Ferrellgas Partners, L.P. (FGP) CEO James Ferrell on Q2 2019 Results - Earnings Call Transcript

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About: Ferrellgas Partners, L.P. (FGP)
by: SA Transcripts
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Earning Call Audio

Ferrellgas Partners L.P. (NYSE:FGP) Q2 2019 Results Earnings Conference Call March 8, 2019 10:00 AM ET

Company Participants

William Ruisinger - Interim CFO

James Ferrell - Chairman, Interim CEO, and President

Conference Call Participants

Tarek Hamid - JPMorgan

Ben Brownlow - Raymond James

Operator

Good morning. My name is Sepania [ph] and I will be your conference operator today.

At this time, I would like to welcome everyone to the Second Quarter Fiscal 2019 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]

I would now like to turn the call over to Mr. Bill Ruisinger, Interim Chief Financial Officer. Sir, you may begin your conference.

William Ruisinger

Thank you, and welcome to our second quarter 2019 earnings call. Thank you for joining us. Before we get started, I'd like to remind all of you that some statements made during this call may be considered forward-looking and that various risks, uncertainties and other factors could cause actual performance to differ materially from anticipated performance. These factors are discussed in our Form 10-Q and other documents filed from time-to-time with the Securities and Exchange Commission.

As detailed in our earnings release and Form 10-Q that were filed this morning, second quarter consolidated adjusted EBITDA was $119.7 million compared to last year's $120.6 million. Exclusive of results from the non-strategic asset sales completed during fiscal 2018, last year's adjusted EBITDA was $116.7 million, an increase of $3.0 million.

Trailing 12 months adjusted EBITDA for the go-forward business now stands at $229.5 million, up from $226.5 million reported last quarter. Highlights for the quarter included over 25,000 new customers added since last year in over 5000 new Blue Rhino selling locations. We eclipsed the 700,000 retail customer mark for the first time since 2015. We also added two accretive acquisitions this quarter with a third announced just last week.

For the quarter, total gallon sales of 309.7 million were consistent with the 310 million gallons a year ago. Retail gallons however were 4.0 million or approximately 2% higher despite weather that was only 0.7% colder than the prior year.

This increase in retail gallons sold was a result of the nearly 4% customer growth previously noted. This growth was offset by a reduction in wholesale sales of approximately 4 million gallons.

Propane margins were higher than prior year by three point one cents per gallon despite competitive pressures negatively affecting the reseller business. Total gross margin for second quarter 2019 was $258.4 million compared to $249.2 million in the prior year, exclusive of the effects of gross profit related to assets sold in fiscal 2018.

Operating expenses for the second quarter were $121.2 million up from $113.9 million in the prior year exclusive of the effects of operating expenses related to assets sold in fiscal 2018. This increase was primarily due to additional expenses associated with the increase in trucks, drivers and customer service resources to service 25,000 new customers as well as to continue to expand our operating capacity to provide a platform for future growth.

For second quarter 2019, general and administrative expense was $16.3 million compared to $13.8 million in the prior year, exclusive of the effects of general administrative expenses related to assets sold in fiscal 2018. The increase is primarily associated with increased legal fees.

Interest expense for the quarter was $44.9 million compared to $42.7 million in the prior year. The increase is due primarily to higher rates associated with our new working capital facility. This includes the effects of the recent upward trend in LIBOR rates.

At January 31, 2019 we held $40.6 million of cash and had $196.2 million of available borrowing capacity under our revolving credit facility, which provides total liquidity at January 31, 2019 of $236.8 million.

Our maintenance capital expenditures were $26.1 million for the second quarter compared to $4.6 million in the prior year. This increase was primarily attributed to a decision to utilize excess cash to purchase new propane delivery vehicles that would historically have been leased.

Growth capital expenditures were $6.9 million for the quarter compared to $9 million in the prior year. As we look at February, we continued the momentum built at the end of January. Moving into the third quarter, we saw the first month of that quarter generate sales of over 90 million gallons of propane. That's over 18% more than last year's February.

The momentum built in February carried into the first two weeks of March with a significant backlog setting the stage for what could be continued strong performance into the third quarter.

At this time, I'll turn the call over to Jim for his comments.

