Ferrellgas Partners' (FGP) CEO Steve Wambold on Q1 2015 Results - Earnings Call Transcript

| About: Ferrellgas Partners (FGP)
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Ferrellgas Partners, L.P. (NYSE:FGP) Q1 2015 Results Earnings Conference Call December 10, 2014 9:30 AM ET

Executives

Ryan VanWinkle - Chief Financial Officer, Executive Vice President, Treasurer, President of Midstream Operations of the General Partner

Steve Wambold - President, Chief Executive Officer, Director of the General Partner

Tod Brown - Executive Vice President of Ferrellgas of the General Partner, President of Blue Rhino

Analysts

Operator

Good morning. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter fiscal 2015 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions].

Thank you. Mr. Ryan VanWinkle, Executive Vice President and Chief Financial Officer, you may begin your conference.

Ryan VanWinkle

Okay. Thank you, Stephanie and good morning, everyone. Welcome to the Ferrellgas Partners fiscal 2015 first quarter earnings conference call. My name is Ryan VanWinkle, Executive Vice President and Chief Financial Officer and President of our Midstream Operations and joining me today is Steve Wambold, President and Chief Executive Officer, Boyd McGathey, Executive Vice President and Chief Operating Officer and Tod Brown, Executive Vice President and President of our Blue Rhino Operations.

Before we get started, I would like to remind everyone that some of the statements made during the call maybe considered forward-looking and that various risks, uncertainties and other factors could cause actual performance to differ materially from anticipated results. These factors are discussed in our Form 10-K and other documents filed from time-to-time with the SEC.

So with that, I will turn the call over to Steve Wambold, President and Chief Executive Officer for his opening remarks.

Steve Wambold

Okay. Thank you, Ryan. We will follow our usual procedure this morning. First I will provide color on the quarterly results just completed. I will talk a little bit about the remainder for fiscal 2015. I turn over to Tod. He will talk about Blue Rhino's first quarter performance and then Ryan will be back to talk about details of the first quarter financial results. Of course, we will be glad to take any questions after Ryan's piece.

First off, let me say, the quarter was very good from several vantage points. Gross profit was up as well as adjusted EBITDA. DCF more than doubled in the quarter and DCF coverage which, by the way, we view as our most important metric, improved to 1.18 times contrasted with 1.08 times a year before. It's clear that our focus on efficiency is paying off as expenses were flat to prior-year Q1. Even though we were very acquisitive in FY 2014, we did complete nine deals between propane and Midstream in FY 2014, yet expenses were flat. So we are very happy with that.

Market-leading Blue Rhino had a very good quarter. Volumes were up 5% as convenience, drug, grocery and hardware classes posted strong same-store sales gains and Tod will have some more color on that.

And our Midstream division, formed in May of last year, is focused on further diversification and organic growth. You have heard this from us in the past that the backlog of acquisition candidates is very strong and we are actively evaluating many possibilities. Again, our key focus is accretion. That's our key focus there.

The second quarter is off to a very good start. We had to very cold temperatures in November that boosted demand for propane. The drop in cost of wholesale propane has also benefited the industry and our customers and margins. And while the December weather forecast ahs gotten off to a rather warm start, January through March still look to be pretty close to historical temperatures. So with a strong November in the books, we do expect to put up good numbers for the Q2 and as such, we are comfortable with our previous guidance, adjusted EBITDA in the range of $302 million to $320 million, which broke last year's record [ph] of $288.1 million.

So with that, I will turn the call over to Tod Brown.

Tod Brown

Thank you, Steve. As an industry leader in the tank exchange category, Blue Rhino once again, as Steve had referenced, experienced very strong performance during the quarter. The first quarter of our fiscal year at Ferrellgas is the beginning of our off-season at Blue Rhino, but I am very pleased to share with you that we did experience a 5% growth in transactions versus prior year quarter. The volume performance was due in part to overall positive comp store sales and as Steve had referenced with our key retail partners, but also along with very favorable weather conditions that we experienced throughout the quarter. It continue to be a mild fall, which promoted additional grilling opportunities.

