10-K: Ferrellgas Partners, L.P. Reports Fiscal Year 2024 Results Amidst Weather Challenges and Strategic Shifts

Ferrellgas Partners, L.P. reports a decrease in net earnings for fiscal year 2024, primarily due to warmer weather impacting propane sales and increased operating expenses, despite strategic efforts to diversify and improve efficiency.

Summary

• Ferrellgas Partners, L.P. reported net earnings of $110.2 million for fiscal year 2024, a decrease from $136.9 million in the previous year.
• The decrease in net earnings was primarily driven by a $24.1 million decrease in gross margin due to a 5% decrease in gallons sold, which was impacted by weather that was 4% warmer than the previous year, and lower wholesale prices.
• Operating expenses increased by $24.1 million, including increases in personnel, vehicle, and plant costs.
• Depreciation and amortization expense also increased by $5.1 million.
• These negative impacts were partially offset by a $20.4 million decrease in general and administrative expenses, mainly due to lower legal costs, and a $2.9 million decrease in loss on asset sales and disposals.
• Distributable cash flow attributable to equity investors decreased to $212.3 million in fiscal 2024 from $254.4 million in fiscal 2023.
• Distributable cash flow excess was $43.2 million in fiscal 2024, compared to $135.0 million in fiscal 2023, primarily due to an increase of $50.0 million in distributions paid to Class B unitholders and the decrease in distributable cash flow attributable to equity investors.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive strategic initiatives but is overshadowed by negative financial results and significant risks. The decrease in earnings and cash flow, coupled with the substantial debt and litigation risks, creates a cautious outlook.

Positives

• General and administrative expenses decreased by $20.4 million, primarily due to lower legal costs.
• Loss on asset sales and disposals decreased by $2.9 million.
• The company continues to expand its tank exchange business, with a 10% increase in tank exchange selling locations.
• The company is actively working on extending the maturity date for its Credit Facility.

Negatives

• Propane sales volumes decreased by 5% due to warmer weather and a decrease in retail customers.
• Gross margin decreased by $24.1 million, primarily due to lower retail sales volumes and prices.
• Operating expenses increased by $24.1 million, driven by higher personnel, vehicle, and plant costs.
• Adjusted EBITDA decreased by $42.8 million, or 12%, primarily due to lower operating income and adjustments related to legal fees and acquisition costs.
• Distributable cash flow attributable to equity investors decreased by $42.1 million.
• Distributable cash flow excess decreased by $91.8 million.

Risks

• Weather conditions, including warm winters, may reduce the demand for propane, which could have a material adverse effect on our results of operations.
• Sudden and sharp increases in wholesale propane prices may not be completely passed on to our customers, especially those with which we have contracted pricing arrangements.
• We are dependent on our principal suppliers, which increases the risks from an interruption in supply and transportation.
• Our failure or our counterparties failure to perform on obligations under commodity derivative and financial derivative contracts and increased costs associated with such contracts could materially affect our liquidity, cash flows and results of operations.
• We may not be successful in making acquisitions, and any acquisitions we make may not result in achievement of our anticipated results.
• Our operations, capital expenditures and financial results may be affected by regulatory changes and/or market responses to global climate change, including competition from other energy sources in response to such changes.
• We are subject to operating and litigation risks, and related costs or liabilities may not be covered by insurance.
• If we are unable to protect our information technology systems against service interruption, misappropriation of data, or breaches of security resulting from cyber security attacks or other events, or we encounter other unforeseen difficulties in the operation of our information technology systems, our operations could be disrupted, our business and reputation may suffer, and our internal controls could be adversely affected.
• If we are unable to access the financing markets, including through our Credit Facility, it may adversely impact our business and liquidity.
• Our substantial indebtedness and other financial obligations could impair our financial condition and our ability to satisfy our obligations and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
• Restrictive covenants in the Indentures, the Credit Agreement and the agreements governing our other future indebtedness and other financial obligations may reduce our operating flexibility and ability to make cash distributions to holders of Class A Units and Class B Units.
• Our Class A Units are no longer listed on the New York Stock Exchange and are instead traded on the OTC Pink Market. The OTC Pink Market has less liquidity than the NYSE and unitholders may face limited availability of market quotations for our Class A Units, reduced liquidity for the trading of our Class A Units and potentially lower trading prices for our Class A Units.
• There may be no active trading market for our debt securities, which may limit a holders ability to sell our debt securities.
• Subject to certain restrictions, Ferrellgas Partners may dilute existing interests of unitholders by selling additional limited partner interests. Ferrellgas Partners may also dilute existing Class A Units by converting Class B Units to Class A Units.
• If Ferrellgas Partners is permitted to make and makes distributions to its partners, while any Class B Units remain outstanding, Class B Unitholders collectively will receive at least approximately 85.7% of the aggregate amount of each such distribution and may receive up to 100% of any such distribution. Accordingly, while any Class B Units remain outstanding, Class A Unitholders may not receive any distributions and, in any case, will not receive collectively more than approximately 14.1% of any distribution.
• Ferrellgas Partners is a holding entity and has no material operations or assets, other than its ownership stake in the operating partnership and Ferrellgas Partners Finance Corp. Accordingly, Ferrellgas Partners is dependent on distributions from the operating partnership to service its obligations and pay distributions to its unitholders. These distributions are not guaranteed and are subject to significant limitations.
• Unitholders have limited voting rights; our general partner manages and operates us, thereby generally precluding the participation of our unitholders in operational decisions.
• Unitholders may not have limited liability in specified circumstances and may be liable for the return of distributions.
• The U.S. Internal Revenue Service (the IRS) could challenge our classification as a partnership for federal income tax purposes, which, if successful, would result in our being treated as a corporation for federal income tax purposes. Additionally, changes in federal or state laws could subject us to entity-level taxation. Either of these events would substantially reduce the cash available for distribution to our unitholders.
• The tax treatment of publicly traded partnerships could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
• A successful IRS contest of the federal income tax positions we take may reduce the market value of our units and the costs of any contest will be borne by us and therefore indirectly by our unitholders and our general partner.
• Unitholders may be required to pay taxes on their share of our taxable income even if they do not receive cash distributions from us.
• Our unitholders may be subject to limitations on their ability to deduct interest expense incurred by us.
• There are limits on the deductibility of losses.
• Tax gain or loss on the disposition of our Class A Units could be different than expected.
• Tax-exempt entities, regulated investment companies, and foreign persons face unique tax issues from owning Class A Units that may result in additional tax liability or reporting requirements for them.
• Reporting of partnership tax information is complicated and subject to audits; we cannot guarantee conformity to IRS requirements.
• Conflicts of interest could arise as a result of the relationships between us, on the one hand, and our general partner and its affiliates, on the other.
• The partnership agreements of Ferrellgas Partners and the operating partnership expressly limit the liability of our general partner by providing that our general partner, its affiliates and their respective officers and directors will not be liable for monetary damages to us, our unitholders or assignees thereof for errors of judgment or for any acts or omissions if our general partner and such other persons acted in good faith.

