Executive Summary / Key Takeaways

• Ferrellgas is executing a strategic transformation from a traditional, weather-dependent propane distributor into a technology-enabled logistics company, focusing on operational excellence, strategic growth (including acquisitions), and diversification into weather-agnostic segments like Blue Rhino and Autogas.
• Recent financial results for the nine months ended April 30, 2025, show increased gross margin and Adjusted EBITDA, reflecting operational improvements and strategic growth, though net earnings were significantly impacted by a large legal settlement accrual.
• The company faces substantial doubt about its ability to continue as a going concern due to upcoming debt maturities in late 2025 and early 2026, compounded by the need to secure letters of credit related to the Eddystone settlement.
• Management has developed a plan to restructure its capital structure and refinance/extend debt maturities, expressing confidence in its probable successful implementation to alleviate going concern doubts.
• Investments in technology, such as Telematics and a new credit processing platform, are yielding quantifiable benefits in cost reduction and operational efficiency, bolstering the company's competitive positioning against larger rivals.

A Logistics Company Fueled by Propane and Technology

Ferrellgas Partners, L.P. ($FGPR) stands as a significant player in the U.S. propane distribution landscape, holding the position of the second-largest retail marketer and operating the nation's leading portable tank exchange brand, Blue Rhino. Formed in 1994 as a holding entity, the partnership conducts virtually all its operations through Ferrellgas, L.P., the operating partnership, serving a diverse customer base across all 50 states, the District of Columbia, and Puerto Rico. While historically tied to the seasonal demand for heating, Ferrellgas has embarked on a deliberate transformation over the past four years, repositioning itself as a technology-enabled logistics company with a strategic focus on safety, growth, operational excellence, and consolidation.

This strategic evolution is critical in an industry facing competition from other energy sources and larger, more scaled players like AmeriGas (APU) and Suburban Propane (SPH). Ferrellgas's history, marked by its broad geographic reach and the establishment of the Blue Rhino brand, provides a foundation, but the recent strategic pivot is aimed at building resilience against market volatility, particularly weather dependency and commodity price fluctuations.

Central to this transformation is a commitment to leveraging technology to enhance efficiency and service. The implementation of a best-in-class Telematics solution across the entire fleet is a prime example, designed to improve safety outcomes, ensure regulatory compliance, and boost route efficiencies. Management highlights that Telematics turns real-time data into actionable insights, leading to reduced fuel costs and less idling time, directly mitigating industry-wide higher fleet expenses. Furthermore, the company is undertaking an enterprise-wide ERP system implementation and other IT upgrades to streamline processes and improve the customer experience. A new credit processing platform, recently gone live, is expected to deliver an estimated $1.2 million in annual cost reductions by offering a seamless payment process. For the Blue Rhino segment, technology aids in cylinder inventory management, increasing throughput and decreasing freight costs, contributing to notable reductions in capital expenditures. These technological investments are not merely operational upgrades; they are strategic differentiators aimed at lowering the cost structure and improving service delivery in a highly competitive market.

Business Segments and Operational Execution

Ferrellgas operates primarily through its Retail and Wholesale segments. The Retail segment serves end users, including residential, industrial/commercial, and agricultural customers. For the nine months ended April 30, 2025, Retail revenue grew 4% to $1.08 billion, driven by a 1% increase in gallons sold and higher wholesale propane prices. This growth was primarily concentrated in residential and industrial/commercial sales, partially offsetting a decrease in agricultural gallons due to drought conditions and a slight decrease in overall retail customers. Retail gross margin saw a modest 1% increase to $570.3 million.

