Last fall I said that Ferrellgas Partners (NYSE:FGP) put in a performance that was simply disgusting and the stock proceeded to fall to the $5 range. Unit prices have absolutely imploded since the major distribution cut early last year. Low energy prices have hurt revenues and earnings. We have seen other partnerships cut their distributions or eliminate them altogether. Although FGP has had a long proud history of its stable distribution, it too was cut. Now the question becomes whether or not this new level of payout ($0.10) is sustainable. The prices of each unit had begun to rebound this winter, but look set to fall back heavily on the back of another round of unexpectedly weak performance. While propane trades as its own commodity, it is correlated to oil and natural gas, which have been on divergent paths lately. As you know oil has been getting crushed. At the same time, natural gas has been strong in recent weeks. Propane however continues to meander.

In its most recent quarter, operations did swing to positive income. This is because the quarter contains some of the coldest months of the year, when propane and other energy sources are in high demand. That said, the company faced pressure as the winter was relatively mild compared to past years. While colder than last year, it was 14% warmer than average. This weighed on demand.

The company saw earnings per share of $0.39. It is critical to note that this gain of $0.39 per share missed by a whopping $0.28. The pain is real. Despite the cooler winter, adjusted EBITDA was down significantly from a year ago. It came in at $105.0 million versus $138.3 million in the same quarter last year. Sales were also weak compared to last year. Sales missed heavily on estimates, by $75 million, coming in at just $579 million, and dropping 11% from last year.

While revenues declined, expenses were relatively well controlled year over year despite new assets under management. Operating expenses decreased to $112.5 million from $116.5 million in the comparable 2015 quarter. General and administrative expenses were down, coming in at $11.4 million versus $12.1 million last year. Of course, there were also more borrowings given the company’s growth strategies and the acquisition. As such, interest expense increased to $36.8 million from $34.7 million a year ago. Further, equipment lease costs jumped to $7.4 million from $7.2 million. You can do the math yourself. Operating income was pressured, but unlike past quarters which had acquisitions, merger, etc., the magnitude of loss declined. Operating income was $75.1 million versus $93.8 million last year.

What we really care about are the cash flows. The company’s top priority remains returning value to stakeholders. In the short term, the primary objective is to reduce debt. That said, as a unitholder, you want your distribution covered. Distributable cash flow to investors was $68.8 million while distributions were $9.72 million. In other words, the distributable cash flow ratio was positive. The company had a $57.7 million excess, which is great as it helps make up for past or future shortfalls. Although the company has lower prices for customers, which pressures revenues and cash flows, propane margin cents per gallon continue to be strong. That said, with the distribution having been slashed, the hope is that the company will be able to repair its balance sheet slowly and work back to providing value for unitholders.

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