The second quarter ahs actually gotten off to a very favorable start as well with November trending up 9% versus prior year. With the holidays though upon us, we have been shifting our focus here within Blue Rhino to our products business for the holiday gift-giving. We personally believe the grilling accessories are a perfect stocking stuffer and we have been seeing a very nice uptick in our sales within that business.

We continue to see new revenues being generated through our products business due to really, our success in adding grills, fire pits and accessories many regional and national large format retailers have not carried our products in the past. There was a very brief but successful quarter from a statement perspective.

At this point in time, I would like to be able turn the call back over to our CFO, Ryan VanWinkle.

Ryan VanWinkle

Thank you, Tod. Well, fiscal 2015 is off to a great start. Improved retail margins and our recently acquired Midstream operations produced record gross profit of $155 million for the first quarter, an 8% increase over the first quarter of last year. Further, operational efficiencies allowed us to keep our expenses in line with our prior year performance in spite, as Steve mentioned, our Midstream and propane operations acquired in 2014.

This combination of record gross profit and operational efficiencies resulted in adjusted EBITDA of $34 million for the quarter, a 30% increase over the same quarter last year. For the trailing 12-months ended October 31, we have posted a record adjusted EBITDA performance of $296 million and distributable cash flow of $195 million yielding distributable cash flow coverage of nearly 1.2 times. This excess in distributable cash flow coverage has produced $30 million to fund our future growth projects.

And now, with a very solid first-quarter in the books, followed by an equally impressive if not better November kicking off our second quarter, we reiterate our full-year adjusted EBITDA guidance of $300 million to $320 million for fiscal 2015. This guidance suggests another record financial performance is possible for Ferrellgas in the upcoming year.

Propane sales for the first quarter were 186 million gallons, down slightly from 191 million gallons a year ago. However, retail gallons were nearly unchanged despite national temperatures that were 20% warmer than normal and similar to prior year [ph]. Impressively, our Midstream operations processed nearly four million barrels of water in line with our expectations.

Gross profit for the quarter was a record $155 million, reflecting an 8% increase over $143 million [ph] achieved in fiscal 2014. As previously mentioned, this increase in gross profit resulted from a $0.05 per gallon improvement in our propane margins and the inclusion of $6 million of gross profit from our recently acquired Midstream operations.

In the quarter the average wholesale price of propane at Mont Belvieu dropped 9% when compared to the first quarter of 2014. Further, since the beginning of the fiscal year, crude oil prices have declined 25% and correspondingly wholesale propane prices have decreased by that same amount. Thus while our Midstream operations growth profit was negatively impacted by the lower crude oil prices, the corresponding drop in wholesale propane prices provided our propane operation the opportunity to more than offset the shortfall highlighting the benefits of our diversification strategy.

Operating expense for the quarter was $103 million, unchanged from the first quarter of 2014 with operational efficiencies from our propane operations, offsetting the incremental expense associated with Midstream and propane acquisitions completed in 2014. General and administrative expense was also unchanged from prior-year at $11 million. Equipment lease expense for the quarter was just over $5 million compared to $4 million in the first quarter of last year, in line with our expectations as we continue to address our truck fleet to best manage the overall cost of transportation. And finally, interest expense for the quarter was $24 million, up from $22 million a year ago due to the issuance of new debt to fund our acquisitions.

As mentioned, all of this resulted in adjusted EBITDA for the trailing 12-months of $296 million, a new record, up from last year's fiscal 2014 record performance of $288 million [ph] and distributable cash flow for the [indiscernible] $195 million from $190 million achieved in fiscal 2014.

A final note, we are very well-positioned for the propane season [indiscernible] and our continued growth for propane and Midstream operations. Today we sit with nearly $250 million of borrowing capacity on our lines of credit and have no long-term debt maturities due until 2020 and beyond. We are very proud of these first quarter results which were in line with our expectations and we do look forward to another record breaking year in 2015 as we continue to build upon our recent successes.

So with that, we would like to turn the call back over Stephanie to address any questions there maybe from the analyst group.

Question-and-Answer Session

Operator

Ryan VanWinkle

Okay. As always, thanks for your participation on the call and your interest in Ferrellgas. We wish you a great holiday season. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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