WHIPPANY, N.J., May 4, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Suburban Propane Partners, L.P. (the "Partnership") (NYSE: SPH), a nationwide marketer of propane gas, fuel oil and related products and services, today announced significantly improved earnings for the three months ended March 25, 2006 and declared the tenth increase in the Partnership's quarterly distribution, from $0.6125 to $0.6375 per Common Unit. This increase equates to $0.10 per Common Unit annualized to $2.55 per Common Unit. The quarterly distribution at this increased level will be payable in respect of the third quarter of fiscal 2006 on August 8, 2006 to Common Unitholders of record on August 1, 2006. On April 20, 2006, the Partnership previously announced the declaration of its quarterly distribution of $0.6125 per Common Unit in respect of the three months ended March 25, 2006 which is payable on May 9, 2006 to Common Unitholders of record on May 2, 2006.
Net income for the three months ended March 25, 2006 amounted to $84.0 million, or $2.44 per Common Unit, an increase of $18.5 million, or 28.2%, compared to the prior year quarter of $65.5 million, or $1.91 per Common Unit. Earnings before interest, taxes, depreciation and amortization ("EBITDA") increased $18.7 million, or 21.9%, to $103.9 million for the three months ended March 25, 2006 compared to $85.2 million in the prior year quarter. EBITDA for the fiscal 2006 second quarter included a $1.5 million restructuring charge attributable primarily to the realignment of our field operations.
These increased earnings were achieved despite the negative effect on volumes from the combination of significantly warmer than normal temperatures and continued high energy costs resulting in continued customer conservation. Average temperatures in our service territories were 12% warmer than normal for the three months ended March 25, 2006, compared to 4% warmer than normal temperatures in the prior year quarter. During the prime heating months of January and February 2006, average temperatures were 20% warmer than normal. In the commodities markets, the high propane and fuel oil prices experienced throughout fiscal 2005 continued in an upward trend as average posted prices of propane and fuel oil during the second quarter of fiscal 2006 increased 20% and 25%, respectively, compared to the average posted prices in the prior year quarter.
Retail propane gallons sold in the second quarter of fiscal 2006 decreased 30.3 million gallons, or 15.2%, to 168.8 million gallons compared to 199.1 million gallons in the prior year quarter. Sales of fuel oil and other refined fuels decreased 38.2 million gallons, or 41.1%, to 54.7 million gallons during the second quarter of fiscal 2006 compared to 92.9 million gallons in the prior year quarter. The decrease in sales volumes is attributable to the impact of warmer weather, customer conservation and, to a significant extent, our continued efforts to strategically exit certain lower margin commercial, industrial and agricultural businesses in both our propane and refined fuels segments.
Revenues from the distribution of propane and related activities increased $25.8 million, or 7.2%, to $386.6 million compared to $360.8 million in the prior year quarter, primarily due to higher average selling prices in line with the aforementioned increase in product costs, partially offset by the impact of lower volumes. Revenues from the distribution of fuel oil and other refined fuels decreased $24.4 million, or 15.4%, to $133.6 million in the fiscal 2006 second quarter from $158.0 million in the prior year quarter, primarily as a result of lower volumes, partially offset by higher average selling prices.
The most significant contributor to our increased earnings in the second quarter of fiscal 2006 compared to the prior year was the impact of the previously announced decision to eliminate the fuel oil cap program following the prior year heating season. During the second quarter of the prior year, we were unable to pass on fully the rise in fuel oil prices due to restrictions of a fuel oil cap program, which pre-established a maximum price per gallon. This, coupled with our decision not to hedge this pricing program for the February through April 2005 deliveries when confronted with unprecedented costs to properly hedge the program during that period, significantly restricted our margin opportunities for the fiscal 2005 second quarter. The impact of the lost margin opportunity on the prior year quarter was approximately $11.0 million. By eliminating this pricing program for fiscal 2006, we no longer incur the costs of hedging deliveries associated with this program and we have been successful in implementing our market-based pricing strategies in our field operations, without significant customer losses.
Revenues in our natural gas and electricity marketing segment increased $6.8 million, or 17.3%, to $46.1 million in the second quarter of fiscal 2006 compared to $39.3 million in the prior year quarter, primarily from a rise in electricity volumes coupled with increases in average selling prices for natural gas and electricity in line with higher commodity prices. Revenues in our HVAC segment decreased $4.7 million, or 17.3%, to $22.4 million from $27.1 million in the prior year quarter as a result of lower service activity from the warmer average temperatures during the fiscal 2006 heating season.
