Morningstar | Suburban Propane Reports Flat Fiscal 1Q Results
We are maintaining our $24 fair value estimate and negative trend, no-moat rating for Suburban Propane Partners after the partnership reported its propane, refined fuels, and energy marketing businesses generated $93.3 million in adjusted EBITDA for the first quarter of fiscal 2019, flat with the year-ago period. We are maintaining our fiscal 2019 adjusted EBITDA expectation, which assumes normal weather. Management does not issue earnings guidance.Volatile weather both hurt and aided Suburban's results. Cooler weather early in the quarter, when propane demand is lower, was offset by a warmer-than-average December, when propane demand is generally higher. Overall, temperatures were 3% higher than normal and 5% lower than the prior year's first quarter, leading to a 0.7% quarterly decline in volumes.
As with its propane peers, leverage continues to be an industrywide concern. At 4.4 times debt/EBITDA at the end of first quarter, Suburban is in a slightly better position than peer AmeriGas. Seasonal working capital changes increased leverage, but we still think management's consolidated leverage target ratio is attainable absent any significant unfavorable weather. Suburban announced a flat distribution for the quarter. We don't incorporate meaningful increases in distribution into our five-year forecast, given Suburban's distribution coverage and leverage.
Suburban Propane Partners is engaged in the distribution of propane, fuel oil and refined fuels, as well as the marketing of natural gas and electricity in deregulated markets. In support of its primary marketing and distribution operations, the company installs and services a variety of home comfort equipment, particularly in the areas of heating and ventilation. The company conducts its business principally through Suburban Propane, L.P., which operates its propane business and assets, and its direct and indirect subsidiaries. The company manages and evaluates its operations in four operating segments, three of which are reportable segments: Propane, Fuel Oil and Refined Fuels and Natural Gas and Electricity.
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