Buy-Sell-Hold Analysis:

Suburban Propane Partners, L.P.

Kerri Doyle Megan Alvarez Laura Peterson Tim Daly

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Table of Contents
Introduction ......................................................................... 3 Industry Overview................................................................ 8 Financial Analysis ................................................................. 11 Liquidity Ratios ............................................................. 11 Profitability Ratios ........................................................ 13 Cash Flow Adequacy Ratios .......................................... 16 Long Term Solvency Ratios ........................................... 17 Market Strength Ratios................................................. 18 Comparative Industry Analysis ............................................ 20 Buy-Sell-Hold Analysis ......................................................... 23 10-Year Forecast .................................................................. 27 Bibliography ......................................................................... 30

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Introduction
President & Chief Executive Officer
Michael A. Stivala

Company Headquarters
240 Route 10 W Whippany, NJ 07981 (973) 887-5300

End of Last Fiscal Year

September 28, 2013
Suburban Propane Partners, L.P.

Stock Information
Ticker Symbol: NYSE: SPH Price $42.32 Year to Date % Change -7.44% P/E 31.44 Beta 0.64 52 Week 39.91-50.25 Market Cap 2.55B Earnings Per Share 1.35
*Information as of April 8, 2014

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Business Strategy
Suburban Propane Partners, L.P, always strives to increase value for investors and create sustainable, profitable growth. They achieve this through selective partnerships with other companies and by using improved technologies to increase operating efficiencies and optimize return on assets. They aim to improve customer retention and acquire new customers by means of outstanding customer satisfaction, as well as the attainment of new customer bases that come with the acquisition of partnerships. Suburban recently acquired Inergy Propane, expanding their customer base into the Midwest and a total of 11 new states, expanding their total reach to 41 states in the US. The Inergy Propane acquisition brought Suburban over 600,000 new customers. Along with the acquisition of complementary businesses and assets that help them to diversify their energy products and improve efficiency, Suburban keeps their business running smoothly by disposing of any non-strategic assets.

Locations
The following diagram shows both current Suburban Propane locations and delivery areas, as well as locations gained by acquiring the company Inergy. Suburbans headquarters is located in Whippany, New Jersey. They have nearly 4,400 employees and can be found in 41 states in over 750 locations, providing to over 1.2 million customers.

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Products
Propane is a clean burning energy source that is very transportable and easy to use. It is used for residential and commercial, industrial, and agricultural purposes. Fuel Oil and Refined Fuels includes fuel oil, kerosene, diesel gas, and gasoline. Fuel oil is used primarily for space and water heating in residential and commercial buildings, and refined oils are used for motor vehicle operation. Natural Gas and Electricity are used by residential and small commercial customers to power buildings Other Products and Services include the sale and installation of home comfort equipment such as heating and ventilation systems. Suburban also provides services on these items for customers.

Supply Chain
Propane
Supply: Suburban purchases propane from approximately 65 oil companies and natural gas processors at approximately 160 supply joints across the United States and Canada. They often create annual contracts with suppliers, but they also make some purchases on the spot. The two largest suppliers in 2013 were Inergy, providing 34%, and Targa, providing 12%. The cost of propane is typically determined based on market prices at the time of delivery. Storage: Suburban owns several storage locations, so they can buy large amounts of propane when demand is low and store it to be prepared for a time when customer demand is high or there is low supply. Customer Service Centers: Propane is transported from the refineries, pipeline terminals, storage facilities, and coastal terminals to Customer Service Centers via common carriers, owner operators, and railroad tank cars. These centers are typically in suburban areas where propane is not readily available. Customer Service Centers include offices, storage, appliance showrooms, warehouses, and service facilities. Distribution: Suburban has an automated distribution system that schedules deliveries based on clients historical use and current weather conditions. They use primarily bobtail and rack trucks to deliver their product to 750 different locations in 41 different states. The customer base is mainly along the East and West coasts and has recently expanded into the Midwest with the acquisition of Inergy.

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Fuel Oil and Refined Fuels

Supply: Suburban purchases fuel oils from approximately 40 suppliers at 50 supply points. They get the fuel oils through pipelines, truckloads, and tank wagons. They have made contracts and arrangements with companies to store oil in terminal facilities owned by suppliers and to freely access certain terminals. Some of Suburbans fuel oil and refined fuel purchases are also from local wholesale terminal racks. The cost is usually determined by market price at the time of delivery, and transport costs and volume discounts are also taken into account. Distribution: An automated delivery system schedules deliveries based on historical use and weather conditions for 43% of fuel oil customers. Fuel oil deliveries are usually carried by tank wagon trucks and pumped into storage tanks on the customers premises. Suburban delivers fuel oils to approximately 65,000 residential and commercial customers who are mainly in the northeastern United States.