Combined operating and general and administrative expenses of $117.2 million decreased $5.1 million, or 4.2%, compared to the prior year quarter of $122.3 million. Operating expenses in the fiscal 2006 second quarter include a $0.6 million unrealized (non-cash) loss attributable to the mark-to-market on derivative instruments ("FAS 133"), compared to a $2.8 million unrealized (non-cash) loss in the prior year quarter attributable to FAS 133. With our field realignment, which began during the fourth quarter of fiscal 2005, we have significantly restructured our operating footprint and reduced our cost structure through the achievement of operating efficiencies and use of technology. The most significant cost savings was experienced in payroll and benefit related expenses with the elimination of nearly 150 positions since the beginning of the fourth quarter of the prior year, as well as in routing efficiencies which have allowed us to reduce our fleet by nearly 300 vehicles. As a result, in addition to the impact of FAS 133, combined operating and general and administrative expenses decreased $2.9 million despite a $6.3 million increase in variable compensation costs in line with the higher earnings and a $3.5 million increase in bad debt expense due to higher energy costs.
Depreciation and amortization expense decreased $0.3 million, or 3.3%, to $8.9 million. The second quarter of fiscal 2006 depreciation and amortization expense included a $1.1 million asset impairment charge associated with our field realignment efforts, as well as the write-down of certain assets in our all other business segment. Net interest expense increased $0.4 million, or 3.8%, to $10.9 million in the second quarter of fiscal 2006 as a result of higher average outstanding borrowings under our working capital facility for seasonal working capital needs, offset to an extent by lower average interest rates on long-term borrowings.
In announcing these results, Chief Executive Officer Mark A. Alexander said, "The improvement in our second quarter results, despite weather that was much warmer than normal, reflects both the proactive steps we took in fiscal 2006 to ensure that the effect of the fuel oil cap program on our fiscal 2005 results did not recur and the improvements in our cost structure from our recent field realignment. Additionally, we've continued to improve our customer mix and have consciously eliminated certain lower margin business in the propane and refined fuels segments. While weather is an obvious factor in our performance, we continue to focus on those factors that are within our control in order to improve our customer mix and drive operational efficiencies."
Mr. Alexander continued, "Our field realignment process will continue throughout the remainder of fiscal 2006 and we expect to realize further operational efficiencies and cost savings. On the strength of these results and our expectations for the remainder of fiscal 2006, our Board of Supervisors has declared the tenth increase in our quarterly distribution, which will be payable for our third quarter. Our focus on maximizing operating efficiencies is an ongoing part of our business strategy, integral to our efforts of building a platform for continued growth."
Suburban Propane Partners, L.P. is a publicly traded master limited partnership listed on the New York Stock Exchange. Headquartered in Whippany, New Jersey, Suburban has been in the customer service business since 1928. The Partnership serves the energy needs of approximately 1,000,000 residential, commercial, industrial and agricultural customers through more than 370 locations in 30 states.
This press release contains certain forward-looking statements relating to future business expectations and financial condition and results of operations of the Partnership, based on management's current good faith expectations and beliefs concerning future developments. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed or implied in such forward-looking statements, including the following:
* The impact of weather conditions on the demand for propane, fuel oil
and other refined fuels, natural gas and electricity;
* Fluctuations in the unit cost of propane, fuel oil and other refined
fuels and natural gas, and the impact of price increases on customer
conservation;
* The ability of the Partnership to compete with other suppliers of
propane, fuel oil and other energy sources;
* The impact on the price and supply of propane, fuel oil and other
refined fuels from the political, military or economic instability of
the oil producing nations, global terrorism and other general economic
conditions;
* The ability of the Partnership to acquire and maintain reliable
transportation for its propane, fuel oil and other refined fuels;
* The ability of the Partnership to retain customers;
* The impact of energy efficiency and technology advances on the demand
for propane and fuel oil;
* The ability of management to continue to control expenses including the
results of our recent field realignment initiative;
* The impact of changes in applicable statutes and government
regulations, or their interpretations, including those relating to the
environment and global warming and other regulatory developments on the
Partnership's business;
* The impact of legal proceedings on the Partnership's business;
* The Partnership's ability to implement its expansion strategy into new
business lines and sectors; and
* The Partnership's ability to integrate acquired businesses
successfully.
Some of these risks and uncertainties are discussed in more detail in the Partnership's Annual Report on Form 10-K for its fiscal year ended September 24, 2005 and other periodic reports filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward- looking statements, which reflect management's view only as of the date made. The Partnership undertakes no obligation to update any forward-looking statement.
