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Suburban Propane Partners, L.P. (SPH)

Q3 2009 Earnings Call· Thu, Aug 6, 2009

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Transcript

Operator

Operator

Ladies and gentlemen thank you for standing by, and welcome to the Suburban Propane third quarter 2009 financial results call. At this time all participants are in a listen-only mode, later we will conduct a question and answer session, instructions will be given at that time. (Operator Instructions). And I’d like to read the following statement, this conference call contains forward-looking statements within the meaning of section 21-E of the Securities and Exchange Act of 1934. As amended relating to the partnerships future business expectations and predictions and financial conditions in the results of operations. These forward-looking statements involve certain risks and uncertainties. Partnership has listed some of the important factors that could cause results to differ materially from those discussed in such forward-looking statements. Which are referred to as cautionary statements in this 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. I’ll now turn the conference over to Mr. Davin D’Ambrosio, please go ahead. Davin D’Ambrosio: Thank you Paul and good morning everyone. Welcome to Suburban’s fiscal 2009 Third Quarter Conference Call. I am Davin D’Ambrosio, Vice President and Treasurer at Suburban. With me this morning is Michael Dunn, our President and incoming Chief Executive Officer, and Michael Stivala, Chief Financial Officer and Chief Accounting Officer. The purpose of today’s call is to review our third quarter financial results along with the current outlook for our business. As usual once we have concluded our prepared remarks, we will open the session to questions. Before getting started though, I would like to reemphasize what the operator has just explained about forward-looking statements. Additional information about factors that could cause actual results to differ materially, from those discussed in forward-looking statements. It is contained in the partnerships SEC filings, including its form 10-K for the fiscal year ended September 27, 2008 and its form 10-Q for the period ended June 27, 2009 which will be filed by the end of the business today. Copies of these filings may be obtained by contacting the partnership or the SEC. Certain non-GAAP measures will be discussed on this call. We have provided a description of those measures as well as the discussion of why we believe this 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 would like to get started by turning the call over to Mike Dunn. Mike?

Michael Dunn Jr.

Management

Thanks Davin and thanks everyone for joining us today. As reported this morning, we are extremely pleased with the accomplishments during the quarter, which included, reported growth in our adjusted EBITDA of nearly $20 million, compared to the prior year third quarter. The successful refinancing of our revolving credit facility in a challenging credit market, a further reduction of total debt by $8 million, in fact with this latest debt repayment we have reduced our debt profile by $25 million, since the end of the third quarter of last year, and yet we ended the quarter with more than $256 million of cash on the balance sheet. These accomplishments point out the importance of our efficient operating platform, proven flexible cost structure and strong balance sheet. Mike Stivala will give a little more color on our recently completed debt refinancing, and our overall debt maturity profile in a minute. From an operative perspective, the ongoing challenges of the economy continue to adversely affect our sales volumes, particularly in our commercial and industrial business, which accounts for a greater concentration of sales volume now that the heating season has ended. However, our earnings benefited from higher unit margins, continued expense savings gained through operating efficiencies. And as you would recall, we reported realized loss of $14.5 million in the prior year third quarter at the height of last year’s commodity price movement. As announced on July 23, our board of supervisors increased our annual distribution rate by $0.04 per common unit to $3.30 annually. This increase represented a 13 consecutive quarterly distribution increase and more than 3% growth rate over the prior year third quarter. A little later, I will provide a few closing comments, but at this point I will turn the call over to Mike Stivala to discuss our third quarter results in more detail. Mike, over to you.

Michael Stivala

Management

Thanks Mike, and good morning everyone. As Mike stated, we are very proud of our accomplishment this quarter, despite the challenges presented by the recession and continued commodity price volatility. The investments we’ve made over the past several years in our technology platform and the efforts to streamline our operation have allowed us to continue to focus on driving efficiencies. The strength of our balance sheet and cash flow has also provided financial flexibility, as access to capital has tightened. As we discussed our third quarter results to be consistent with previous reporting, I’m excluding the impact of a $6.1 million unrealized non-cash loss, applicable to FAS 133 accounting compared to a non-realized gain of $4.7 million in the prior year quarter. EBITDA for our third quarter of fiscal 2009 increased $19.6 million to $17.7 million compared to a loss of $1.2 million for the third quarter of fiscal 2008. Our seasonal net loss totaled $1.3 million or $0.04 per common unit for the quarter, compared to a net loss of $18.4 million or $0.56 per common unit in the prior year third quarter. Combining these results with the first two quarters, our year-to-date EBITDA amounted to $241.9 million, an increase of $68.5 million compared to the comparable prior year period, after adjusting for the prior year gain from the sale of our facility. Retail propane gallons sold in the third quarter of fiscal 2009, decreased 10.2 million gallons or 14.3% to 61.2 million gallons from 71.4 million gallons in the prior year quarter. Sales of fuel, oil and other refined fuels decreased 2.9 million gallons or 23.3 % to 9.7 gallons, compared to 12.6 million gallons in the prior year third quarter. In terms of weather, average heating degree days in our areas of operations were 93% of normal…

Michael Dunn Jr.