Natural Gas and Electricity

*Natural gas and electricity are marketed through Suburbans 100% owned subsidiary, Agway Energy Services Supply: Natural gas is purchased from wholesale suppliers under annual supply agreements, and the cost is based on current market prices at time of delivery. The main supplier of electricity requirements is New York Independent System Operator (NYISO). While most purchases are from NYISO under an annual supply agreement, purchases are also made through arrangements with other national wholesale suppliers. Advertising: Suburban attracts new customers using advertising methods such as telemarketing and direct mail initiatives. Their goal is to expand the customer base and expand into new deregulated strategic markets in order to increase its market share. Distribution: Agway arranges for the distribution of natural gas and electricity through local utility companies. For a fee, the utility companies bill and collect payments from the customers and then the utility companies pay Agway. Suburbans natural gas and electricity segment services approximately 87,000 customers in the deregulated markets of New York and Pennsylvania.

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Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLC New York - Chairman's Office - US Firm PricewaterhouseCoopers LLP 300 Madison Avenue 24th Floor New York, New York 10017 United States of America Phone: (646)-471-4000

Accounting Policies
All auditing and non-auditing services performed by PricewaterhouseCoopers must be preapproved by the Audit Committee. PricewaterhouseCoopers expressed: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, partners capital, comprehensive income and cash flows present fairly, in all material respects, the financial position of Suburban Propane Partners, L.P. and its subsidiaries at September 28, 2013 and September 29, 2012, and the results of their operations and their cash flows for each of the three fiscal years in the period ended September 28, 2013, in conformity with accounting principles generally accepted in the United States of America.

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Industry Overview
The Fuel Dealer Industry
Suburban Propane Partners provide energy related products to customers ranging across 41 states with a focus on providing superb value and customer satisfaction, consistent performance, profitable growth, and increasing value to investors. Suburbans performance based on cumulative return as of 2013 was slightly above that of their peer group. Their peer group includes only two companies: AmeriGas Partners, L.P. and Ferrellgas Partners, L.P. These three companies control around 16% of the market share combined. Over 8,000 other propane companies make up the rest of the industry, making the concentration for this industry very low. The three main products provided by Suburban are propane, fuel oils and refined fuels, and natural gas and electricity. We will begin by looking at each of these as separate industries. Propane is the fourth most important source of residential energy in the nation, providing heat for 5% of residential households. The propane industry is dependent mainly on the severity of the winter weather and the price and availability of other fuels. In the 2013 Annual Report, Suburban said that historically their suppliers have always had enough fuel readily available, and they expect this to continue. However, there was a shortage in the 201314 winter, negatively affecting smaller companies and raising propane prices. Measures have been taken to ensure that future shortages of propane are much less likely. The propane industry is very volatile and liable to change as a result of various factors such as world prices for crude oil and natural gas, as well as varying weather conditions. This greatly affects companies revenues from year to year. The propane industry consists of a few large companies and numerous small, local distributors. The top 10 companies provide 35% of the propane used. Suburban is the third largest retail marketer of propane in the United States. Most competition comes from alternative energy sources. While propane is more transportable and easier to use than alternative sources, many customers may choose alternatives such as natural gas or electricity based on price and availability. Within the propane industry, Suburbans service centers must compete locally with other retailers. The fuel oil and refined fuels industry is very mature. The demand is currently flat or on a slight decline. It is a highly fragmented industry with a large number of small businesses. There is a wide range of businesses in the industry. Some, like Suburban, are full
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service distributors who take care of all aspects from purchase to delivery to servicing appliances, while others only deliver. As with the propane, Suburbans fuel oil and refined fuels sector competes primarily with local distributors and alternative energy sources based on price and availability. The third industry, natural gas and electric, is highly regulated in many areas. As a result, Suburban only provides these products and services in the deregulated markets of New York and Pennsylvania. They hope to expand into more deregulated strategic markets. Suburban markets natural gas and electricity through their 100% owned subsidiary, Agway Energy Services. Generation, transmission, and distribution of natural gas and electricity used to be done completely by utility companies, but under deregulation companies like Agway are given licenses to act as alternative suppliers. Essentially, Agway arranges for the distribution of the products to customers, and the utility companies actually complete the deliveries. There are a few other companies who operate similarly to Agway and create competition, but the primary source of competition is from local utility companies.

