Ferrellgas Partners, L.P. (FGPR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Ferrellgas Partners L.P. Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Michelle Maggi, Vice President of Corporate Affairs.

Thank you, Kevin. Good morning, everyone. We filed this morning premarket our fourth quarter and full fiscal year 2026 earnings release. If you have not seen it yet, please go to our website, and you'll find it under the Investor Relations tab at ferrellgas.com. With me today is Tamria Zertuche, our President and Chief Executive Officer; and Nick Heimer, Ferrellgas' Vice President and Controller. Today's call includes prepared remarks where Tamria and Nick will go over our fourth quarter and full fiscal year 2026 results, concluding with responses to previously submitted questions. Please note that this call may contain forward-looking statements as determined by federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed forward-looking statements. These statements may be affected by important factors as set forth in our filings with the Securities and Exchange Commission and our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in any forward-looking statements. We take -- we undertake no obligation to publicly update any forward-looking statements, except to the extent required by law. In addition, please refer to the 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. This morning's conference call is being webcast and is also available for replay via our website. With that, I will turn the call over to Tamria.

Thank you, Michelle, and good morning, everyone. Before I get into the numbers, I want to start where I believe we should always start with our employee owners. Ferrellgas is unique in this industry in that our people, they're not just employees, they're owners. Through our ESOP, our employees indirectly own Class A units of this partnership. Every result you hear today, the cost discipline, the safety improvement, the customer retention gains, is the direct product of people who show up every day because they have a real personal stake in this company's success. Our ESOP is core to our culture, and ownership is a genuine driver of the operating performance you're about to hear about. Fiscal 2026 was a year defined by discipline, by choosing to do the harder things now so that Ferrellgas is stronger for the future. Fourth quarter adjusted EBITDA, it grew 3% over prior year to $23.8 million. For the full fiscal year, adjusted EBITDA was $321.3 million, down 3% from fiscal 2025, but that's primarily because we made the decision to resolve several legacy general liability claims from prior years. It was the right call to make. At the same time, we made real progress on our capital structure. In October, we redeemed $650 million of 2026 senior notes and issued $650 million of new 2031 senior notes. We extended and expanded our revolving credit facility. Both S&P Global and Moody's recognized that refinancing work with credit rating upgrades. Then in March, we completed the conversion of Class B units into Class A units. 1.3 million Class B units became 6.5 million Class A units, which simplifies our unit structure. It eliminates the Class B distribution obligation and redirects future cash flow towards debt reduction, investment in the business and long-term value for our Class A unitholders. We also strengthened our Board this year. Pamela A. Breuckmann was appointed Vice Chair. Pam has been a steady and thoughtful presence in our governance and succession planning. This reflects the depth of what she brings to this company. Andrew Safran joined the Board, bringing more than 3 decades of investment banking and private equity experience in natural resources and energy infrastructure. The company also welcomed Scott I. Asner to the Board, brings investment management experience and a 20-year legal career. Together, this Board and management brings the governance, financial and strategic depth to Ferrellgas that we need to move into fiscal 2027. The fourth quarter brought a cold and wet Memorial Day and then heat advisories over the 4th of July, which did impact some areas of our wholesale business. Persistent warm weather, especially in the West, where temperatures ran 34% above prior year for us, kept overall gallons soft. Our team responded the way they always do. Retail held customer retention against prior year quarter, and then they grew gross margin dollars by $0.7 million, closing the year with 92.4% new customer conversion rate. Blue Rhino kept its footprint above 65,000 retail locations nationwide and continues to invest in the infrastructure and its last mile logistics, a great quarter for us. I'll let Nick walk you through the numbers in more detail. Nick?

