Business Overview and History
Suburban Propane Partners, L.P. (SPH) is a leading nationwide distributor of propane, renewable propane, renewable natural gas, fuel oil, and related products and services. The company also markets natural gas and electricity, and invests in innovative, low-carbon fuel alternatives. With a strong focus on safety, customer service, and sustainability, Suburban Propane has established itself as a trusted energy provider, navigating industry challenges and positioning itself for long-term growth.
Suburban Propane Partners, L.P. was formed in March 1996 in connection with its initial public offering. The company is principally engaged in the retail marketing and distribution of propane, renewable propane, renewable natural gas, fuel oil and refined fuels, as well as the marketing of natural gas and electricity.
The partnership structure of Suburban Propane Partners consists of a general partner, Suburban Energy Services Group LLC, and limited partners, the public Common Unitholders. The general partner does not have any economic interest in the partnership beyond holding 784 Common Units.
In 2003, Suburban Propane Partners amended its defined benefit pension plan such that future service credits ceased and eligible employees would receive interest credits only toward their ultimate retirement benefit. This helped manage the company’s pension and other postretirement benefit obligations.
Suburban Propane Partners has faced challenges over the years related to the seasonal and weather-dependent nature of its business. In fiscal years with warmer than normal weather during the peak heating season, the company has experienced lower heat-related demand and customer usage, which impacts its financial results. The company has demonstrated an ability to manage these weather-driven challenges through measures like expense control and leveraging its diverse customer base.
Despite the weather-related headwinds, Suburban Propane Partners has continued to execute on its core business strategy. The company has made strategic acquisitions to grow its propane customer base and expand its service territories. It has also diversified into related energy businesses, such as the marketing of natural gas, electricity, and investments in renewable energy technologies, to complement its traditional propane operations.
Financial Performance and Ratios
Suburban Propane’s financial performance has been relatively stable, with the company generating consistent revenues and operating cash flows. In fiscal year 2023, the partnership reported total revenues of $1.43 billion and net income of $123.75 million, or $1.92 per diluted common unit. The company’s operating cash flow for the year was $225.24 million, while free cash flow reached $180.29 million.
For the most recent quarter (Q3 2024), Suburban Propane reported revenue of $254.61 million, net income of -$17.19 million, operating cash flow of $61.43 million, and free cash flow of $46.76 million. The decrease in net income and cash flows compared to the prior year quarter was primarily due to warmer than normal weather, which negatively impacted heat-related customer demand. However, the company was able to partially offset this by effective selling price management and controlling operating expenses.
The partnership’s balance sheet remains healthy, with a debt-to-capitalization ratio of 0.67 as of September 30, 2023. This relatively low leverage position provides Suburban Propane with the financial flexibility to fund its growth initiatives and withstand market fluctuations.
Key financial ratios for Suburban Propane as of the most recent fiscal year-end include:
These ratios demonstrate Suburban Propane’s financial stability, profitability, and efficiency in managing its assets and capital structure.
Operational Highlights and Ongoing Initiatives
Suburban Propane’s operational focus has been on leveraging its extensive distribution network, customer relationships, and technological advancements to enhance its service capabilities and meet the evolving energy needs of its customers.
One of the company’s key strategic priorities is the continued expansion of its renewable energy platform, Suburban Renewable Energy. This subsidiary has made significant investments in the development of renewable natural gas (RNG) production facilities, which convert organic waste into clean-burning fuel. The partnership’s RNG operations have consistently increased production, reaching an average of 1,049 MMBtus per day in fiscal 2024, up 20% from the prior year.
Furthermore, Suburban Propane has been actively pursuing strategic acquisitions to bolster its core propane business and expand its geographic footprint. In fiscal 2024, the partnership completed three propane acquisitions, adding over 14,000 new customers and 65 employees to its operations. The company’s disciplined approach to M&A has allowed it to selectively target high-quality businesses that complement its existing infrastructure and customer base.
Alongside its growth initiatives, Suburban Propane remains committed to operational excellence and a culture of safety. The partnership has invested in technology solutions to enhance the efficiency of its delivery operations and improve the customer experience. Additionally, the company’s SuburbanCares platform continues to support local communities through various philanthropic and volunteer efforts.
