Propane gas and equipment distributor Ferrellgas Partners (NYSE: FGP) reported worse-than-expected fourth-quarter losses, and its annual losses surged to $43.2 million from a profit of $32.4 million a year ago. Let's take a more Foolish look at the numbers on a quarterly as well as on an annual basis.

The quarterly numbers
Ferrellgas's fourth-quarter revenue showed an increase of 27%, which is OK. However, the cost of goods sold blew up by 45% due to the 45% rise in wholesale propane costs. Consequently, gross profit margins plunged to 28.1% from 36.9% in the year-ago quarter.

Apart from that, it was mildly relieving to see quarterly selling and administration margins decrease from 31.7% to 26%. This means that the company successfully kept operating expenses low despite the rise in revenues.

The annual numbers
Although annual revenues increased by 15% to $2.4 billion, gross profits were disappointingly lower by 6%, at $689.4 million. This was caused by a 27% jump in the cost of goods sold, again due to higher propane prices. The company was equally successful in keeping annual selling and administration costs relatively flat, at $473.9 million.

No props for propane
Retail sales volumes for Ferrellgas have been hurt by poor economic conditions in the U.S. and by conservative consumers who cut back on spending due to higher prices. Lower retails were also attributed to tepid demand from the agriculture industry, which witnessed an abnormally dry harvest season, a complete opposite of last year's abnormally wet one. However, revenues for retail increased $84.6 million on the back of higher prices and acquisitions during the year.

Wholesale sales also increased on the back of higher sales volumes and higher gas prices. But aside from the earnings, there is a greater cause of worry for this company.

Alarming ratios
On the balance sheet side, Ferrellgas looks excessively leveraged, with a dangerously high total debt-to-equity ratio of 1,332%. This is compared to peers such as AmeriGas Partners (NYSE: APU) and Inergy (NYSE: NRGY), who sport lower ratios, at 225.3% and 139.1%, respectively.

Over the last 12 months, nearly all of the company's operating income went to paying interest. And another area of concern is the company's current ratio, an indicator of its ability to pay off short-term obligations. Ferrellgas shows a relatively low current ratio at 1.1, while peers like Suburban Propane (NYSE: SPH) and Inergy sport healthier ratios of 2.5 and 2.2, respectively. (Amerigas is an exception, with a shoddier current ratio of 0.8.)

The Foolish bottom line
High propane costs along with lower margins might continue to hurt the company's top and bottom lines, though there is a little hope that greater demand during the winter season would mean better numbers in the second and third quarters of the financial year. But the company is practically drowning in debt, has posted losses lately, and has low liquidity. With more than a billion dollars in long-term debt, zero retained earnings, and just $7 million in cash and equivalents, this company gives me the heebie-jeebies. So, how do you Fools feel about this company? Leave your comments in the box below.

  • To add Ferrellgas Partners to your Watchlist, click here.
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  • To add Suburban Propane to your Watchlist, click here.

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