Suburban Propane Partners, L.P. — Fiscal 2021 Second-Quarter Form 10-Q
Reporting period: Three and six months ended March 27, 2021, compared with March 28, 2020. The unaudited filing covers the Partnership’s retail propane, fuel oil and refined fuels, natural gas and electricity, and home-comfort services businesses. Results are highly seasonal, with the majority of heating-related volumes and profits generated during the October–March peak season.
Financial performance and liquidity
| Metric | Three months ended Mar. 27, 2021 | Three months ended Mar. 28, 2020 | Change |
|---|
| Revenue | $537.2 million | $401.1 million | +34.0% |
| Operating income | $147.2 million | $97.6 million | +50.7% |
| Net income | $127.2 million | $77.4 million | +64.4% |
| Basic net income per common unit | $2.03 | $1.24 | +63.7% |
| Adjusted EBITDA | $172.0 million | $130.6 million | +31.7% |
| Operating margin | 27.4% | 24.3% | +310 basis points |
| Net margin | 23.7% | 19.3% | +440 basis points |
| Metric | Six months ended Mar. 27, 2021 | Six months ended Mar. 28, 2020 | Change |
|---|
| Revenue | $842.4 million | $734.9 million | +14.6% |
| Operating income | $204.8 million | $157.5 million | +30.1% |
| Net income | $165.2 million | $117.5 million | +40.6% |
| Basic net income per common unit | $2.64 | $1.89 | +39.7% |
| Adjusted EBITDA | $252.1 million | $216.0 million | +16.7% |
| Operating margin | 24.3% | 21.4% | +290 basis points |
| Net margin | 19.6% | 16.0% | +360 basis points |
- Volumes and pricing: Second-quarter retail propane gallons sold increased 16.5% to 169.1 million gallons; fuel oil and refined fuels gallons increased 9.1% to 11.0 million. Average propane selling prices increased 12.7%, while average posted propane prices increased 142.8% year over year.
- Cash flow: Six-month cash flow from operations was $101.8 million, compared with $91.3 million in the prior-year period. Capital expenditures were $14.3 million, and investing cash outflow was $19.3 million.
- Balance sheet: Cash was $6.7 million at March 27, 2021. Total assets were $2.13 billion, total liabilities were $1.63 billion, and partners’ capital was $495.3 million.
- Debt and liquidity: Carrying-value long-term borrowings were $1.17 billion, consisting primarily of $1.125 billion of senior notes and $56.2 million drawn on the revolving credit facility. The facility had a $500 million commitment and reported borrowing capacity of $390.2 million, with $53.6 million of standby letters of credit outstanding. The Partnership was in compliance with its debt covenants.
- Leverage: Management reported a trailing-twelve-month Consolidated Leverage Ratio of 3.95x at March 27, 2021.
Material changes versus the prior comparable period
- Second-quarter results benefited from cooler weather, improving commercial and industrial demand, customer growth, and higher retail prices reflecting increased commodity costs.
- Propane revenue increased 38.4% in the quarter and 18.5% for the six-month period. Six-month fuel oil and refined fuels revenue declined 16.8%, and natural gas and electricity revenue declined 6.8%, primarily because of lower prices, volumes, and regulatory restrictions in New York.
- Operating expenses declined 1.3% in the quarter and 4.7% for the six-month period, despite higher volumes, due to lower claims, lower doubtful-account provisions, and operating efficiencies. General and administrative expense increased 63.6% in the quarter and 22.6% year to date, primarily from higher variable compensation.
- Interest expense declined 5.7% in the quarter and 5.3% year to date because of lower revolving-facility borrowings and lower benchmark rates.
- Derivative results improved materially: the second quarter included a $1.6 million unrealized gain versus a $4.7 million unrealized loss in the prior year; the six-month period included a $6.5 million gain versus a $1.9 million loss.
- The Partnership acquired a North Carolina propane retailer for $7.7 million, including non-compete consideration, and made additional investment in Oberon Fuels, a developer of renewable dimethyl ether fuel. The North Carolina acquisition was not material to consolidated results.
Guidance, outlook, risks, and unusual items
- Management expects lower operating profits and potentially lower net income or net losses during the April–September off-season. Cash flows from the heating season are expected to support distributions and other obligations.
- For the remainder of fiscal 2021, management estimated approximately $20.7 million of maintenance and growth capital expenditures, $32.7 million of interest and income-tax payments, and $37.6 million of common-unit distributions. Management expected available cash, revolver capacity, and operating cash flow to be sufficient for current obligations.
- The Board declared a quarterly distribution of $0.30 per common unit, or $1.20 annualized, payable May 11, 2021.
- COVID-19 continued to affect commercial and industrial demand, collections, customer service restrictions, operating costs, and economic conditions. The Partnership stated that its supply chain had not been materially disrupted and that it could not estimate the pandemic’s full financial impact.
- Key operating risks include weather variability, propane and fuel-price volatility, supply and transportation availability, customer conservation, competition, interest rates, regulatory changes, cybersecurity, litigation, and access to capital markets.
- Unusual items included a $0.6 million non-cash pension settlement charge in the second quarter and $0.1 million of prior-year debt-extinguishment expense. The filing states that no material legal-loss reserve was required for a pending natural gas and electricity class action; possible loss could not be reasonably estimated.
- A hypothetical 10% adverse change in commodity prices for open derivative positions was estimated to reduce potential future net gains by $2.7 million. The Partnership stated that derivatives are used for hedging rather than speculative trading.
Important facts for investors to verify
- Whether strong propane volumes and margins persist after the unusually favorable winter-weather comparison and as the business enters its lower-demand season.
- The ability to refinance or repay $581.2 million of debt due in fiscal 2024 and $250.0 million due in fiscal 2025.
- Actual revolver availability after considering outstanding borrowings, letters of credit, and applicable covenant limitations.
- The sustainability of the $0.30-per-unit quarterly distribution in light of seasonal cash flows, debt maturities, and required reserves.
- Exposure to further propane-price volatility, inventory constraints, customer conservation, and derivative mark-to-market movements.
- The ongoing impact of COVID-19, customer credit and collections, New York regulatory restrictions, and the pending class action.
- The filing’s non-GAAP Adjusted EBITDA and leverage calculations, including exclusions for derivative gains and losses, pension charges, and other adjustments.
