Suburban Propane Partners LP (SPH) 2003 Q4 法說會逐字稿

Welcome to the Suburban Propane fourth quarter 2003 results conference call. I would like to turn the conference over to our host Bob Plante. Please go ahead.

Thank you and good morning everyone. Welcome to Suburban's fourth quarter and 2003 fiscal year-end conference call. I am Bob Plante, Vice President, Finance of Suburban. Hosting our call this morning is Mark Alexander, President and Chief Executive Officer. Joining us will be Mike Dunn, Senior Vice President, Corporate Development and David Eastin, our Senior Vice President and Chief Operating Officer.

The purpose of today's call is to review our fourth quarter and fiscal 2003 full year financial results along with our current outlook for the business. As usual, once we've concluded our prepared remarks, we will open the session up for the questions.

Before getting started, I would like to remind you that statements made in the course of this conference call that relate to the partnerships or management's expectations or predictions are forward-looking statements. The Partnership's actual results may differ materially from those projected in such forward-looking statements. Additional information that could cause actual result to differ materially from those discussed in forward-looking statements is contained in the partnership's SEC filings, including it's Form 10-K for the fiscal year ended September 28, 2002 and Form 10-Q for the quarter ended June 28, 2003. Copies of these filings may be obtained by contacting the partnership or the SEC.

Certain non-GAAP measures will also be discussed on this call. We have provided description of those measures as well as the discussion of why we believe the information is useful in our Form 8-K filings to the SEC this morning. The Form 8-K can be accessed through a link on our website at www.suburbanpropane.com.

At this point, I would like to begin our discussion by turning the call over to Mark Alexander. Mark?

Thanks Bob, and good morning every one. Because this is traditionally a very slow period for Suburban and our industry as a whole, only Bob Plante and I will share with you some prepared comments while Mike Dunn and David Eastin, as well as Bob and I will be available for questions. As I have already stated, by a seasonally a slow period, our results for the fourth quarter were well within our range of expectations as our sales volumes began to reflect a benefit from our continued focus on customer satisfaction and customer retention.

In addition, we successfully controlled retail margin pressures throughout the quarter. In a few minutes, Bob will discuss our fourth quarter and full year results in more detail.

We are very proud of this significant accomplishments achieved during our fiscal 2003. In addition to our solid operating performance, we further strengthened our balance sheet by repaying a total of $88.5m of debt during the year. Also, although not required to do so, we made $10m contribution to our defined benefit pension plan to proactively address our under funded pension liabilities. In addition to taking these very positive steps to position our company for the future, we increased the distribution on our common units for the seventh time since our recap in 1999. All in all, we have just completed a very successful year.

At this point, let me turn it back to Bob.

Thanks, Mark. As we discussed our financial results for the quarter to be consistent with our reporting for previous periods, I am excluding the impact of a $300,000 unrealized loss and a $200,000 unrealized gain from our current and prior period results respectively that's applicable to FAS 133 accounting. Due to the seasonal nature of our business, recurring EBITDA for our fourth quarter, ending September 27 was a loss of $6.1m, compared with $2.1m loss for the same quarter a year ago.

Our seasonal net loss totaled $20.7m, were $0.74 per common unit, compared to $18.2 m, or $0.72 for common unit in the prior year. Retail sales during the quarter totaled 79m gallons, an increase of 2.3m gallons or 3%, from a year ago. As Mark indicated, this increase in retail volumes was due principally to our customer growth and retention initiatives, offset partially by the continued negative impact attributable to the general state of the economy. As you know, weather is typically not a factor in the fourth quarter.

Revenues for the fourth quarter increased $15.9m, or 14.5% to $125.6m from $109.7m in the fourth quarter of fiscal 2002. This increase resulted primarily from higher average selling prices reflecting the increase of the cost of the propane as well as the previously mentioned increase in retail sales volumes.

Propane prices for the quarter ending September averaged $0.533 per gallon versus $0.42 per gallon for the same quarter a year ago. That's an increase of 27% in base product cost year-over-year. Total gross margin of $63m for the quarter was $1.3m, or 2% higher than in the prior year's fourth quarter.

Combined operating and general administrative expenses of $69.2m, or $5.4 m or 8.4% higher than a year ago. After the result of the anticipated increases in insurance and pension related cost, as well as higher fuel expenses reflecting the higher commodity prices. Given the results from our fourth quarter, EBITDA for our full fiscal year 2003 totaled $111.5m, compared to $112.6 m for the prior year.

Prior year results were favorably impacted by a $6.8m gain from the sale of our Hattiesburg, Mississippi storage facility, while current year results benefited from a $2.5m gain from the sale of nine customer service centers that took place during the year.

Net income for fiscal 2003 totaled $50.2m, or $1.93 per unit compared to $48.2 m, or $1.91 per unit in the prior year. Again, I'm excluding the impact of FAS 133, which resulted in unrealized loss of $1.5m in the current year compared to $5.4m unrealized gain in the prior year results. Especially, considering the significant challenges presented by the weak economic environment, we were very pleased with these full year results.