This graph from Market Realist shows the correlation between heating degree days and EBITDA margins for Ferrellgas Partners (one of Suburbans main competitors) for the past seven years of heating seasons. The colder than usual winter caused propane prices to spike in the last quarter.

These three industries are closely related. Fortunately for Suburban, the main competition for their products comes from other products that they provide, so there is little chance of losing business to competition. In a stable, mature industry, there are few concerns created by the industry. One of those is government regulation. There are several health, environmental, and safety guidelines that Suburban must abide by. To stay in compliance with these regulations, Suburban expects to spend money on remediation of sites and close monitoring with regards to potential environmental issues or improvements. Another thing to note that comes with the industry is the seasonality. Since Suburbans products are used mostly for heating, there is a spike during the cold winter months. Two thirds of use occurs between the months of October and March, and the remaining one third occurs between April and September. As a result, Suburban expects relatively high net income during the fall and winter months followed by lower net income or net loss during the warm spring and summer
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months. For example, because the winter of 2013-2014 was warmer than normal, fuel distributors expected higher margins (see above graph). Furthermore, the fuel distributors industry has a high level of capital intensity. This means that the industry has a heavy reliance on its employees and their ability to make sales relative to investments. The industry average for capital intensity is $.34 invested per dollar spent on labor. In comparison, both the retail trade and economy industries have a lower capital intensity level. In addition, the fuel industry is very volatile, meaning that Although Suburban falls under the category of these three long-lived, stable industries, they consider themselves a part of the fuel distributor. Their mission statement includes nothing about energy or propane; they emphasize their desire to provide superior customer satisfaction, provide a safe work environment, and to increase profits and value to investors. They plan to expand their customer base and lead the energy industry through unmatched value and customer satisfaction.

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Financial Analysis
Liquidity Ratios
Ratio Formula (Accounts Payable/COGS) X Days in Accounting Period Current Assets Current Liabilites Current Assets / Current Liabilities 2013 results 2012 results 2011 results 2010 results 2009 results

Days' Payable Working Capital Current Ratio

22.04 59,428 1.25

31.93 83,800 1.33

19.87 146,308 1.97

24.00 131,913 1.8

23.77 127,497 1.71

Acid Test Ratio Accounts Receivable Turnover Days' Sales Uncollected Inventory Turnover Days' Inventory On Hand

(Cash + Accounts Recievable)/(Current Liabilities) 0.95 Revenue / Avg Accts Receivable (Net Accounts Receivable / Net Sales) * 365 COGS / Avg Inventory (Net Inventory / COGS) * 365

1.08

2.43

1.35

1.2

6.99

5.94

8.36

18.6

20.27

24.43 9.38

87.08 7.74

67.19 10.69

21.12 10.58

18.01 10.39

40.17

54.19

35.44

37.23

35.15

Suburbans working capital had an overall decrease from $125,626,000 in 2009 to $59,428 in 2013. Likewise, the current ratio decreased from 1.69 to 1.25, and the acid test from 1.2 to .946. A general guideline for current ratio is to aim for around 2:1. A current ratio above 1 ensures that the company has enough current resources to cover its short-term debts. However, if a companys ratio exceeds 2, this could signal that they are not efficiently using their cash to benefit the company or are holding a great proportion of their assets in inventory. Despite the downward trend, Suburbans current ratio of 1.25 in 2013 indicates they are still in a good financial standing and have adequate ability to cover any current obligations. Though
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slightly lower than the suggested guideline, this decrease can be seen as a good thing because the company is more efficiently using their assets. In fact, Suburban took advantage of cash on hand and successful issuance of common units to reduce their overall leverage by $157.3 million during fiscal 2013. This is a beneficial move for the company, for it improves their standing in terms of solvency as well as make better use of the excess assets they had on hand. The general guideline for the acid test is 1:1. Suburban is just slightly under the guideline with a ratio of .946. However, we do not view this as a significant indicator of an inability to pay for short-term liabilities in the long run, for it is still near the ideal ratio and is a result of paying off previous debts. Again, a downward trend is seen in the analysis of accounts receivable turnover from 20.27 times in 2009 to 6.99 times in 2013. Accounts receivable measures efficiency in collecting cash from credit sales. It is best for companies to not hold a large portion of their current assets in accounts receivable, so they want to collect cash as quickly as possible. The increase in days sales uncollected reflects this decrease in efficiency of cash. Days sales uncollected increased from 18.01 days in 2009 to 24.43 in 2013. However, although the 2013 data points indicate that Suburban is doing worse on cash collection than in 2009, both the accounts receivable turnover and the days sales uncollected are improvements from 2012. In the past 5 years, the lowest accounts receivable turnover was in 2012, with only 5.94 times, while the days sales uncollected peaked in 2012 87.08 days. This may indicate that Suburban is putting effort into more efficient cash collection, which will improve their overall economic standing. In addition to accounts receivable turnover, inventory turnover has decreased recently as well. The inventory turnover for 2013 was 9.38 times, compared to 2009s 10.39 times. This data point also hit a minimum in 2012, with a turnover of only 7.74 tim es. The ending days inventory on hand increased from 35.15 days in 2009 to 40.17 days in 2013, with a maximum of 54.19 days in 2012. In both inventory turnover and days inventory on hand, we can see the overall downward trend from 2009 to 2012, with a slight increase in 2013. Despite the less impressive numbers, we dont think these ratios are to be of concern to investors. First of all, the minimum and maximum data points are still in the same range of efficiency, and this range is representative of a decent efficiency in terms of inventory. Second, it appears as though there are negative statistics across the board representing the investment decision in 2012 that do not accurately represent Suburbans economic standing. The decreased demand as a result of the record high temperatures in 2012 will not be an issue in years to come. Also, acquiring the company Inergy Propane will ultimately be beneficial for Suburban, and we already see improvement in the financial data just one year after the investment took place, indicating that the company will be able to recover quickly and fully.