Guidance and Outlook
For fiscal year 2025, Suburban Propane expects capital spending for its core propane operations to be consistent with historical levels, ranging between $40 million and $45 million. The partnership also anticipates spending between $35 million and $45 million on its RNG projects, excluding potential investment tax credits. The company expects the capital spending at their RNG facility in Upstate New York to qualify for a 30% investment tax credit, which equates to a range of $6 million to $9 million in tax credits. SPH plans to monetize the investment tax credits and production tax credits in the tax credit transfer market.
The company’s RNG initiatives are expected to significantly contribute to its future growth, as Suburban Propane secures additional contracts for the sale of renewable propane and the monetization of environmental attributes generated by its RNG production. Furthermore, the partnership remains focused on strengthening its balance sheet and maintaining financial flexibility to support its strategic objectives.
It’s worth noting that for fiscal year 2024, SPH reported adjusted EBITDA of $250 million, compared to $275 million in the prior year, which was below their previous guidance. Retail propane gallons sold in fiscal 2024 were 378 million gallons, 4.6% lower than the prior year, primarily due to the impact of widespread warmer weather throughout much of the heating season.
Potential Risks and Challenges
As with any energy-related business, Suburban Propane faces various risks and challenges that could impact its operations and financial performance. These include:
Financials
Suburban Propane Partners has maintained a solid financial position, as evidenced by its consistent revenue generation and cash flow performance. The company’s ability to manage its capital structure and maintain a healthy balance sheet has been crucial to its long-term success. With a focus on disciplined financial management, Suburban Propane is well-positioned to continue investing in growth opportunities while managing its debt obligations.
Suburban Propane Partners operates through four main business segments: Propane, Fuel Oil and Refined Fuels, Natural Gas and Electricity, and All Other. The Propane segment is the company’s primary business, accounting for approximately 87% of total revenues. This segment is engaged in the retail distribution of propane and renewable propane to residential, commercial, industrial, agricultural, and government customers.
For the first nine months of fiscal 2024, the company reported the following segment performance:
Overall, the company’s total revenues for the first nine months of fiscal 2024 were $1.12 billion, a decrease of 7.0% compared to the prior year period. The company’s Adjusted EBITDA for this period was $249.29 million, a decrease of 8.3% compared to the prior year period, primarily attributable to lower revenues and higher operating expenses, partially offset by lower cost of products sold.
Liquidity
The partnership’s liquidity position remains strong, supported by its operating cash flows and available credit facilities. As of June 2024, Suburban Propane had a cash balance of $4.88 million and a debt-to-equity ratio of 2.04x. The company maintains a $500 million revolving credit facility, with $144 million outstanding as of June 2024. This revolver matures in 2029, providing substantial financial flexibility for the company’s operations and strategic initiatives.
Suburban Propane’s current ratio of 0.65x and quick ratio of 0.45x indicate that the company may face some short-term liquidity challenges. However, the company’s prudent management of working capital and strategic capital allocation have contributed to its overall solid liquidity profile. This financial flexibility allows the company to navigate seasonal fluctuations in its business, pursue strategic acquisitions, and invest in renewable energy initiatives while maintaining a stable dividend payout to unitholders.
Conclusion
Suburban Propane Partners, L.P. (SPH) has demonstrated its ability to navigate the challenges of the energy industry and position itself as a leader in the transition towards a more sustainable future. With its diversified business model, focus on operational excellence, and strategic investments in renewable energy, the partnership is well-equipped to capitalize on the growing demand for reliable and environmentally-friendly energy solutions.
The company operates primarily in the United States, serving both residential and commercial customers across its footprint, without a significant international presence. The propane distribution industry has seen modest growth, with a CAGR of around 2-3% over the past 5 years. Suburban Propane has been able to maintain its market share and grow its customer base through strategic acquisitions and expansion into renewable energy solutions.
As Suburban Propane continues to execute on its strategic initiatives, investors can expect the company to maintain its position as a trusted energy provider and deliver long-term value to its unitholders. The company’s stable management team and operational track record, coupled with its ongoing investments in renewable energy and strategic acquisitions, position it well for future growth in the evolving energy landscape.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.