James Ferrell

Good morning. We continue to build momentum at Ferrellgas as sustained focus on the core propane business has not only yielded results, but strengthened our foundation for long term success.

We're adding customers and setting tanks at levels not seen in years. We're growing market share, entering new markets and adding density in our strongholds. Most importantly, however, we are accomplishing all of this while investing in the business as part of our long term strategy to position this company and its employee owners for the future.

We are also seeing record volumes in the tank exchange business as we grew the number of selling locations yet again this quarter. The new protection plants in California and Alabama and five recent acquisitions of independent distributors would allow us to maximize the return on this business.

The culture of today's Ferrellgas is as positive and productive as it's ever been. Our people are working well together in innovative ways to promote operational excellence. We are proactive, not reactive. We work from the head, not behind. We collaborate and make the right decisions. We don't fret about making mistakes, and most importantly, we provide our people the best in the industry with the tools, knowledge and confidence to do what is best for our business.

Now let me talk a moment about our debt. We continue to be happy with our liquidity and flexibility that our working capital facilities provide us to manage the business. We enjoy a working relationship with our great partners and supporters.

We continue to work on options related to the leverage however, we are in the process of engaging the financial advisors that will assist in evaluating options to resolve that leverage situation.

We have been focused on our business as we perform through the winter heating season and we have been generating cash flow. Have plenty of liquidity, we're growing the business and investing for the future. Our MLP bonds do not mature at least the whole code and did not mature for over a year in June of 2020. Our goal is to reduce our leverage to a level that will allow us to continue to aggressively consolidate the industry and position us for the future.

I could not be more proud with the progress that we've made over the last two years in the company with the direction in which we are heading. Our people are empowered. We are constantly searching for and finding new ways to improve and build our business, and we feel very good about the future.

Now, I’ll turn the call back to our moderator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Tarek Hamid with JPMorgan.

Tarek Hamid

Good morning.

James Ferrell

Good morning.

Tarek Hamid

You guys made an enormous amount of progress on the volume side in the market share side. Can you just, sort of as you think about that program, sort of what inning do you think you’re in, you are in the sort of seventh inning of taking back market share or is it earlier in your months?

James Ferrell

Well I'd say, it's -- I'm not sure I could put it in innings. I think, it's a long term process that we plan to continue. We have made. You're right. We've made significant strides over the past two years, but as that continues to build and build and build, you know we'll start to reap the benefits and efficiency. But we feel like there's a whole lot more consolidation in this industry and that's really the long term goal.

Tarek Hamid

Fair enough. And as you talked about wanting to reduce the total leverage, and maybe just give us a sense of what your actual leverage target is sort of what's the right leverage level to be running Ferrellgas into the future?

James Ferrell

Well that's -- we have an opinion. You have an opinion, everybody else has an opinion. We're going to go for the lowest multiple of our cash flow that we can go for. And that is the goal here. We can make up a number, but I don't want to lay those cards out right now.

Tarek Hamid

I guess, is it fair to ask how do you think about the ability to pay a distribution going forward versus leverage? How do you weigh those two outcomes in sort of any solution you're thinking about?

James Ferrell

Well you have to get to the leverage solution first. Once you get to that, distribution recovery will happen, begin to happen. And without that, you don't have a currency, you don't have an equity? Don't forget 23% of the public equity is owned by an ESOP. We have employees to be concerned about, always that ask me occasionally. What are we going to do about the way the ESOP value has decreased? It cannot increase unless we have distribution.

So this is a chicken egg problem. We're first worried about debt restructuring. We're first worried about getting I shouldn't. I'm using the word worry, forget that we are -- we're focused on debt restructuring. We're focused on lowering our debt. When you lower your debt, and finally get to that conclusion and there's an event then you can restore, can restore an equity distribution. This is an unusual company, but it's a massive women's partnership. It still has a general partner, and general partner is owned by ESOP. We -- it's we are not worried about making this happen.

Tarek Hamid

Understood. I appreciate not wanting to sort of negotiate too much in public. Thanks for taking my questions.

James Ferrell

Sure. Thanks Tarek.

Operator

[Operator Instructions] And your next question comes from the line of Ben Brownlow with Raymond James.