Thanks, Tamria. Starting with the fourth quarter, adjusted EBITDA increased $700,000 or 3% to $23.8 million compared to $23.1 million in the prior year period. After adjusting for nonrecurring costs, operating expense and G&A expense decreased $2 million and $1.9 million, respectively, which was offset by a $3.8 million decrease in gross profit. Lease buyouts and the strategic refinancing of several operating leases into finance leases also drove a $700,000 decrease in equipment lease expense. Gross profit decreased $3.9 million or 2% for the quarter. Average Mont Belvieu propane prices were up 6.8% compared to the prior year period, and $3.1 million or 2% increase in cost of sales outpaced an $800,000 or 0.2% decrease in revenue. Gallons sold were down 1 million or 1%, almost entirely on a 1 million or 1% decline in retail gallons as persistent warm weather, particularly in the West, where temperatures ran 34% above the prior year and 10% above the 10-year average, continued to weigh on demand. Wholesale gallons were flat. Blue Rhino's tank exchange business was affected by a cold wet Memorial Day and heat advisories over the July 4 weekend. Net loss attributable to the company increased $4.7 million or 18% to $31.5 million compared to a net loss of $26.8 million in the prior year period. That was driven by a $6.8 million increase in interest expense, the $3.9 million decrease in gross profit I just mentioned and a $3.4 million increase in loss on disposal of assets partially offset by a $9.8 million decrease in operating expense, which included $7.8 million of nonrecurring items related to an employee benefit-related change and a litigation recovery, plus a $9.5 million decrease in plant and other costs driven by lower other expense and reduced bad debt. Those decreases were partially offset by increases of $4.9 million in personnel costs and $2.6 million in vehicle expense. Now for the full year, adjusted EBITDA was $321.3 million compared to $330.7 million in fiscal 2025, a decrease of $9.4 million or 3%. G&A expense decreased $5.4 million after EBITDA adjustments, primarily reflecting the $125 million legal settlement we recorded in fiscal 2025, which was offset by a $20.4 million increase in operating expenses, largely those several legacy general liability claim settlements mentioned before. Gross profit for the year increased $1.1 million, essentially flat. Average Mont Belvieu prices were down 8.9% for the year, and a $75.5 million or 8% decrease in cost of sales outpaced a $74.3 million or 4% decrease in revenue. Gallons sold were down 24.6 million or 3% on declines of 13.8 million or 6% in wholesale and 10.7 million or 2% in retail in a year that ran about 3% warmer than average and 11% warmer than the prior year, 16% warmer than normal in the West alone. Cost management initiatives helped offset the impact of lower revenue on overall profitability alongside with our continued efforts to grow weather-agnostic business. Net earnings attributable to the company were $71.7 million compared to a net loss of $15.6 million in fiscal 2025, a swing of $87.3 million, driven primarily by a $134.2 million decrease in G&A expense, largely from that 2025 litigation settlement and partially offset by a $20.4 million increase in OpEx, a $16.8 million increase in interest expense driven by the refinancing at elevated rates and an $8.7 million increase in depreciation and amortization expense. Capital expenditures for the year totaled $77.3 million, $49.3 million for growth capital and $28 million of maintenance capital, down from $80 million in fiscal 2025, reflecting our continued discipline in our capital allocation. On liquidity, at July 31, 2026, we had total liquidity of $195.1 million made up of $48.4 million in cash and cash equivalents and $146.7 million of availability on our revolving credit facility, ample room to fund operations, seasonal working capital needs and continued investment in our growth. Overall, this was a year where the core business held up well against real weather headwinds. Now I'll turn it back to Michelle.

