiscal year. When asked by a Wall Street analyst why EBITDA guidance hadn’t been adjusted upward, given the strong quarter, APU responded that despite its ability to maintain margins so far, “Margin’s one side of the equation but volume is a huge part of the equation, and the fact that January was cold does not ensure that the second half of February or March will be. So it’s just prudent for us not to do anything at this point.”

The third major propane distributor, Ferrellgas Partners (FGP), is set to report earnings in early March.

To read more about trends that have affected propane and propane distributors recently, as well as commentary provided by distributors on recent earnings calls, please see Must-know: Why did commodities trade so mixed last week?.

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