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Profitability Ratios
Ratio Profit Margin Gross Margin Ratio Asset Turnover Return on Investment Formula Net Income / Revenue 2013 results 4.63% 2012 results 0.06% 2011 results 9.66% 2010 results 10.14% 2009 results 14.45%

(RevenueCOGS)/(Revenue) 49.41% Revenue / Avg Total Assets .61 times Net Income / Avg Total Assets 2.81% Net Income / Avg Common Stockholder's Equity 6.77%

43.67% .55 times 0.03%

42.99% 1.24 times 11.93%

38.97% 1.17 times 11.84%

52.73% 1.17 times 16.89%

Return on Equity

0.08%

27.44%

13.75%

39.50%

Trends seen in the profitability analysis of Suburban are similar to those seen in the liquidity section. From 2010 to 2013, Suburban steadily increased its gross margin from 38.97% to 49.41%, indicating that for every $100 of propane they sold in 2013, they had $49.41 available to cover other expenses and generate income. A high gross margin ratio shows that a company is in a good position to cover their other expenses. However, despite Suburbans high gross margin, their overall profit margin has declined over the past five years from 14.45% to 4.63%, with a minimum of .06% in 2012. The companys net income for 2013 indicates that for every $100 of propane they sell, they generate $4.63 of net income. This shows that although their gross margin has increased in the past four years, they have more additional expenses that are resulting in a lower net income. In August 2012, Suburban energy bought the company Inergy Propane, which resulted in a large amount of expense for the company. This acquisition explains the extremely low profit margin in 2012, and a relatively low profit margin in 2013 as Suburban was still going through the process and incurring expenses to take over Inergy Propane. Even though profit margin shows a downward trend since 2009, with the lowest data points in the past two years, the acquisition of Inergy Propane explains the very low results in 2012 and 2013 as well as provides means to increase this ratio in future years. In addition, the year of 2012 was a record high in temperatures, which results in a decreased demand for propane from consumers. In general, to increase profit margin, companies must increase efficiency and better control costs, which also might be important for Suburban to consider as they try to increase profit margin. During Fiscal 2013, Suburban made progress in this area by

