What happened
Share prices for Ferrellgas Partners L.P. (FGP), one of the largest propane distributors in the United States, fell 18.2% in June. It was a deep monthly decline, but really just a continuation of the fall that started in September 2016. Since that point last year, the units are down around 75%.
The big story at Ferrellgas is that it attempted to expand into the oil and natural gas midstream business, and it didn't go well. That's basically what was announced in September last year, when the CEO who orchestrated the expansion was ousted, and the value of the new midstream assets was written down. Ferrellgas was also forced to cut its distribution from $0.5125 a unit per quarter to just $0.10 a unit per quarter.
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So what
You can see why investors have punished Ferrellgas Partner units. And things didn't get any better in the company's fiscal third quarter. On June 9, Ferrellgas announced that Q3 earnings fell more than 60% year over year. A big factor in that was the weather, which was 2.7% warmer than the same quarter last year, and 19.5% warmer than normal. The end result was a nearly 5% drop in gallons delivered. Weak propane sales don't bode well for the company, especially while it's still trying to deal with the debt overhang left from its midstream push. The midstream business also continued to struggle, though that was basically expected.
On the debt front, the news was mixed, at best. Debt remained elevated with the partnership reporting a leverage ratio of 6.45, well higher than its target of 4.5. However, Ferrellgas was able to adjust its debt covenants (again), leaving that elevated 6.45 ratio lower than the new 7.75 debt ratio covenant. So the debt picture remains a problem, but creditors have been willing to work with the partnership.
Now what
Ferrellgas is struggling with a self-inflicted wound, and at this time, its units are only appropriate for aggressive investors. That said, with the unit price down more than 75% since last September, a lot of the damage has already been priced in. This is a turnaround story, and with the company's founder and namesake back in control, more aggressive investors might want to do a deep dive. Just be prepared for a bumpy ride if you jump aboard.
