Executive Summary / Key Takeaways

• Ferrellgas Partners ($FGPR) is undergoing a strategic transformation, leveraging its 85-year legacy in propane distribution to become a technology-enabled logistics leader, focusing on diversified, weather-agnostic revenue streams and operational excellence.
• The company achieved a record gross margin exceeding $1 billion in fiscal 2025, driven by strong performance in both retail and wholesale segments, including significant growth in its Blue Rhino portable tank exchange business.
• Strategic investments in telematics, an enterprise-wide ERP system, and self-service kiosks are enhancing efficiency, reducing costs, and improving customer service, creating a competitive moat against rivals.
• Despite a fiscal 2025 net loss primarily due to a $125 million legal settlement and recent credit rating downgrades, Ferrellgas has proactively addressed liquidity concerns by extending its Credit Facility maturity to December 2025, alleviating "going concern" doubts.
• The company faces ongoing challenges from weather dependency in its core heating business and a complex capital structure, but its focus on acquisitions, geographic expansion, and cost reduction initiatives positions it for long-term stability and growth.

A Legacy Reimagined: Ferrellgas's Strategic Evolution

Ferrellgas Partners, L.P. ($FGPR), with a rich history dating back to 1939, stands as a prominent energy provider and the second largest retail marketer of propane in the United States. Its core business revolves around the retail distribution of propane and related equipment, serving a diverse customer base spanning residential, industrial/commercial, agricultural, and portable tank exchange segments across all 50 states, the District of Columbia, and Puerto Rico. The company's overarching strategy is built on a foundation of safety, strategic growth, operational excellence, and consolidation, aiming to transform into a technology-enabled logistics powerhouse.

The company's journey has been marked by significant strategic moves, including the 2004 acquisition of Blue Rhino, a nationally recognized portable tank exchange brand. This acquisition was pivotal, introducing a valuable counter-seasonal revenue stream and diversifying Ferrellgas's offerings. A major capital restructuring in March 2021 reshaped its financial foundation, involving a reverse unit split, issuance of Class B and Preferred Units, and new debt agreements. Since then, Ferrellgas has pursued disciplined acquisitions, such as Kilhoffer Propane Co. in Oklahoma in fiscal 2025 and Eastern Sierra Propane in California in fiscal 2024, to expand its geographic footprint and enhance market density, particularly outside its traditional Midwest core.

The propane industry, while mature, continues to play a vital role in the U.S. energy landscape, accounting for approximately 1% of energy consumption. Propane is recognized as a clean-burning, portable, and affordable fuel, offering a dependable energy choice, especially when other grid systems fail. This inherent resilience, coupled with Ferrellgas's extensive distribution network, positions the company to capitalize on existing and emerging energy needs. However, the industry faces evolving climate change regulations, such as California's mandatory GHG emissions reporting and the SEC's proposed disclosure rules, which could influence demand dynamics and operational costs.

Technological Moats and Operational Excellence

Ferrellgas is strategically investing in technology to build a competitive moat and drive operational efficiencies. A cornerstone of this strategy is the implementation of a best-in-class telematics solution across its entire fleet. This technology provides real-time data, enabling the company to manage its fleet more efficiently, improve safety outcomes, ensure regulatory compliance, and significantly reduce fuel costs and idling time. These quantifiable benefits directly translate into lower operational expenses and boosted route efficiencies, allowing Ferrellgas to optimize asset deployment.

Beyond telematics, the company is undertaking an enterprise-wide ERP system implementation and other IT system upgrades. These initiatives are designed to streamline processes, enhance the customer experience, and provide better data for "miles and minutes management," ultimately facilitating timely and efficient product delivery. A new credit processing platform has also been launched, offering a seamless payment process for customers and projected to deliver an estimated $1.2 million in annual cost reductions. Furthermore, tank monitoring technology ensures a ready supply of propane for customers while improving delivery efficiency.

For its Blue Rhino brand, Ferrellgas has installed over 500 self-service kiosks, providing consumers with 24/7 access to propane cylinder purchases, enhancing convenience and creating demand. This technological push, combined with supply chain improvements and better inventory turns, has allowed Blue Rhino to decrease capital expenditures by nearly $8 million in fiscal 2024, significantly improving cash flow. These technological differentiators are crucial for Ferrellgas to maintain its competitive edge, drive down costs, and enhance customer service in a competitive market.

Financial Performance: Resilience Amidst Headwinds

Ferrellgas's financial performance in fiscal 2025 demonstrated both significant achievements and notable challenges. The company reported a net loss attributable to Ferrellgas Partners, L.P. of $15.60 million for fiscal 2025, a stark contrast to the $110.20 million net earnings in fiscal 2024. This $125.80 million shift was primarily driven by a $125 million legal settlement related to the Eddystone litigation, a $29.20 million increase in operating expenses, and a $9.80 million rise in interest expense.

Despite the net loss, the company achieved its highest gross margin in history, exceeding $1 billion in fiscal 2025, contributing to a five-year average of $0.96 billion. This was fueled by a 4% increase in propane and related equipment gross profit, totaling $39.671 million, with wholesale gross margin rising by $26.6 million and retail gross margin by $9.5 million. Total revenues increased by 6% to $1.94 billion in fiscal 2025, with retail sales up 4% and wholesale sales up 8%. Propane sales volumes also saw a 3% increase, or 20.40 million gallons, in fiscal 2025, aligning with cooler weather compared to the prior year.