The Wholesale segment includes sales to resellers and the significant Blue Rhino portable tank exchange business. This segment has been a key focus for diversification into weather-agnostic demand. For the nine months ended April 30, 2025, Wholesale revenue increased 11% to $409.4 million, corresponding with a 13% increase in gallons sold. This favorable performance was largely driven by a substantial increase in tank exchange sales, reflecting organic growth from new customer wins and preparation for the peak season. Storm preparation and response, particularly during Hurricanes Helene and Milton, also contributed to growth in impacted areas, demonstrating the resilience and dependability of Ferrellgas's distribution network. Wholesale gross margin saw a robust 16% increase to $186.1 million, with the tank exchange business showing significant margin improvement as revenues outpaced the cost of product increases.

Overall propane sales volumes increased 4% for the nine months ended April 30, 2025, reaching 656.2 million gallons. Gross margin for propane and other gas liquids sales increased by $33.5 million, or 5%, for the nine-month period, driven by performance in both retail and wholesale segments. Margin per gallon saw a slight 1% increase.

Operational excellence is evident in the company's ability to manage expenses and respond to events. Despite an increase in overall operating expenses, particularly in plant and other costs (including legal and software expenses) and personnel (workers compensation, payroll, overtime), the company realized fuel savings from its Telematics technology and managed expenses effectively in response to demand fluctuations. The operational teams demonstrated strong execution during storm events, leveraging the nationwide footprint to bring in resources from outside impacted areas, which contributed to double-digit EBITDA growth in those regions.

Competitive Positioning and Strategic Responses

Ferrellgas operates in a competitive environment dominated by larger players like AmeriGas and Suburban Propane, as well as integrated energy companies like Energy Transfer (ET) with wholesale propane operations. While AmeriGas benefits from superior scale and market share (estimated 20-25% vs. FGPR's 10-15%), leading to potential cost advantages, Ferrellgas leverages its Blue Rhino brand as a key differentiator. Blue Rhino, the #1 tank exchange brand, offers faster portable tank exchanges and contributes to higher customer loyalty in the retail niche, supporting stronger cash flow generation.

Compared to Suburban Propane, which emphasizes operational efficiency and regional strength, Ferrellgas's broader geographic coverage across all 50 states allows it to tap into diverse markets, although potentially at higher operational costs per unit. Ferrellgas's investments in technology like Telematics are aimed at mitigating these cost disadvantages and improving efficiency to better compete on a per-gallon basis.

Against integrated players like Energy Transfer, which benefit from supply chain resilience and scalability through pipeline infrastructure, Ferrellgas competes in wholesale and industrial supply but differentiates through localized service execution and the retail focus of Blue Rhino. While ET's scale offers pricing power, Ferrellgas's attention to niche customer needs, such as in agricultural applications, provides tailored solutions with reported better energy efficiency.

Ferrellgas's strategic response to this competitive landscape involves both organic growth and targeted acquisitions. The focus on expanding the footprint outside the Midwest core, particularly in the West and Southeast, and growing weather-agnostic segments like Autogas and industrial/commercial, directly addresses the vulnerability to weather dependency and aims to build a more balanced demand profile. Recent acquisitions, including Eastern Sierra Propane (the largest in 10 years) and Kilhoffer Propane, are strategic tuck-ins that complement existing operations, add valuable assets like storage, and contribute to geographic diversity and customer base expansion. The strength of the national accounts team also contributes to securing significant new business, such as the three key wins in Q1 FY2025 adding over 700,000 gallons annually.

Indirect competition from electric utilities and emerging technologies like heat pumps poses a long-term challenge, potentially increasing customer acquisition costs and eroding market share in traditional heating segments. Ferrellgas promotes propane as a clean, portable, and affordable energy source and highlights its dependable distribution network, especially during power outages, as a competitive advantage against grid-dependent alternatives.

Financial Performance and Liquidity Challenges

For the nine months ended April 30, 2025, Ferrellgas reported total revenues of $1.59 billion, a 7% increase from the prior year period. Total gross margin increased 5% to $831.9 million. Operating income, however, saw a significant decrease of 55% to $92.0 million. This decline was primarily driven by a $125.0 million legal accrual related to the Eddystone settlement, included within General and administrative expenses, and a $23.4 million increase in Operating expense. After adjusting for non-core legal fees and other items, Adjusted EBITDA increased 8% to $307.6 million for the nine-month period, reflecting the underlying operational improvements and gross margin growth.