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implementing key regional managers that will oversee operations and help the company be more profitable in years to come. A companys asset turnover measures the efficiency in assets in producing sales. Just like profit margin ratios, generally a high asset turnover rate is desired, for that means a company is earning a lot of money in proportion to the assets it h olds. Suburbans asset turnover in 2013 of .607 indicates that about $0.61 of revenue is generated for every $1.00 held in assets. Although this ratio is much lower than the approximately 1.2 seen in 2009-2011, Suburban actually has increased revenues. This shows that there must have been an increase in total assets in 2012 and 2013 rather than a decrease in sales. An increase in assets could be the result of the acquisition of Inergy Propane and high temperatures in 2012, and increased revenue in proportion to the increase total assets could result in the coming years as the company adjusts to the acquisition and recovers from the decreased demand. Return on assets relates to asset turnover the way that profit margin relates to gross margin. Asset turnover indicates the relationship between revenue and total assets, while return on assets evaluates the relationship between net income and total assets. Suburbans return on assets for 2013 is 2.81%, showing that for every $100 held in assets, the company generated $2.81 of net income. The standard analysis for return on assets is the higher the better, for companies want to generate as much net income as possible given their assets. Once again, there is a downward trend seen from 2009 to 2013, as the return on assets decreased from 16.89% to 2.81%, with an extreme low in 2012 at .03%. Once again, this major decrease in the past 2 years can be attributed to the acquisition of Inergy Propane and high temperatures. This pattern is also seen in the return on equity, which decreased from 39.5% in 2009 to 6.77% in 2013, which indicates that for every $100 of equity held by stockholders in Suburban, the company generated $6.77 of net income. Return on equity can be best understood through a DuPont Analysis, which states that ROE = Profit Margin * Asset Turnover * Financial Leverage. The financial leverage value for 2013 was 2.41, completing the equation of 6.77 = 4.63 * .61 * 2.41. This shows that ultimately, Suburbans return on equity is a result of the combination of operating efficiency, asset use efficiency, and financial leverage. The DuPont Analysis is helpful is detecting an area of weakness that may result in an unsatisfactory or overstated return on equity. From our analysis, we can see that the value reported for return on equity is indeed a relevant statistic and reflective of Suburbans performa nce, for both ROE and all of its components are improvements from the previous year. The overall downward trend in each of the profitability ratios from 2009 to 2013 can be alarming to investors, especially with the extreme lows in 2012 and only slightly recovered values in 2013. However, we believe that this is not a true reflection of Suburbans economic
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position. Suburbans decision to invest in acquiring in the company Inergy Propane inevitably came with a large sum of expenses during 2012 and carried over to 2013. This will drive their profit margin and other indicative data points way down, which isnt reflective of the business. If Suburban had not invested in Inergy Propane, the downward trend in most profitability ratios since 2009 would be alarming. However, Suburbans investment in acquiring another propane company will most likely increase income, profits, and returns as the acquisitions costs are all covered and the company transitions into one entity, which will ultimately put them in a better economic position. In addition, the record high temperatures in 2012 are unlikely to continue into coming years, which will result in a return to regular demand for propane.

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Cash Flow Adequacy Ratios

Ratio Formula 2013 Results 2012 Results 2011 Results 2010 Results 2009 Results Cash Net Cash Flows from Flow Operating Activites / Yield Net Income 0.78 113.52 0.58 Cash Flows Net Cash Flows from to Operating Activites / Sales Net Sales 3.61% 6.81% 5.59% Cash Flows Net Cash Flows from to Operating Activities / Assets Avg Total Assets 2.19% 3.77% 6.90% *2009 Average Total Assets taken as end of year value

0.12

1.30

1.22% 18.75%

1.42% 21.91%

Suburbans cash flow yield ratio remained relatively stable until 2012. In 2009 it was a little high at 1.30 because of greater cash flows from operating activities. The spike in 2012 can be explained by an extremely low net income from acquiring Inergy. As evidenced by the cash flow yield in 2013, cash flow yield returned to normal and is expected to remain as such in the coming years. Overall, cash flow yield allows us to measure a companys financial strength and determine how much income is generated by operating activities. It is expected that Suburbans cash flow yield ratio remain somewhat steady because the industry is stable. In other words, the income generated from operating activities should parallel its activities over the years. Cash flows to sales measures the ability of a company to turn its sales into cash. The higher the ratio, the better off the company is. In 2009, the company had a much higher cash flows to sales ratio because of the $246,551 million in cash flows in compariso n to 2010s operating cash flow of $155,797. This shift in operating cash flows is again due to Suburbans acquiring Inergy, which caused net cash flows from operating activities to rise. On the contrary, the cash flows to assets ratio has been steadily decreasing over the 5 year time span from 21.91% to 2.19%. A higher cash return from assets could mean more cash flowing throughout the company to reintegrate in the company. The 2009 cash flows to assets ratio was much higher than other years because of Suburbans high cash flows from operating activities. Its cash flows to assets ratio has been declining for two years from 2011. In the future it will be beneficial to see whether Suburbans cash flows to assets ratio increases, as its ratio at the moment seems quite low. Suburban may have trouble generating cash.
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Long Term Solvency Ratios

Ratio Formula Total Liabilities/Owner's Equity (Short Term + Long Term Debts)/Total Assets (Income before taxes + Interest Expense) / Interest Expense 2013 Results 2012 Results 2011 Results 2010 Results 2009 Results