Ben Brownlow

Good morning. I just wanted to -- wanted some clarity around the maintenance CapEx. I know you purchased a new delivery trucks and are shifting away from leases, but was that the entire bucket year-over-year. And related, how should we think about the impact to the equipment lease expense going forward?

James Ferrell

Yes, so that's not the entire bucket. We did lease some trucks as well this quarter as well as the previous quarter. So it's a mix of purchased vehicles and leased vehicles. I couldn't give you an exact number on how what that impact would be going forward. But you know we'll probably continue a mix of buy versus lease, the rest of this year and then we'll see how things go forward.

But you know we're essentially managing cash. We do have cash available and so it shows when you use some of that cash to purchase rather than lease.

Ben Brownlow

Great. And you're still comfortable with kind of a 50 million to 60 million maintenance CapEx.

James Ferrell

Excuse me, 15 to… Go ahead.

William Ruisinger

Yes, I'd say that you know that number was good if you set aside the purchase trucks. Those purchase trucks would be in addition to that 50, 60.

James Ferrell

And then going forward, any trucks that we purchase would be in addition as well.

Ben Brownlow

Okay. So can you give us a ballpark of where you're thinking for maintenance CapEx this year?

William Ruisinger

Well I'd say in total, total CapEx is probably going to be somewhere plus or minus 100 range, probably 90 to 100 with if we continue to buy trucks as I expect. But that would be that would be in line with what the original estimate. Like I said, just adding in the purchased vehicles.

James Ferrell

Some of it depends on when they arrive. So you have an ongoing replacement program. It's not as though we've decided to just buy something next week, it's things are going on and like a two, three year period of time. And so trucks come out, we have other things. It's just the maintenance of a business and we are recovering on the truck side from several years of buying no trucks. So we do have a little higher truck spend now than we will once we get this settled.

Ben Brownlow

Okay. And I guess just to not to beat the dust, just when we think about the lease expense -- I'm basically just trying to get to know where the return is going to flow through. So you think that the growth in the business will sort of offset and lease expense will remain. They'll just support future growth? Where do you think you know that kind of over time, the retirement of the lease expenses for those trucks will bring that lease expense down and you know you'll see some additional return there?

William Ruisinger

It's hard to say exactly how it will model out. But my guess would be that as we continue to grow the business you know, as we incrementally add gallons, we have to add vehicles because you know Bobtail [ph] truck can only hold so many gallons and one driver can drive one truck. So, as we continue to grow the business, whether it's organically or through acquisition, you're going to see more vehicles, and therefore you're going to see more lease expense.

So, as we reduce the age of the fleet, you know that if we're releasing, that's going to increase the lease expense, but it would it would have a correlation on reduced repair and maintenance. But I would, I would just in generally -- generally speaking, I would say as we continue to execute on growing, we're going to see lease expense not go down.

James Ferrell

Let me give you a different think about it. We're talking about restructuring debt. Restructuring debt gives us a better credit rating, a much better credit rating means, our lease expense goes down. Our interest rate money would burn on interest goes down, both are a form of finance. The worse your credit rating, the more expensive it's going to be. The better your credit rating, the less expensive it’s going to be.

So we might be able to buy more trucks and have our -- both our interests and lease expense go down. So, don't forget that we're not going to look like we do today, eventually.

Ben Brownlow

Okay, great. Thanks for walking me through that. And just one more from me, the -- you know you mentioned February being strong, and just kind of based on the data, I'm looking at it seems like a mid-single digit growth rate year-over-year. Is that a fair ballpark of what you're seeing on volumes?

William Ruisinger

You said mid-single digit growth percentage growth.

Ben Brownlow

Percentage growth, yeah.

William Ruisinger

That -- that feels right. There's still a lot left to play out. You know March is certainly started off well. The maps look good into the second half of March, so there's still -- there's still a fair amount to play out to know exactly how that stands. But you know that's directionally correct.

Ben Brownlow

Okay, great. Thanks guys.

William Ruisinger

Thanks Ben.

James Ferrell

Is that all we have?

Operator

There are no further questions.

James Ferrell

Okay. Thanks for your time today.

Operator

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