AmeriGas Partners has zero exposure to movements in oil prices and has a long track record of delivering steady cash flow and distribution growth through bolt-on acquisitions in the highly fragmented propane distribution market.
When propane prices spiked in the Midwest and Northeast during the 2013-14 polar vortex, AmeriGas Partners’ quarterly results didn’t skip a beat—a testament to the master limited partnership’s (MLP) economies of scale and execution.
The mild winter weighed on propane volumes in the MLP’s fiscal first quarter ended Dec. 31, 2014, while the margin-boosting effects of the precipitous drop in propane price won’t be felt until its fiscal third quarter, when the distributor starts to build its inventories for the 2015-16 winter.
Accordingly, management lowered its cash flow guidance for the fiscal year to between $635 million and $665 million; the midpoint of this range would result in a 2 percent decline from the previous year’s record earnings before interest, taxes, depreciation and amortization (EBITDA).
Nevertheless, we don’t expect the MLP to deviate from its long track record of raising its distribution by 4 percent to 5 percent annually. AmeriGas Partners should benefit from lower propane prices in 2015 and 2016, which should help to bolster volumes and margins. The firm’s fiscal second quarter, however, could disappoint.
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Elliott and Roger on Jun. 28, 2018
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