Suburban Propane Partners LP (SPH) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for holding. Welcome to the second quarter 2011 results conference call.

This conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to the Partnership's future business expectations and predictions and financial conditions and results of operations. This forward-looking statement involves certain risks and uncertainties. The Partnership has listed some of the more important factors that could cause actual results to differ materially from those discussed in such forward-looking statements, which are referred to as cautionary statements in its earnings press release, which can be viewed on the Company's website. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements.

(Operator Instructions). Later we will conduct a question and answer session. Instructions will be given at that that time. As a reminder, the conference call is being recorded. I'd now like to turn the conference over to your host, Mr. Michael Stivala. Please go ahead, sir.

Thank you, Eddie, and good morning, everyone. Welcome to Suburban Propane's fiscal 2011 second quarter results conference call. I'm Mike Stivala, Chief Financial Officer here at Suburban. Joining me this morning is Mike Dunn, our President and Chief Executive Officer. The purpose of today's call is to review our second quarter financial results, along with our current outlook for the business.

As usual, once we conclude our prepared remarks, we will open the session to questions. Before I get started, I'd like to re-emphasize what Eddie just said about forward-looking statements. Additional information about factors that could cause actual results to differ materially from those discussed in forward-looking statements is contained in the Partnership's SEC filings, including our Form 10-K for the fiscal year ended September 25, 2010, and our Form 10-Q for the period ended March 26, 2011. The 10-Q will be filed by the end of business today. Copies of these filings may be obtained by contacting the Partnership or the SEC.

Certain non-GAAP measures will be discussed on the call. We have provided a description of those measures, as well as a discussion of why we believe the information to be useful in our Form 8-K which was furnished 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'd like to get the call started by turning it over to Mike Dunn for some opening remarks. Mike?

Thanks, Mike, and thanks everyone for joining us this morning. Many of the challenges that have plagued this industry for the past few years have continued throughout this year's heating season. In particular, on-going weakness in the economy coupled with the well-publicized inflationary commodity price environment have certainly affected customer buying habits, which in turn have put pressure on volumes and margins.

With that said, our ability to continue to identify operating efficiencies and reduce costs, along with the strength of our balance sheet, are all factors that have put us in a good position to navigate through this difficult operating environment. Additionally, as mentioned in our press release this morning, we have recently implemented an internal realignment of our operating footprint in response to the persistent, unforeseeable challenges affecting the industry as a whole. The steps taken are made possible as a result of our technology infrastructure and the talent within Suburban.

The organizational changes are intended to put our people in the best position to focus on driving customer-based growth, leveraging our systems for further operating efficiencies and to further reduce our overall cost base. These changes, which primarily focus on realigning our field management and consolidating certain support functions, will enable us to be at an even stronger position to continue to meet the on-going challenges.

In a moment, I will comment on our outlook for the remainder of the fiscal year, however, at this point, I'd like to turn the call over to Mike Stivala to discuss our second quarter results in more detail. Mike?

Thanks, Mike. As we discuss our second quarter results, to be consistent with previous reporting, I am excluding the impact of the $4.1 million unrealized noncash gain applicable to FAS 133 accounting compared to an unrealized loss of $1.7 million in the prior year second quarter. Additionally, for comparability purposes, I am excluding the $9.5 million loss on debt extinguishment in the prior year second quarter associated with the refinancing of our senior notes, which was completed during March, 2010.

Adjusted EBITDA for our fiscal 2011 second quarter totaled $111.6 million. That's a decrease of $12.1 million compared to $123.7 million for the second quarter of fiscal 2010. Net income totaled $96.2 million, or $2.71 per Common Unit for the second quarter of fiscal 2011 compared to net income of $109.6 million, or $3.10 per Common Unit in the prior year second quarter. The fiscal 2011 second quarter results include a $2 million severance charge associated with the recent reorganization that Mike just mentioned.

Retail propane gallons sold in the second quarter of fiscal 2011 decreased 10.5 million gallons, or 8.4% to 114 million gallons from 124.5 million gallons in the prior year second quarter. Sales of fuel oil and other refined fuels decreased 2.2 million gallons or 12% to 16.2 million gallons compared to 18.4 million gallons in the prior year second quarter. The primary factor contributing to the volume decline was customer conservation attributable to the on-going effects of the economy coupled with rising commodity prices.

