Ferrellgas Partners - Earnings Call - Q3 2025

Executive Summary

• Revenue rose 9% year over year to $560.85M, gross profit increased 6% to $289.23M, and net earnings attributable to FGPR grew 12% to $59.11M; Adjusted EBITDA increased 10% to $114.78M. Strength was driven by residential demand (+12% gallons) and solid retail/wholesale execution amid higher propane prices.
• Retail sales increased $32.7M (+9%) and wholesale sales increased $9.9M (+8%) versus Q3 2024; total propane volumes rose 6% to 222.81M gallons in Q3 2025.
• Operating expenses rose $8.8M and interest expense increased $3.5M, reflecting legal/software costs, plant investments, fees tied to credit facility amendments, and lease-related interest for growth initiatives.
• Capital structure remains a key near-term catalyst: management continues to work with Moelis on refinancing the $308.8M revolver (matures Dec 31, 2025) and $650.0M senior notes (due Apr 1, 2026), anticipating timely completion.
• Consensus estimates from S&P Global were not available for EPS or revenue; relative performance should be evaluated vs prior periods and operational KPIs due to limited coverage for OTC-listed FGPR (values retrieved from S&P Global).

What Went Well and What Went Wrong

What Went Well

• Strong demand and execution: “We are very pleased to have delivered strong third quarter sales growth of 9%, which translated into solid gross profit, and net earnings growth of 12%”.
• Residential and Blue Rhino momentum: Q3 was 12% cooler vs prior year, aligning with a 12% increase in residential gallons; capital projects at Blue Rhino plants aim to improve efficiency and expand capabilities ahead of peak season.
• Strategic wins and technology leverage: Six new national accounts (three-year deal) adding 1.6M gallons, plus four multi‑year contracts adding 0.8M gallons; telematics improved delivery metrics (unproductive deliveries, fill rates, zero-gallon/cylinder deliveries).

What Went Wrong

• Cost pressure and opex growth: Operating expense rose $8.8M (legal +$3.5M; software +$1.6M; capitalized tank installs/plant supplies +$1.0M; property maintenance +$0.8M); cost of product rose 12% from propane pricing, moderating gross margin expansion.
• Higher interest expense: +$3.5M YoY driven by amortization of debt issuance costs tied to revolver amendments (+$1.9M), letter of credit fees (+$0.7M), and lease interest for a growth initiative (+$0.7M).
• Tariffs risk: Management is monitoring tariffs on steel tanks/cylinders and broader trade policy changes; while mitigations are in progress (supplier diversification, buying power), it remains a potential margin headwind.

Transcript

Operator (participant)

Good day, and welcome to the Ferrellgas Partners third quarter fiscal 2025 earnings conference call. At this time, all participants are on a listen-only mode. Please be advised that this call is being recorded. I will now turn the call over to Michelle Maggi. Please go ahead.

Michelle Bimson Maggi (VP, Corporate Affairs)

Thank you. Good morning, everyone. Thank you for joining us today for our third quarter conference call. I'm Michelle Maggi, Vice President, Corporate Affairs for Ferrellgas. I'm also the company's investor contact, and I look forward to getting to know many of you in the coming months. Today's call includes prepared remarks as well as answers to a few previously submitted questions from our President and Chief Executive Officer, Tamria Zertuche. 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 set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in any forward-looking statements.

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'd like to turn the call over to Tamria.

Tamria A. Zertuche (President and CEO)

Thank you, Michelle. Welcome to our third quarter fiscal 2025 earnings call. Ferrellgas has a unique story, one I'm proud to speak about today. We are a company of hardworking and committed people. Our people set us apart. We pride ourselves on being one of the largest propane suppliers in the U.S., with a reputation of being one of the most trusted companies in America. As you may already know, Ferrellgas was once again recognized as one of the most trustworthy companies in America by Newsweek. This is a recognition we accept confidently, as it shows one of the fundamental strengths of our company: our people. We are owned and operated by our employees who consistently focus on operational excellence and safety first. We have a nationwide infrastructure that provides mission-critical, clean, affordable energy to all 50 states. We continue to invest in our infrastructure and technology.

Most recently, we launched a telematics technology platform to manage our fleet, which has helped reduce fuel costs, minimize idling time, and ensure fleet assets are deployed where they are needed most. Additionally, we have continued to invest in our Blue Rhino tank refurbishment footprint, adding automation and safety components that help with productivity and our inventory turns goals. Having a reliable infrastructure, it has fueled our ability to grow. Some examples of our growth are a win in retail this quarter, entering into multi-year deals with several new national account customers. These deals are expected to add more than 2.5 million gallons of new business. Ferrellgas has demonstrated infrastructure resilience through our storm response efforts. During severe weather events in Q3, we demonstrated just what being a nationwide provider does. We mobilized drivers and support staff from outside the affected areas to maintain service continuity.

This allowed uninterrupted propane delivery where needed most. Not only do we deliver on our promise to customers and employees, but we also generate a consistent cash flow with an asset-efficient business model, delivering exceptional results. I am proud of this team. I'm confident in our strategy, a strategy proven to deliver exceptional value and service to our customers. I would like to introduce our controller, Nick W. Heimer. He is going to review our Q3 financial results. Nick.