Suburban Propane Partners, L.P. and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended March 25, 2006 and March 26, 2005
(in thousands, except per unit amounts)
(unaudited)
Three Months Ended Six Months Ended
March 25, March 26, March 25, March 26,
2006 2005 2006 2005
Revenues
Propane $386,610 $360,830 $696,902 $619,613
Fuel oil and refined fuels 133,567 157,963 238,872 266,223
Natural gas and electricity 46,111 39,265 84,054 61,753
HVAC 22,416 27,104 53,643 59,274
All other 2,239 2,207 4,935 4,552
590,943 587,369 1,078,406 1,011,415
Costs and expenses
Cost of products sold 368,299 380,515 691,184 653,955
Operating 100,084 110,229 193,303 205,570
General and administrative 17,114 12,057 31,330 23,025
Restructuring costs 1,497 300 1,497 625
Depreciation and amortization 8,898 9,198 17,109 18,317
495,892 512,299 934,423 901,492
Income before interest expense
and provision for income taxes 95,051 75,070 143,983 109,923
Interest expense, net 10,939 10,480 21,506 20,343
Income before provision for
income taxes 84,112 64,590 122,477 89,580
Provision for income taxes 83 109 233 198
Income from continuing operations 84,029 64,481 122,244 89,382
Discontinued operations:
Gain on sale of customer
service centers - 976 - 976
Net income $84,029 $65,457 $122,244 $90,358
General Partner's interest in
net income $2,715 $2,034 $3,902 $2,808
Limited Partners' interest in
net income $81,314 $63,423 $118,342 $87,550
Income from continuing
operations per Common Unit -
basic (a) $2.44 $1.89 $3.59 $2.66
Discontinued operations $- $0.02 $- $0.03
Net income per Common Unit -
basic (a) $2.44 $1.91 $3.59 $2.69
Weighted average number of
Common Units outstanding -
basic 30,313 30,277 30,306 30,273
Income from continuing
operations per Common Unit -
diluted (a) $2.43 $1.88 $3.58 $2.65
Discontinued operations $- $0.02 $- $0.02
Net income per Common Unit -
diluted (a) $2.43 $1.90 $3.58 $2.67
Weighted average number of
Common Units outstanding -
diluted 30,438 30,405 30,416 30,414
Supplemental Information:
EBITDA (b) $103,949 $85,244 $161,092 $129,216
Retail gallons sold:
Propane 168,847 199,124 302,658 340,904
Refined fuels 54,699 92,886 98,515 158,792
Capital expenditures:
Maintenance $2,310 $2,044 $4,071 $3,524
Growth $2,366 $5,487 $6,795 $12,707
(a) Computations of earnings per Common Unit reflect the application of
Emerging Issues Task Force ("EITF") consensus 03-6 "Participating
Securities and the Two-Class Method Under FAS 128" ("EITF 03-6")
which requires, among other things, the use of the two-class method
of computing earnings per unit when participating securities exist.
The two-class method is an earnings allocation formula that computes
earnings per unit for each class of common unit and participating
security according to distributions declared and the participating
rights in undistributed earnings, as if all of the earnings were
distributed to the limited partners and the general partner. The
earnings per Common Unit computations for all periods presented
reflect the application of EITF 03-6. Computation of earnings per
common unit under EITF 03-6 resulted in a negative impact of $0.24
and $0.31 per Common Unit for the three and six months ended March
25, 2006, respectively, and $0.18 and $0.20 per Common Unit for the
three and six months ended March 26, 2005, respectively, compared to
the computation under FAS 128.
(b) EBITDA represents net income before deducting interest expense,
income taxes, depreciation and amortization. Our management uses
EBITDA as a measure of liquidity and we are including it because we
believe that it provides our investors and industry analysts with
additional information to evaluate our ability to meet our debt
service obligations and to pay our quarterly distributions to holders
of our Common Units. Moreover, our revolving credit agreement
requires us to use EBITDA as a component in calculating our leverage
and interest coverage ratios. EBITDA is not a recognized term under
generally accepted accounting principles ("GAAP") and should not be
considered as an alternative to net income or net cash provided by
operating activities determined in accordance with GAAP. Because
EBITDA, as determined by us, excludes some, but not all, items that
affect net income, it may not be comparable to EBITDA or similarly
titled measures used by other companies. The following table sets
forth (i) our calculation of EBITDA and (ii) a reconciliation of
EBITDA, as so calculated, to our net cash provided by operating
activities:
Three Months Ended Six Months Ended
March 25, March 26, March 25, March 26,
2006 2005 2006 2005
Net income $84,029 $65,457 $122,244 $90,358
Add:
Provision for income taxes 83 109 233 198
Interest expense, net 10,939 10,480 21,506 20,343
Depreciation and amortization 8,898 9,198 17,109 18,317
EBITDA 103,949 85,244 161,092 129,216
Add / (subtract):
Provision for income taxes (83) (109) (233) (198)
Interest expense, net (10,939) (10,480) (21,506) (20,343)
Gain on disposal of property,
plant and equipment, net (577) (860) (621) (1,067)
Gain on sale of customer service
centers - (976) - (976)
Changes in working capital and
other assets and liabilities (28,582) (65,288) (83,896) (128,728)
Net cash provided by / (used in):
Operating activities $63,768 $7,531 $54,836 $(22,096)
Investing activities $(3,303) $(5,035) $(9,241) $(12,944)
Financing activities $(60,411) $(1,443) $(43,323) $(1,539)
SOURCE Suburban Propane Partners, L.P.
Robert M. Plante, Vice President & Chief Financial Officer of Suburban Propane Partners, L.P., +1-973-503-9252
http://www.prnewswire.com