As Mark indicated, we have taken very significant steps during fiscal 2003 to further strengthen our balance sheet. Even after retiring $88.5m of debt, we still ended the fiscal year with the cash balance of about $16m with no outstanding borrowings through our bank revolving credit facility. In fact, our total debt of about $384m as of the end of the fiscal year is at a record low level.

In addition, as a result of the voluntary contribution toward the fine benefit pension plan, improvement in our investment results and the proactive steps that we've taken to significantly limit further growth in our pension liability. Our under-funded pension liability as of the end of fiscal 2003 will decrease noticeably.

Our strong cash flow has enabled us to take these significant steps while maintaining a very solid total distribution coverage, which amounted to 1.24 times as of the end of September. Capital spending during the quarter totaled $4.6 million of which $1.9 million has been maintenance-related. For the fiscal year in total, capital spending amounted to $14.1 million, which included $4.7 million of maintenance capital spending.

Mark?

Thanks, Bob. As announced in our press release this morning, Suburban has the clear quarterly distribution of $0.5875 per common unit. This distribution, which equates to an annual distribution rate of $2.35 per unit, will be paid on November 10 for our fourth quarter ended September 27. Looking forward to fiscal 2004, we are very encouraged by our accomplishments in 2003. We believe that our operations are well prepared as we move toward the heating season.

As we have discussed with you all year along, our focus on net customer growth remains a top priority. We have achieved positive net customer growth in fiscal 2003 despite the environment of increasing retail prices and a sluggish economy. We are determined to improve upon these positive trends for our fiscal 2004 and beyond. In addition, these significant proactive steps taken throughout fiscal 2003 to further strengthen our already solid balance sheet leave us poised and ready to entertain potential acquisition opportunities as they arise.

As always, we appreciate your attention this morning and we would now like to open the call up for questions. Operator, if you could help us with that please?

We have a question from John Tysseland. Please go ahead.

Hi guys.

Hi John. Good morning.

Good morning.

Obviously, your propane prices are up. What is your feeling for being able to maintain margins this year, over last year? It looks like and you still, you have seen some growth, or actually or some positive improvement over the last year. So far, do you think you can be able to maintain that?

I think so, John. In certain markets, we have budgeted a slight drop in the margin, and that's more from a competitive nature. But our margins are fairly elastic and we can pass on prices, that is, the base price of the commodity is not high, and when you see the competing fuels or other energy sources, the prices have been going up. The price of the gas pump, it's not really a big deal.

If you see it across the board as you saw in the journal last week, anticipation on natural gas price is continuing to rise, fuel and everything. It's certainly something we look at everyday, but I think, within reason, we expect to maintain those price levels.

Have you seen your competitors raising prices pretty actively also? They are not sitting back, just trying to gain market share from lower prices or are they also pretty actively increasing their prices also?

Prices basis [Inaudible]; they really haven't changed much for the last four, five months. So I think the environment is going to cost them to the mid-50s if you will. So, I am not so sure that the issue is explosive or volatile as it was last year. When you compare prices to the quarter we have just finished to last year's quarter, the increase in prices is only marginal and if you look back over last year, this time last year versus this year, again, there is not really that much.

I mean, you know that the historical price for propane-based naphtha was $0.35 today with $0.57. Feels high, but the reality of it is we have been around this level now for quite some time and the price didn't drop during the summer time. Correct.

How about your propane inventories or I guess how is your supply looking for the winter?

Well I think the inventories have built up over the course of last month or so when United States became a fairly aggressive importer and less of that exporter, if you will. The issue with realty is the inventories are being held by the suppliers and not the end user at this stage because people felt that there will be a better buying opportunity over the course of the summer, which in fact never materialized.

So, inventories are there. It's just going to be a question of price. I would suggest or suspect that we will probably see more spot activity this year than we have seen, perhaps over the last two years, which again, we will go back to your margin question, should help the people who are facing their price over replacement cost.

Excellent. Thanks for that clarification. Good year.

Thank you John, appreciate the question.

We have no further questions.

Thank you, we appreciate that. Again, we appreciate the support and the commitment of the investment community on behalf of our employee's and us. We are very confident with how well poised we are for the up coming earnings season, and particularly for our long-term growth potential. Again, I'll reemphasize that while the overall status of the industry, the Propane Industry is at best fair, mostly because of the poor economic environment. We've not sat around and we proactively addressed those longer-term issues and also created a financial strength with respect to our balance sheet. We have the ability to do transactions as long as they make economic sense. We have been disciplined in that arena from day one. We would continue to be, but we are anxious as we have ever been to go out there and do something. So, we are looking forward to - down the payment on the deal side. The sub mix sense will do it.

Again, we appreciate the support and we look forward to speaking with everybody in our first quarter for 2004. Thank you very much.

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