The negative effects of the economy and commodity prices on volumes were somewhat offset by generally colder average temperatures across much of our service territories. For the quarter, average temperatures were 1% colder than normal compared to 3% warmer than normal in the prior year second quarter. Even the weather in our southeast operations was approximately 21% warmer year-over-year.

In the commodity markets, average posted prices for propane and fuel oil for the second quarter of fiscal 2011 increased 11.8% and 37.3% respectively compared to the prior year second quarter and on a sequential basis, propane prices increased 10.8% over the average prices in the first quarter of fiscal 2011.

Total gross margins of $200.1 million for the second quarter of fiscal 2011 were $22.3 million or 10% lower than the prior year second quarter of $222.4 million, primarily as a result of the lower volumes as well as from the steady rise in commodity prices during the quarter, which put pressure on our overall unit margins as we were limited in our ability to pass along the higher commodity prices.

Combined operating and G&A expenses of $86.6 million were $12.2 million or 12.3% lower than the prior year, primarily due to lower variable compensation attributable to the lower earnings as well as continued savings in payroll and benefit-related expenses, offset to an extent by higher fuel costs to operate our fleet.

As for bad debts, we remain diligent about managing our receivables, especially considering the current economic environment. Our overall bad debt expense as a percentage of revenues and our aging profile have remained relatively consistent with historical levels.

Depreciation and amortization expense for the quarter of $8.5 million increased $1.4 million compared to the prior year second quarter resulting from the impact of prior year acquisitions. Net interest expense of $6.8 million for the second quarter of fiscal 2011 was $200,000 higher than the second quarter of the prior year. Overall, our debt levels have remained consistent and our leverage is below 2x. Total capital spending for the quarter was $5.6 million, which included $2.7 million of maintenance capital.

Turning to our balance sheet, despite the increased commodity price environment, we continue to fund all working capital requirements from cash on hand. As we have now moved through our historically high period of seasonal working capital needs, which peaked in early February, we once again did not access our bank revolver and in fact, we ended the quarter with approximately $137 million of cash on the balance sheet. Back to you, Mike.

Thanks, Mike. As announced in our April 21 press release, we were pleased to declare our quarterly distribution of $0.8525 per Common Unit, which equates to an annualized rate of $3.41 per Common Unit and a growth rate of 1.5% compared to the second quarter of fiscal 2010. This quarterly distribution will be paid on May 10 to our unit holders of record as of May 3.

Looking ahead to the remainder of fiscal 2011, we expect that volumes and margins will remain under pressure for the remainder of the year given the lack of a real turnaround in the economy and the expectation of a continued high commodity price environment. Nonetheless, we remain confident that our flexible cost structure and operating platform will once again enable us to respond to these challenges.

Additionally, as Mike indicated earlier, our balance sheet and distribution coverage remains strong. We are focused on growth opportunities and although we could not close on any acquisitions this quarter, we are very active in our pursuit. In these challenging times, what matters most is having an operations structure that is nimble and a management team that is focused on operational excellence and driving customer-based growth from exceptional customer service and distinguishing ourselves from the competition.

As I indicated earlier, we are embarking on our next evolution of change here at Suburban which will leverage our strength as an organization through our people and technology to best position us to respond to the on-going challenges that we believe are ahead of us and the industry as a whole.

In closing, I would like to take this opportunity to acknowledge the on-going efforts of all of our dedicated employees and how they continue to effectively manage the business through these challenging times while providing exceptional service to all of our customers. As always, we appreciate your support and attention this morning and would now like to open the call up for questions. Eddie?

(Operator Instructions).

Mr. Stivala, no questions in queue at this time, sir.

Okay. Then again, we want to thank everyone for joining us on the call today. Eddie, thank you for your help.

Ladies and gentlemen, this conference will be available for replay after 11:00 a.m. today until Friday, May 6, 2011. You may access the AT&T Executive Playback service at any time by dialing 1-800-475-6701 and entering the access code of 199225. International participants may dial 1-320-365-3844. Again, those numbers are 1-800-475-6701 and for international, 1-320-365-3844. That does conclude the call today. Thank you for your participation and for using AT&T Executive Teleconference services. You may now disconnect.