Thanks, Nick. I'd like to briefly take a moment on a few other company matters before we move to closing remarks and Q&A. First, safety. Safety is always a core value and a company-wide commitment at Ferrellgas. We talk a lot about our continued focus on telematics and driver safety technology because we know it is making and will continue to make our professional drivers better. We see daily how our managers are utilizing the real-time visibility into their drivers' behavior, how it strengthens our operational discipline and drives measurable gains in both fuel efficiency and productivity across the company. For fiscal '26, total workers' compensation claims improved 3.9% and lost time incidents improved 15% compared to prior year. We also saw CSA compliance performance improve across 6 key categories for this year. Fewer workplace injuries, faster return to work outcomes and stronger compliance results all reflect the real impact of these safety and technology investments for our employee owners and for our operations. That same commitment to our people extends beyond the road and into the communities they serve. Our business is keeping homes warm throughout the winter. Operation Warm lets us extend that to children who might otherwise go without a coat. This year, we provided nearly 1,000 new coats to children in need. For a lot of families, that's one less expense heading into the cold months. 96% of families who received a coat said it eased a financial burden. And since our partnership began, we've reached more than 9,000 children. We've also partnered with Operation Barbecue Relief for more than 14 years. Together, we've helped provide more than 13 million meals to people affected by natural disasters. Our dedication to giving back also extended globally this year. We served as presenting sponsor of the International Rhino Foundation's Keep the 5 Alive campaign, supporting conservation efforts for all 5 rhino species across Africa and Asia. Finally, focusing on the regulatory landscape, we're encouraged by several recent events coming out of Washington. On June 8, 2026, the U.S. Supreme Court struck down a Department of Energy rule that would have required 95% annual fuel utilization efficiencies on all residential furnace sales by 2028, a standard that roughly 55% of all gas furnaces sold, including non-condensing propane furnaces, simply can't meet. Congress separately overturned, through the Congressional Review Act, an advanced clean truck mandate that would have forced electrification of commercial delivery vehicles, which would have required us to electrify our own bobtail delivery fleet on a time line we didn't control. So that's a direct benefit to our own capital planning, not just an industry-level tailwind. And a new 5-year FERC pipeline shipping rate index in effect from July 26 through June 2031, capped rate increases below inflation. The National Propane Gas Association estimates that saves the propane industry roughly $7 billion versus the prior index and closer to $14 billion versus what the pipelines had originally thought. We also continue to be a long-standing leader in autogas, which positions us well for both the EPA's Clean School Bus program that encourages diesel to propane conversions and for the early but growing demand for propane-powered backup at data centers. I will now hand the call back to Tamria for closing remarks.

Thanks, Michelle. Fiscal 2026 demonstrates what Ferrellgas is capable of when our people are prepared, our operations are disciplined and our strategy is clear. We navigated real weather volatility, settled legacy general liability claims, advanced our capital structure and continued to expand our Blue Rhino exchange footprint while holding retail customer retention steady in those segments we're focused on. As the second largest retail propane marketer in the United States by gallons sold with a low operating cost structure among national publicly reporting peers, a fully developed telematics program and a dual channel model spanning bulk delivery and Blue Rhino tank exchange, we enter fiscal '27 from a position of real operational strength. Several tailwinds support our outlook entering the new fiscal year. Propane supply remains plentiful, which underpins stable margins and reliable service. And our national accounts team continues to build momentum with new expanded customer relationships. As Michelle touched on, we also saw favorable regulatory developments in fiscal '26, creating long-term positives for this industry. We'll keep actively managing the headwinds we can't control like elevated diesel costs and evolving tariff environment through our operational efficiencies and our ongoing cost discipline. And based on our own analysis of publicly available information, our operating expense per employee continues to compare favorably to other publicly reporting national propane companies. A lean cost structure built over years of operational investment, we believe it's a competitive advantage. We enter fiscal '27 with a stronger balance sheet, a simplified unit structure and full confidence in our ability to build on this momentum. Thank you for joining our call today and for your continued interest and support of Ferrellgas. We will move into some previously submitted questions. I'm going to pass the call back to Nick.

Thanks, Tamria. To start, we had a question on net loss for the quarter increasing year-over-year. And to break that down, the increase was driven by a $6.8 million rise in interest expense following our refinancing, a $3.9 million decrease in gross profit tied to the weather impacts we described and a $3.4 million increase in loss on disposal of assets. Those were partially offset by a $9.8 million decrease in OpEx, which included $7.8 million of nonrecurring items, the employee benefit-related change and the litigation recovery, along with lower plant and other costs. So outside of that, the underlying business performed well. Gross profit for the year was essentially flat despite a 3% decline in gallons sold in a warmer-than-normal year and margin per gallon also improved.