Why AmeriGas beat estimates but maintained guidance in 1Q14
1Q14 and FY2013 earnings review
The fiscal year for APU is calculated from October 1 through September 30. APU reported 1Q14 adjusted EBITDA for the three months ended December 31, 2013, as $230 million, compared to consensus EBITDA of $202 million and compared to $193 million for the same period last year—a 19% increase.
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Distributable cash flow (or DCF) for the quarter was $173.5 million, compared to $141.5 million last year. DCF has increased significantly since 2012. APU credits this growth to the Heritage Propane acquisition that was completed in 2013. As we can see from the graph below, for FY2013, DCF increased from $196 million to $403 million—an increase of more than 100%, causing the DCF ratio to increase from 0.7x to 1.2x. During the three months ended December 31, 2013, APU declared and paid quarterly distributions at a rate of $0.84 per common unit for the quarter ended September 30, 2013.
APU noted that weather for the quarter was 3.8% colder than normal and 14.0% colder than the prior year, which contributed to the EBITDA growth. 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 doesn’t 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. Capex levels increased about 40% since FY2012.
The AmeriGas Cylinder Exchange program increased volume 9.8% in the quarter and added 2,900 new locations quarter-over-quarter. The National Accounts business volume increased 6 million gallons. APU noted that the Heritage acquisition accelerated growth in these two segments.
The Heritage acquisition continues to boost 2014 growth. Heritage Propane, prior to acquisition, was a residential heavy segment, compared to AmeriGas, which is a more industrial- and commercial-heavy segment. APU’s operating margins have therefore profited from the strategic acquisition, giving APU a broader customer base and enabling APU to achieve its target goal of a 5% increase in distribution and a 3% to 4% increase in EBITDA.
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.”
In the company’s earnings report, APU also addressed propane supply challenges during the quarter, which other propane distributers experienced as well—like Ferrellgas (FGP), Suburban (SPH), and NGL Energy Resources (NGL). Note that AmeriGas is a portion of the Yorkville High Income MLP ETF (YMLP).
To see how APU measures up against its competition, read on the next part of this series.