Morningstar | Suburban Reports Mixed Weather Impacts in Fiscal Second Quarter
We are maintaining our $24 fair value estimate and negative, no-moat rating for Suburban Propane Partners after the partnership reported its propane, refined fuels, and energy marketing businesses generated $163 million in adjusted EBITDA for the fiscal second quarter.EBITDA in the quarter was up from $162.1 million in the same the year-ago period. We are maintaining our fiscal 2019 adjusted EBITDA expectation, which assumes normal weather. Management does not issue earnings guidance.
The quarter was a mix of two distinct weather seasons for the company. January was 10% warmer than normal on average. However, colder weather in February and March drove volumes higher than average. Across Suburban's service territory, temperatures were 3% higher than normal but 5% lower than in the same year-ago period. Volumes declined 2.6% overall.
Leverage continues to be an industrywide concern. Suburban's leverage ticked slightly lower to 4.32 debt/EBITDA, moving toward the company's 4.0 debt/EBITDA target. We think this target is attainable absent significant unfavorable weather. High leverage, volume fluctuations from weather, and organic sales declines will likely limit distribution increases. We don't incorporate meaningful distribution increases in our five-year forecast.
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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