Management

Thanks Mike. Our quarterly distribution of the most recently increased level of $0.82.5 per common unit will be paid on August 11 to our unit holders of record as of August 4. We are extremely pleased to pass along this latest quarterly distribution increase to our value unit holders, which represents 3.1% year-over-year growth with our increased earnings. Our distribution coverage at the end of this quarter is 1.8 times. On July 22nd, we held our tri-annual unit holders meeting at which we received a strong response from our unit holders, in terms of reelecting our six supervisors, and approving a 2009 restricted unit plan. I would like to take this opportunity to thank our unit holders for their continued support. Lastly, I would be reminiscent not acknowledging the ongoing efforts of our field personnel and their continued focus on driving operating efficiencies while providing quality customer service. Through their efforts and the overall strength of our financial position, we expect to build upon these strengths and diligently pursue our long-term strategies for growth. As always, we appreciate your support and attention this morning. I would now like to open the call up for questions. Paul?

Operator

Operator

(Operator Instructions) Your first question comes from Darren Horowitz - Raymond James.

Darren Horowitz - Raymond James

Analyst

Mike, first question for you when you look at the customer conservation and the economy’s impact on your commercial and industrial business as we talked about every quarter, are you still targeting to end the year with aggregate volumes down about 12%. Then more importantly as you are progressing through the September quarter and looking ahead to fiscal 2010, can you give us a rough approximation for how you think volumes are going to trend?

Michael Stivala

Management

I think you are accurate Darren with the forecasted 12 % for the rest of at least this year. And I would think that next year, its unclear the economy obviously has to play a big part in that, not only the commercial and industrial side, but also on the residential side. One of the reasons for the decline in some of our residential volumes are self imposed as a result of our diligent collection efforts. So, again the economy is going to play a big part in determining where that really shapes up.

Darren Horowitz - Raymond James

Analyst

Sure. Moving over to your liquidity position, again congratulations on getting that new facility in place. When you look at the flexibility that facility affords you coupled with your cash on hand, has anything changed in your view of how you are looking at possibly growing the business inorganically, whether be within kind of the core competency propane side of the business or even outside?

Michael Stivala

Management

We continue to focus on internal measures, the efficiencies, obviously. But more importantly, we are addressing our customer service reps and trying to give them a more educated stance, so that they can face off with customers in a more reputable fashion. You had to sit down and the economy is affecting everyone one of us, I mean not only as a business person but as consumers, and those same CSR’s are experiencing perhaps some drawbacks in their own personal life. So, we want to make sure that they stay upbeat, and will be able to separate our personal life from their business responsibilities and be able to handle customers. They could possibly be going through the same sort of stress and strain, that it’s important that we help our customers through these financial difficult times. We offer budget pay plans, and we are willing in some cases to divert and drop loads that are perhaps smaller than what normally be, because they are pocketable, can afford the full load etc. So from an organic perspective we saw those things going on. I think from an outside perspective, I think over the course of the next 12 to 18 months, you will see more opportunities than we have seen in the past, that could conceivably be deemed realistic, and we are hopeful that we will able to expand in some of the markets where we have a pretty strong presence.

Darren Horowitz - Raymond James

Analyst

Sure. Just one final question if I could. If you had to add an incremental volume today where would it be?

Michael Stivala

Management

I do not understand the question.

Darren Horowitz - Raymond James

Analyst

If you are targeting your best bank for the buck on a dollar employed. Where would you want to add more volumes today?

Michael Stivala

Management

Well I think our footprint, the east and west coast is still where we desire to be.

Operator

Operator

Your next question comes from Ronald Londe - Wells Fargo Securities.

Ronald Londe - Wells Fargo Securities

Analyst

Now that you have your new credit facility in place, do you feel that it might be time to get little bit more liberal with the pay out of your distribution, given that each 1% increase in the distribution at this level equates to about $1.1 million a year and you have got on the order of $256 million on the balance sheet?

Michael Stivala

Management

Ron that is a good point. I think that at this stage with all that’s going on, with people’s investment portfolios and so forth and so on, at this point in time, we would like to able to demonstrate the sustainability of distribution as opposed to getting ahead of the curve.

Ronald Londe - Wells Fargo Securities

Analyst

I guess I’m amused now.

Michael Stivala

Management

Yes. If that’s the way you want to interpret that. I think we will play it by year.

Ronald Londe - Wells Fargo Securities

Analyst

Do you have any goals set for where you want to see distributions grow over the next few years?

Michael Stivala

Management

Not really.

Operator

Operator

At this time there are no other further questions in queue.

Michael Stivala

Management

Okay. Again, everyone thank you and we will see you next quarter. Thank you Paul.

Operator

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive teleconference. You may now disconnect.