Shares of propane distributor Ferrellgas Partners (NYSE:FGP) declined a whopping 42% in September. The impetus for this massive sell-off were the unceremonious resignation of its CEO and the company's plan for a huge dividend cut.
The entire disaster that was Ferrellgas' most recent earnings report came back in the middle of 2015, when the company, spearheaded by then-CEO Stephen Wambold, acquired Bridger Logistics. The deal was Ferrellgas Partners' first big venture outside of the propane distribution business and into crude oil logistics and water solutions. At the time, Wambold said Bridger was "not a deal to pass up."
Well, based on this past quarter, it was a deal to pass up. The company announced that it took over $650 million in writedowns in its non-propane distribution business. So, basically, every business segment related to Bridger.
To make matters worse, the company took on debt to make the deal happen, and lower profits from those underperforming assets and a record warm winter meant it was in violation of its debt covenants. It is in negotiations for a waiver to get its debt situation under control, but to clean up its balance sheet, the company will cut its dividend.
Based on all of this, it's pretty easy to see that Wambold was no longer welcome in the C-suite.
One thing that makes the investment thesis challenging for investors today is that we know the distribution will be cut, but we don't know how much exactly. The founder and interim CEO James Ferrell has taken over and is likely going to focus on getting the company back to its roots as a propane distributor. This is a very mature, even declining market, so the entire investment thesis in the company consists of a stable, high yield.
Now that Ferrellgas Partners finds itself in hot water with its creditors, and without knowing what the new payout will be, it's difficult to say whether today's price is a buy or not. Until we get a clearer picture as to how it will chart a path forward from here, it's probably best to just stay away.
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