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Morningstar | Weather Volatility Leads Amerigas to Lower Guidance

We are reaffirming our $46 per unit fair value estimate and our no-moat and negative moat trend ratings for AmeriGas Partners after the partnership delivered $67.2 million in adjusted EBITDA in third-quarter fiscal 2018, up from $58.4 million in the year-ago period. Management lowered its fiscal 2018 adjusted EBITDA guidance range to $610 million-$620 million from the prior lowered range of $625 million-$645 million. We plan to reduce our 2018 adjusted EBITDA estimate in line with management's new range, but this will not affect our fair value estimate, as we expect to keep our long-term assumptions unchanged.

Overall, temperatures in the quarter were 10% colder than normal and 21% colder than the year-ago period. However, retail volumes were up only 4%, as a warm May offset a much cooler April. Mont Belvieu prices were 40% higher year over year, but management was able to maintain margins, suggesting the company's continued ability to fully pass through the higher propane costs. In addition to volatile weather, we think higher prices led to some price-sensitivity among its customers, also pressuring volumes.

The company's smaller cylinder exchange and national account volumes remain a growth area for the company, increasing 7% and 12%, respectively, in the year to date. Management continued to acquire additional volumes in the quarter, adding roughly 3 million gallons. We continue to incorporate minimal distribution growth into our outlook.