Why Ferrellgas Units Are Getting Hammered

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Ferrellgas Partners L.P. (NYSE: FGP) sank to a new 52-week low Wednesday morning after reporting a net loss per share of $6.68 for its fourth fiscal quarter. In the fourth quarter of fiscal 2015, the company reported a net loss per common unit of $0.64 and a profit of $0.35 per common unit for the full fiscal year.

In the worst sort of news for investors, the company said it is considering reducing its quarterly distribution by about half. The company’s board decides on the distribution to unitholders on a quarter-by-quarter basis and is currently discussing cutting the payments from an annual rate of $2.05 to “approximately” $1.00 per common unit. The quarterly distribution for the first fiscal quarter has not been determined yet.

The net loss of $669 million was largely due to a non-cash impairment charge of $628.8 million related the company’s June 2015 purchase of pipeline company Bridger Logistics for $837.5 million in cash and common units. Interim CEO James E. Ferrell said that low crude oil prices have had a negative impact on the company’s midstream logistics business.

In addition to the midstream division’s loss, sales of propane have dropped over the past two years as a result of warmer weather. Ferrell said:

In light of the recent developments related to our Jamex settlement, a prolonged downturn in the midstream sector, as well as two full years of erratic weather patterns driving down propane demand, we are taking prudent action at this time to preserve capital and improve the Company’s financial position. We are committed to strengthening our balance sheet by de-levering in a meaningful way. We are confident this action will support the long-term interests of our unitholders, employee-owners and other stakeholders, and we look forward to growth in distribution when our leverage ratio and debt return to more reasonable levels.

The company said it needs to pay down debt (about $1.94 billion in long-term debt currently) and reduce its leverage ratio, which is approaching the 5.5x limit on its secured credit facility. On Tuesday Ferrellgas “obtained an amendment under the secured credit facility and accounts receivable securitization facility pursuant to which the maximum leverage ratio is increased to a range of 5.95x to 6.05x over the next six quarters.”

Investors were voting with their wallets Wednesday morning, and common units traded down more than 23% at $12.64 after touching a new low of $12.54 earlier. The stock’s 52-week high is $21.22 and the consensus 12-month target estimate is $16.29.