Net earnings attributable to Ferrellgas Partners, L.P. decreased sharply to $11.3 million for the nine months ended April 30, 2025, compared to $131.0 million in the prior year, largely due to the Eddystone accrual. Interest expense increased by $8.9 million, primarily due to higher amortization of debt issuance costs and fees related to letters of credit.

Liquidity remains a critical focus. As of April 30, 2025, total liquidity stood at $263.2 million, comprising $109.3 million in unrestricted cash and $153.9 million available under the Credit Facility. The Credit Facility, which had its commitment reduced to $308.8 million on March 31, 2025, matures on December 31, 2025. The company also has $650.0 million in senior notes maturing on April 1, 2026, and $825.0 million maturing on April 1, 2029. The $125.0 million Eddystone settlement, with remaining payments of $37.5 million due on or before June 16, 2025, and January 15, 2026, are secured by $154.9 million in letters of credit outstanding under the Credit Facility as of April 30, 2025.

The proximity of the Credit Facility and 2026 Notes maturities, coupled with the letters of credit obligations, creates substantial doubt about the company's ability to continue as a going concern for at least one year from the filing date. Management has developed a plan to restructure its capital structure, debt, and refinance/extend the Credit Facility, engaging external advisors. The general partner believes this plan is probable to be successfully implemented, which would alleviate the going concern doubt. Recent credit rating downgrades by Moody's and S&P reflect these financial pressures and could impact the cost and availability of future financing.

Distributions remain constrained by debt covenants. The Credit Agreement currently restricts cash transfers from the operating partnership to Ferrellgas Partners, preventing distributions to Class A and Class B unitholders. Distributions to Preferred Unitholders are being made in cash ($15.4 million net of tax quarterly payments), as required by the OpCo LPA Amendment, and aggregate cash distributions of approximately $250.0 million have been made to Class B Unitholders since inception.

Outlook and Strategic Momentum

While specific quantitative guidance was not provided, management's commentary points to continued execution on strategic initiatives to drive future performance. The focus remains on strategic growth through organic efforts and acquisitions, operational excellence powered by technology and experienced personnel, and managing the capital structure.

The outlook for demand is influenced by weather, but the strategic shift towards weather-agnostic segments and geographic diversification is intended to provide greater stability. Management expects demand to be persistent in areas recently impacted by storms. The ongoing implementation of the ERP system and the benefits from Telematics and the new credit platform are expected to contribute to continued operational efficiency and cost management.

The successful implementation of the capital structure plan, including refinancing or extending the Credit Facility and addressing the 2026 Notes maturity, is paramount to the company's financial stability and ability to pursue its long-term strategy. The Eddystone settlement, while impacting recent earnings and liquidity, removes a significant litigation overhang and clears the way for capital restructuring efforts.

Conclusion

Ferrellgas is a company in active transformation, leveraging its established position and the strength of brands like Blue Rhino to evolve into a more resilient, technology-enabled logistics provider. Recent operational performance, particularly in the Wholesale segment and through the implementation of efficiency-driving technologies, demonstrates the potential of its strategic initiatives to generate growth and improve profitability. However, the significant financial challenges posed by upcoming debt maturities and the need to resolve the going concern uncertainty cast a shadow over the operational momentum.

The investment thesis hinges on management's ability to successfully execute its plan to restructure the capital structure and refinance its debt obligations. While the Eddystone settlement removes a major legal risk, its funding requirements add complexity to the near-term liquidity picture. Investors should closely monitor progress on the refinancing efforts, the continued execution of operational efficiency initiatives, and the performance of weather-agnostic segments as key indicators of Ferrellgas's ability to navigate its current financial headwinds and unlock the value of its strategic transformation.