Future Outlook

The company expects to continue expanding its customer base through acquisitions and organic growth, capitalize on its national presence and economies of scale, and maximize operating efficiencies through its technology platform. The company is also actively working on extending the maturity date for its Credit Facility.

Industry Context

The propane distribution industry is mature and highly competitive, with demand significantly impacted by weather conditions. Ferrellgas competes with other large national and regional firms, as well as numerous small independent firms. The company is attempting to mitigate the impact of weather conditions by expanding its geographic footprint and diversifying its business.

Comparison to Industry Standards

• Ferrellgas believes it is the second largest retail marketer of propane in the United States, based on its propane sales volumes in fiscal 2024.
• The company is a leading national provider of propane by portable tank exchange, competing with other large multi-state marketers and smaller local independent marketers.
• The company's performance is compared to a 10-year average of weather data from the National Oceanic and Atmospheric Administration to understand the impact of weather on propane usage.
• The company's risk management activities are compared to major domestic energy companies, and its technology platform is compared to smaller competitors who may not be able to justify similar investments.

Legal Proceedings

• On June 7, 2024, a Judgment was entered against Bridger Energy, LLC, Bridger Transportation, LLC, and Ferrellgas Partners, L.P. and Bridger Logistics, LLC in the amount of $169.3 million. The company is appealing the Judgment.
• The litigation described above is not covered by insurance.

Related Party Transactions

• The operating partnership guaranteed the issuance of an aggregate $124.5 million in letters of credit under its Credit Facility to surety providers for a $190.0 million appeal bond posted on behalf of Ferrellgas Partners.
• Ferrellgas Partners repaid the operating partnership the full amount of the term loan of $15.3 million, which represented the outstanding principal and accrued interest.
• Ferrellgas Partners paid the operating partnership $3.9 million for separate intercompany receivables related to expenses incurred during the 2021 debt transactions.
• Ferrell Companies, Inc. is the owner of the general partner and is an approximate 23% direct owner of Class A Units and thus a related party.
• FCI Trading Corp. is an affiliate of the general partner and thus a related party.
• Ferrell Propane, Inc. is controlled by the general partner and thus a related party.
• James E. Ferrell was the Chief Executive Officer and President of our general partner and the Chairman of the Board of Directors of our general partner through July 31, 2023. In fiscal 2024, he was the Executive Chairman of the Board of Directors of our general partner. Effective August 5, 2024, he was appointed to serve as Chairman of the Board of Directors of our general partner. He is a related party.

Stakeholder Impact

• Shareholders may experience reduced returns due to decreased net earnings and distributable cash flow.
• Employees may be affected by changes in compensation and benefits.
• Customers may experience changes in pricing and service due to market conditions and operational changes.
• Suppliers may be affected by changes in procurement activities and payment terms.
• Creditors may be affected by the company's ability to meet its debt obligations.

Next Steps

• The company will continue to expand its customer base through acquisitions and organic growth.
• The company will capitalize on its national presence and economies of scale.
• The company will maximize operating efficiencies through utilization of its technology platform.
• The company is actively working on extending the maturity date for its Credit Facility.

Key Dates

Keywords

propane, retail, wholesale, energy, distribution, natural gas liquids, weather, financial results, EBITDA, debt, acquisitions, risk management, Class A Units, Class B Units, Preferred Units