The Blue Rhino segment continued its strong performance, achieving its "best quarter on record when it comes to free cash flow" in Q1 fiscal 2025, driven by effective expense management and high volumes. In Q3 fiscal 2024, Blue Rhino's EBITDA increased by 19% year-over-year, benefiting from an early grilling season and increased demand during electric grid failures. This counter-seasonal business provides crucial balance to the company's overall demand profile.

Adjusted EBITDA, a key metric for management, increased by 4% to $330.70 million in fiscal 2025, primarily due to the robust gross margin performance and a $2.90 million decrease in lease expense. However, distributable cash flow attributable to equity investors decreased by $4.10 million to $208.20 million in fiscal 2025, mainly due to higher maintenance capital expenditures and increased net cash interest expense. Conversely, distributable cash flow excess saw a substantial increase of $96.70 million, reaching $139.90 million in fiscal 2025, largely due to the $99.90 million in distributions paid to Class B unitholders in fiscal 2024.

Competitive Landscape and Strategic Positioning

Ferrellgas operates in a highly competitive environment, contending with large multi-state marketers like AmeriGas Propane (a subsidiary of UGI Corporation (UGI)) and Suburban Propane Partners, L.P. (SPH), as well as numerous smaller independent distributors. Beyond direct propane competitors, the company also faces competition from alternative energy sources such as natural gas, electricity, and fuel oil.

Ferrellgas differentiates itself through its national presence, with 1057 propane distribution locations as of July 31, 2025, providing economies of scale in procurement and distribution. Its Blue Rhino brand offers a unique value proposition in the portable tank exchange market, emphasizing convenience and a broad retail presence. The company's investments in telematics and other technology platforms further enhance its operational efficiency and customer service, providing a competitive edge in logistics and cost management.

While larger competitors like UGI Corporation benefit from broader energy diversification and potentially superior capital efficiency, Ferrellgas's focused approach on propane allows for tailored services, particularly in niche segments like agriculture and autogas. The company's strategy of expanding its "weather agnostic" customer base, including Blue Rhino and autogas, aims to reduce its dependency on traditional heating demand, a vulnerability shared with many propane distributors. This diversification, coupled with its robust storm response capabilities, as evidenced by double-digit EBITDA growth in storm-impacted areas in Q1 fiscal 2025, highlights its operational resilience.

Liquidity, Capital Structure, and Outlook

As of July 31, 2025, Ferrellgas reported total liquidity of $259.70 million, comprising $96.90 million in unrestricted cash and $162.80 million in Credit Facility availability. The company's liquidity position was significantly bolstered by the Fifth Amendment to its revolving credit facility on December 5, 2024, which extended its maturity date to December 31, 2025, from March 30, 2025. This extension was critical in alleviating "substantial doubt about the company's ability to continue as a going concern." The commitment level for the Credit Facility will be reduced to $308.8 million on March 31, 2025.

The company's capital structure remains a key focus. The $650 million aggregate principal amount of 5.38% senior notes due April 1, 2026, will become current at the end of March 2025 and callable at par. Management is actively monitoring the high-yield market for refinancing opportunities, noting more attractive indicative pricing (6% to 7% range) compared to previous periods. The Class B units are identified as the "highest cost of capital," and Ferrellgas is evaluating strategies to reduce this cost, including potential redemption or conversion options. However, current debt covenants restrict cash transfers from the operating partnership to Ferrellgas Partners, limiting distributions to Class A and Class B unitholders.

Looking ahead, Ferrellgas anticipates reclassifying approximately $0.10 million in net losses to earnings over the next 12 months, expected to be offset by increased margins on propane sales commitments. The company is committed to its strategic growth initiatives, operational excellence, and leveraging technology to capitalize on the enduring demand for propane. While the capital structure remains complex and subject to ongoing evaluation, management believes its plans for debt restructuring and refinancing are probable and will ensure adequate liquidity.

Conclusion

Ferrellgas Partners is in the midst of a profound strategic transformation, evolving from a traditional propane distributor into a technology-enabled logistics leader. The company's ability to achieve record gross margins and grow its weather-agnostic segments, particularly Blue Rhino, demonstrates the effectiveness of its strategic diversification and operational focus. Investments in telematics, ERP systems, and customer-facing technologies are not merely incremental improvements but foundational shifts that enhance efficiency, reduce costs, and strengthen its competitive position against both direct and indirect energy rivals.

While the recent net loss attributable to the Eddystone legal settlement and the ongoing complexity of its capital structure present challenges, Ferrellgas has shown proactive management in securing its liquidity and addressing debt maturities. The company's commitment to disciplined acquisitions, geographic expansion, and continuous technological innovation underpins its long-term investment thesis. For discerning investors, Ferrellgas represents an opportunity to participate in a resilient energy provider that is strategically adapting to market dynamics and leveraging its operational strengths to fuel future growth and enhance shareholder value.