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Must-know: Suburban Propane’s 1Q14 earnings

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Suburban Propane missed consensus expectations

The fiscal year for Suburban Propane Partners (SPH) is calculated October 1–September 30. Suburban Propane reported adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) for the three months ending December 28, 2013, of $118 million, compared to consensus EBITDA of $123 million and compared to $117 million for the same period last year. Distributable cash flow for the quarter was $92.9 million, compared to $91.4 million last year.

1Q2014 Vs 1Q2013

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SPH noted that weather during this period in its service territories was normal and 9% colder than the prior year. However, December was considerably colder than average, which offset a warmer-than-normal October and November. During the quarter, SPH sold 157.9 thousand gallons of retail propane (compared to 153.9 thousand last year), and 14 thousand gallons of refined fuels (compared to 15.9 thousand gallons last year). In its 10Q, Suburban Propane broke out operating income for propane and fuel oil or refined fuels separately. Using this data, propane segment operating income ($106.4 million) per gallon of retail propane sold was $0.67 for the last reported quarter, compared to the year prior’s operating income ($104.2 million) per gallon of retail propane sold at $0.68.

Total gross margins of $245.8 million for the 1Q14 were $3.4 million lower than the prior year first quarter of 249.2 million (down from 50% to 47%), primarily due to the higher commodity prices offset to an extent by the higher propane volumes. Overall, propane unit margins were slightly lower as a result of the dramatic increase in wholesale propane costs. It is important to note that SPH doesn’t break out its gross margins by segment. However, propane is sufficiently dominant, accounting for ~83% of revenues and 97% of operating income, to reasonably assume the other segments’ impact is not material.

In January SPH declared a quarterly distribution of $0.8750 per common unit for the 1Q14, which equates to an annualized rate of $3.50 per common unit

Guidance

Suburban noted that it didn’t typically provide guidance, but that it expected better results for this fiscal year than last year. SPH anticipates realizing the bulk of the incremental $15 million of synergies in the second half of fiscal 2014 and believes it is on target to achieve a total of $50 million in synergies over a three year period from the Inergy acquisition date.

In their earnings report, the company also addressed propane supply challenges during the quarter, which was experienced by other propane distributors as well. Other distributors operating in this space include Ferrellgas (FGP), AmeriGas (APU), and NGL Energy Resources (NGL). It is important to note that Suburban comprises a portion of the Yorkville High Income MLP ETF (YMLP), which in turn tracks select master limited partnerships (or MLPs) as well as the Global X MLP ETF (MLPA).

Continue reading the next section to learn about how SPH measures up to competition.

 

 

 

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