Debt to Equity

141.60%

164.45%

167.00%

167.72%

173.59%

Total Debts to Total Assets

45.65%

49.31%

36.40%

36.40%

35.72%

Times Interest Earned

3.45

2.81

6.55

7.02

6.25

Long term solvency ratios will help us to know more about Suburban Propane and determine how able it is to meet its long-term obligations, as well as gain insight on its capital structure. From 2009 to 2013, its debt to equity ratio decreased by a total of 31.99%, showing how our company has decreased the amount of liabilities used to finance its assets. This is a good sign, as it indicates a lowered risk factor in relation to its income. From 2012-2013, the ratio decreased by 22.85% as a result of lowered liabilities from 2012-2013 and greater shareholders equity in 2013. Suburbans total debts to total assets measures financial leverage. The higher the ratio, the riskier the companys financial situation. In 2012, total debts to total assets peaked at 49.31%. This was a result of higher debts incurred from acquiring Inergy. The ratio decreased by 3.66% in 2013, signifying a slightly lower amount of debt in comparison to assets. Having such a high total debts to total assets ratio is slightly concerning, as it means that Suburbans assets are greatly financed by debt. However, by industry standards this ratio isnt all that high. From 2009-2011, our times interest earned remained high, indicating greater ability to pay the interest expense. The number then decreased dramatically by 4.15 in 2012 and remaining low at 1.85 through 2013. The interest coverage ratio measures a companys ability to pay interest expense with its operating income (or earnings before taxes and interest, otherwise known as EBITDA). As it decreases, it becomes more risky for creditors because it indicates that the company is less able to pay its interest expense. The reason for the very high interest coverage rate is again due to the extremely low EBITDA value in 2011 from acquiring Inergy. Because of the years low income, it follows that the income before taxes and interest expense should also be quite low.
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Market Strength Ratios

Ratio Formula (Net Income)/(Total Shares Outstanding) Market Price Per Share / Earnings Per Share Dividends Per Share / Market Price Per Share 2014 Q1 results 2013 results 2012 results 2011 results 2010 results 2009 results

Earnings per Share

3.89 1.31

0.01

3.24

3.27

4.69

Price Earnings Ratio (P/E)

12.08 35.73

4136

14.32

16.42

8.78

Dividends Yield per Share

7% 7%

8%

7%

6%

8%

Suburbans market strength ratios tell us much about the past and future of the company. The earnings per share numbers had been declining through 2011, then dropped significantly just like many of the numbers in 2012. The acquisition of Inergy Propane was the main cause for this. 2009s EPS wasnt a fluke either, with the two years before it being around 4.5. This means that Suburban Propanes earnings per share had been declining from 4.69 to as low as 0.01 in three years. The Price Earnings Ratio has also been worsening since 2009. Last year you would have been paying $35.73 for every dollar you got back. From 2009 to 2013, the P/E nearly quadrupled, which is not a good sign for investors. These downward trends would be a red flag despite the companys optimism and slight rebound last year. However, a first quarter to this year that despite being affected by warmer than usual weather still produced numbers that would equate to an EPS of 3.89 and a P/E of 12.08, validating the managements optimism and pleasing the shareholders. These numbers would both be the best Suburban has seen in the past four years. We think that these numbers should both steadily become better in the next few years as Suburban becomes more and more integrated with Inergy Propane. Suburbans dividend yield per share numbers are very good, hovering around seven and eight percent. These quarterly payout numbers are much better than 3.70%, the industry average according to the New York University Stern School of Business. These numbers encourage investment and havent taken any hit that many other ratios did in 2012 because of the purchase of Inergy. Ceteris peribus, the Dividend Yield of Suburban Propane make Suburban the premier company to invest in among those in the propane industry. Sububans dividend yield numbers are even better than the NASDAQ 100 and Dow Jones Industrial Indexs
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top companies. Even if Suburbans market price doesnt increase much, or even decreases, youll still be getting a fair amount back on your investment.

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Comparative Industry Analysis

Return on Investment
20

15

Percent

10

Suburban AmeriGas

Ferrellgas

0 2009 -5 2010 2011 2012 2013

Although Suburban experienced a downward trend in return on investment from 2009 to 2012 and a slight increase in 2013, they were not alone. Both of the top competitors in the propane industry had a similar return on investment for 2012 and 2013. In, 2013 AmeriGas and Ferrellgas reported an ROI of 4.96% and 4.1%, respectively. Suburban reported an only slightly lower ROI of 2.81%. Although they are having a bit of a slower recovery than their top two competitors, Suburban is still within a reasonable range for the industry. We believe this is a result of the combination of industry factors, such as the decreased temperatures, and internal factors, such as the acquisition of Inergy Propane. Just as each of the companies has already recovered from the external factors in 2012, Suburban will adjust from the costs of taking over Inergy Propane and will increase their rate of recovery in the coming years.

