Winter is coming. While some individuals might be inconvenienced by the morning ritual of snow and ice removal, the change in seasons has relatively minor consequences in the grand scheme of things. Unfortunately, that's not the case for propane distributor Ferrellgas Partners (FGP), which may very well face existential circumstances depending on the strength of its business this winter.

The owner of the Blue Rhino brand of exchangeable propane tanks is in a perilous position. Operating expenses are rising faster than income as the business bets big on growth that has yet to materialize, which has many investors questioning the sanity of the strategy. After all, the business has seen its interest payments and long-term debt double since 2014, while it hasn't turned a profit since fiscal 2015. It sports a book value of negative $1 billion.

Given the recent stock plunge and hints that the business may not be able to keep its lofty distribution going much longer, investors may be wondering: Where will Ferrellgas Partners be in one year? As it turns out, winter could mean everything.

A red flag being waved against a partly cloudy sky

Image source: Getty Images.

Red flags abound

The writing has been on the wall for Ferrellgas Partners for some time now. The business's filings with the Securities and Exchange Commission in the last couple of years show that debt covenants required it to drastically reduce its leverage ratio (earnings to debt) by July 2018, or the end of its fiscal 2018. The trajectory of operations in recent quarters made it abundantly clear the company would fail to meet the deadline.

And that's exactly what happened. Ferrellgas Partners recently disclosed that its distribution was on shaky ground because it ran afoul of debt covenants, bringing back memories of the 80% reduction in distribution payouts that occurred in 2016. More worrisome, investors who take a look at the company's performance in fiscal 2018 won't find much reason for optimism:


Fiscal 2018

Fiscal 2017

Change (YOY)

Total revenue

$2.07 billion

$1.93 billion


Operating income, propane business

$167.8 million

$187.9 million


Cash available for distribution (CAFD)

$61.6 million

$75.6 million


Distribution payments made

$38.8 million

$78.9 million


Interest expense

$168.5 million

$152.5 million


Long-term debt

$2.08 billion

$1.99 billion


Data source: SEC filings. YOY = year over year.

Simply put, Ferrellgas Partners should not be prioritizing distribution payments right now, although even suspending payments is unlikely to provide enough extra cash to dig the business out of its hole. There's been barely any progress on debt, while core operations (read: propane) are actually less profitable compared to the year-ago period. While that's due to a surge in operating expenses aimed at growing the propane business, and volumes sold are in fact growing, the timing of plowing money into growth is questionable at best. Eventually, the strategy will need to yield results, and that's largely dependent on a cooperating climate.

Unfortunately for the business and its unitholders, Mother Nature might prove pretty uncooperative once again this year. The National Oceanic and Atmospheric Administration is expecting a warmer winter for most of the United States, including the Midwest, where most of the company's customers are located.

A woman raises her sunglasses while looking at her phone in shock.

Image source: Getty Images.

Given the toxicity of the balance sheet and the near-absolute absence of negotiating power with creditors due to worsening operating metrics, a warmer-than-average winter could even push Ferrellgas Partners into more drastic measures like a sale or potential bankruptcy. The numbers don't point to any other way to relieve the financial burden in that scenario.

This won't end well for Ferrellgas Partners

At this point most investors have lost confidence in Ferrellgas Partners, which has seen its stock fall 66% in the last year. The business now sports a market cap of just $144 million. So although the distribution yield has jumped to an incredible 25%, that's a sign of the incredible risk of owning shares in the company. Investors should stay far away from this stock.