Nick W. Heimer (Controller)

Thanks, Tamria. In the third fiscal quarter, we generated strong revenue growth of 9%, which was driven by strong field performance in inclement weather and residential market growth. We also delivered solid gross profit gains and net earnings growth of 12% in the quarter versus the prior year. Our retail sales increased $32.7 million, or 9%, compared to the prior year quarter, and partially aligns with the increase in retail gallons sold of 8.8 million gallons, or 5%. The third fiscal quarter 2025 was warmer than normal by 4%, but 12% cooler than the third quarter of 2024, which aligns with a 12% increase in gallons sold to residential customers. Propane sales volumes during the third fiscal quarter increased 13.4 million gallons, or 6%, compared to the prior year period.

Additionally, increases of 6% and 2.6% in wholesale propane prices at our two major supply points contributed to the increase in revenues. Residential sales volume growth of 12% over the prior year quarter drove the majority of the increase, with other retail volume for industrial, commercial, national, and agricultural customers growing at 2%. Our wholesale business, which includes the Blue Rhino propane exchange brand, experienced a great quarter. Wholesale sales increased $9.9 million, or 8%, compared to the prior year period, with a corresponding increase of 4.6 million gallons, or 10%, compared to the prior year period. The increase was driven by a 4.7 million increase in wholesale gallons sold and a 3.1 million increase in tank exchange sales due to organic growth and preparation for peak season.

Improved operational efficiency, in addition to 9% higher revenue, drove increases in gross profit of $16.9 million, or 6%, in the third fiscal quarter. This was partially offset by an increase of $28.1 million, or 12%, in cost of products sold. We recognize net earnings attributable to Ferrellgas Partners L.P. of $59.1 million and $52.8 million in the third fiscal quarter of fiscal years 2025 and 2024, respectively. The $6.3 million increase was primarily due to the $16.9 million increase in gross profit previously referenced, which was partially offset by an $8.8 million increase in operating expenses and a $3.5 million increase in interest expense. The $8.8 million increase in operating expense was due to increases of $7.8 million in plant and other, $700,000 in personnel, and $300,000 in vehicle expenses.

The increase in plant and other was primarily due to increases of $3.5 million in legal cost, $1.6 million in software expense, $1 million for capitalized tank installations and plant supplies, and $800,000 for property maintenance. For the third fiscal quarter, adjusted EBITDA, a non-GAAP financial measure, increased by $10.8 million, or 10%, to $114.8 million, compared to $104 million in the prior year quarter. The $16.9 million increase in gross profit and $1.1 million decrease in general and administrative expense after adjusting for a $600,000 increase in EBITDA adjustments drove the increase in adjusted EBITDA for the third fiscal quarter as compared to the prior year period. This increase was partially offset by an $8.8 million increase in operating expenses previously mentioned. The results speak for themselves: a solid quarter by our field professionals. Back to you, Tamria.

Tamria A. Zertuche (President and CEO)

Thanks, Nick. While delivering these solid Q3 operational results, we also executed on impactful capital projects, several within Blue Rhino production plants, to improve efficiency and expand our capabilities to serve customer demands. Now, during periods of economic uncertainty, we have historically observed a shift in consumer behavior towards a more cost-effective, home-based leisure activity in the backyard. The company is well positioned to meet the increases in demand through our robust supply network and our customer-focused service model. Our North Central region experienced a significant ice storm in March. They worked tirelessly and safely to ensure our customers had propane. It is important to acknowledge their efforts, as well as the efforts of all our employees who bravely respond during serious weather events.

The company continues to closely monitor global trade developments, including the imposition of tariffs on steel tanks and cylinders and changes in trade policies that may affect our supply chain, cost structure, and overall business operations. The company is exploring numerous potential actions to mitigate the effects of these developments as we strengthen and diversify our supplier relationships, in addition to leveraging our company's buying power as a national logistics company. We remain committed to proactively adapt to evolving trade conditions, with a focus on minimizing disruption and improving financial performance. Finally, as previously disclosed, we are working with Moelis & Company, a global investment bank. We anticipate completing a refinancing in a timely manner. Now, I'd like to address just a few questions that came in ahead of our call. First, there were some questions around our CFO. As most of you know, our CFO recently retired.

We have a CFO search in process. While we work on gaining a new CFO, Michelle Maggi, whom you met at the start of this call, has taken on expanded responsibilities, including investor relations and earnings communications. She will be an excellent new contact for all interested. As it relates to tariffs, we had a few questions on that about how the company is mitigating the impact of tariffs. I think you should think about it like this: continuous improvement through investments in our business is our overall strategy to limit cost pressures, really for any headwind. We remain focused on delivering safe, high-quality products and services while working diligently to manage costs responsibly. Our priority is to provide value and stability for the consumers who rely on Ferrellgas and Blue Rhino every single day. We've had numerous questions regarding our capital structure and our ongoing work with Moelis.

As discussed with this release, Moelis & Company continue to evaluate the opportunities available. Thank you for joining our call today. We have the best people in the industry. Their dedication and commitment to our customers is the key component that drives our growth and helps us to deliver on our promise to our customers. We are well positioned to capitalize on the opportunities ahead. Thank you for your interest in Ferrellgas. I'll hand it back to the moderator.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.