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Return on Equity
80 60 40 Percent 20 0 2009 -20 -40 -60 2010 2011 2012 2013 Suburban AmeriGas Ferrellgas

The trends seen in return on equity are similar to those seen in return on investment. Ferrellgas did not report a value for ROE in 2012 or 2013, but we can see that they had an extreme downward trend from 2009 to 2011, with a minimum of -51.5%. Suburban and AmeriGas reported ROE values of 6.77% and 14.11%, respectively. Once again, Suburban is slightly behind AmeriGas in terms of recovery from the dismal numbers seen in 2012. However, the low net income Suburban experienced was a direct result of a beneficial investment, which will allow them to catch up in terms of recovery in the coming years.

Gross Margin Comparison

60.00% 50.00% Gross Margin Percent 40.00% 30.00% 20.00% 10.00% 0.00% 2009 2010 2011 Year 2012 2013 Suburban AmeriGas Ferrellgas

Gross margin has remained relatively stable across the industry from 2009 to 2013. Suburban and their peer group have each experienced declining profit margins at some
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point between 2009 and 2012, but Suburbans was most drastic, dropping fr om 52.73% to 38.97% in just one year. However, Suburban was the first to turn around and begin moving in an upward trend again. The gross margin percentages for all three companies are currently increasing at a similar rate, and Suburban had the highest percentage for 2013. Suburban had the ability to recover from a large drop and steadily increase their profit margin, even while the rest of the industrys profit margins were decreasing.

Profit Margin Comparison

16.00% 14.00% 12.00% Profit Margin Percent 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% 2009 2010 2011 Year 2012 2013 Suburban AmeriGas Ferrellgas

As seen in the graph above, Suburban, AmeriGas, and Ferrellgas all experienced declines in profit margin from 2009 to 2011. Interestingly, Ferrellgas slightly increased their profit margin from 2011 to 2012 while Suburban and AmeriGas greatly decreased. The large drop may be explained by an unusually warm year in 2012. Profit margins increased for all three companies from 2012 to 2013, with AmeriGas increasing at the greatest rate. Prior to 2012, Suburbans profit margin surpassed both AmeriGas and Ferrellgas. However, beginning in 2012, AmeriGas profit margins have been above Suburbans. One possible explanation for Suburbans slower rate of growth between 2012 and 2013 is their acquisition of Inergy. Although this acquisition will hopefully lead to even higher profit margins, it is likely that they are still working on integrating the two companies, which could cause growth to slow for the first year or so following the acquisition.

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Buy-Sell-Hold Analysis
Despite recent downturns in financial data, we believe Suburban is a strong company with a positive outlook. The negative data in 2012 is a direct response to an investment decision that will ultimately be beneficial to Suburban. The acquisition of Inergy Propane nearly doubled Suburbans size, and we believe the synergy between the two companies will result in an overall increase in profits from the increased customer base. This confidence is also shared by Suburban Propanes upper management, with their former CEO Michael J. Dunn purchasing over $200,000 worth of Suburban Propane stock in the past month. As seen in the data, Suburban has already made progress in improving in just one year since the investment. For example, Suburbans profit margin increased from .06% in 2012 to 4.63% in 2013. Once the company has the time to fully recover from the expenses of purchasing and integrating Inergy, we believe they will make a full recovery in the financial market. Suburban expects to save $50 million per year in expenses after fully integrated with Inergy. Some may perceive the acquisition as a concern for investment, for it resulted in very high costs and without guaranteeing the loyalty of Inergys customers. If an attrition of customers were to occur, this would result in decreased profits for Suburban to go along with the increased expenses they incurred in acquisition. However, we believe that this concern will not be a major issue. It is very expensive for consumers and businesses to switch propane companies, suggesting that most customers will remain with the company they currently are supplied from. Also, Suburban Propanes above and beyond customer service efforts help them retain and attract new customers through their automatic worry free delivery, safety and reliability of equipment, methods and employees, online payment options, budget plans, 24hour service, and other capabilities. This high value of customer service is very important in an industry where the majority of Suburbans competitors are small Mom and Pop companies. By proving that the big company cares, along with superior technology and reach, Suburban will be able to remain at the top of the industry. Through this acquisition and expected retention of customers, Suburban will generate enough revenue from the increased volume in customers to cover all the expenses of the acquisition of Inergy Propane, as well as possibly allow for increased future expansion. On the topic of expansion, propane is playing a larger role each year in the motor fuel industry, powering forklifts and industrial equipment across the country. This niche in the industry will continue to grow with the expanding economy, and Suburban expects to be a major player in this area. Another potential area of growth is in public transportation. The
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options for propane powered cars are being explored and several countries overseas have already begun converting cars to propane. In America, Ford has switched their F-series to be propane powered. The upside to this expansion is enormous and would be extremely profitable for Suburban.

This a graph from the Alternative Fuels Data Center showing how many propane powered cars are expected to be manufactured from now until 2020

Suburban Propanes acquisition of Inergy Propane is a momentous event for the company. As you can see in the ratio charts above, almost every number took a turn for the worse in 2012 when the acquisition occurred. This was followed by better numbers in 2013, but why should investors expect future prosperity? We need to understand the acquisition to answer this question. On April 26, 2012, Suburban stated in a press release that they would be purchasing Inergy Propane. Suburban bought the company for a high price, but gained a large customer pool and geographic reach. Inergy had been struggling because of poor operating systems and inefficient technologies, and their debt was inherited by Suburban through the acquisition. Suburban and Inergys revenue and income consummated after acquisition, giving suburban a lot more liabilities than theyd normally have in 2012, explaining the poor numbers. Suburban planned to cut redundant business expenses and to extract efficiencies, as well as expand into 11 new states and bring in 600,000 new customers. This integration was supposed to be a five year process, as announced by the company in another press release. A recent quarterly report reciprocates this feeling. If Suburban continues to stay on track, they should really turn the corner in 2015 after fully integrated. Until then, we feel that they will slowly get better and better in terms of stock and ratio performance. It is also worth noting
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that Suburban would have done significant research before acquiring Inergy to ensure their cultures and structures matched. In an interview with a Suburban Propane executive Christopher Daly, we were told: The acquisition of Inergy Propane was done with the understanding that Suburban Propane had a business platform equipped to optimize the integration and synergy opportunities. The business platform has a proven track record of managing cost structure and driving operating efficiencies. Some of the key considerations in this area were: Advanced systems platform that is stable and scalable Inergy was operating on several operating systems and had no cohesion geographically or philosophically which did not allow for a stable operating model; experienced and proven management team; increased size, scale and financial resources reduce the overall business risk profile of Suburban; and increased geographic coverage allows for more balance with a normalized weather. One undeniable accomplishment of acquiring Inergy is the geographic advantage Suburban gains. The acquisition gave Suburban a strong foothold into the Midwest, an area that is known for its agriculture. In the agricultural industry, propane continues to be the main fuel source for farming equipment and should remain as such. This will be because natural gas, propanes key substitutionary product, is not expected to expand its availability into the Midwest for at least two more decades. 11 new states are now serviced by Suburban after the purchase of Inergy, adding to Suburbans balance and protection against poor weather repercussions in any part of the country. The company now has locations in 41 states and can continue to expand in the upcoming years. Overall the energy industry is somewhat strong and stable. The industry isnt at risk of disappearing for at least the next few decades. Although the industry is volatile based on weather and other factors, a demand for propane will persist because it remains a necessity for residential and commercial, industrial, and agricultural purposes. The demand has remained relatively stable, although the price is liable to change due to the severity of weather conditions during the peak heating season, customer conservation driven by high energy costs and other economic factors, as well as technological advances impacting energy efficiency (Annual Report, pg. 12). Furthermore, unrest and hostility in foreign countries that provide Suburban products serve as liabilities in increasing the cost of energy and hinder opportunity to raise capital, thus having the potential to affect future growth. The main threat to the propane industry is the rising use of natural gas. However, we do not believe this will be a major issue
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for Suburban. As previously stated, it is extremely expensive for households and companies to switch from one to the other. In addition, Suburban has a natural gas component as well, which will allow them to transition more easily than other companies into supplying natural gas if the transfer does occur. According to analyst source IbisWorld, the industry is expected to undergo positive changes in 2014. The world price of natural gas, propanes key substitutionary product, is predicted to increase in 2014, resulting in a higher demand for propane. A boom in housing is also suspected to increase propane and other energy demands in 2014, further spurring the industry. Furthermore, per capita income is predicted to increase in 2014, meaning customers are less likely to cut back on their energy consumption and demand will not fall in the coming year. Over the past five years, the industry as a whole has experienced declining revenue due to falling crude oil and petroleum products. The industry as a whole is volatile and dependent on a variety of factors to maintain a stable price. The numbers in 2012 and 2013 are poor due to the acquisition of Inergy Propane, but continuing integration efforts have been effective in turning around those numbers slightly for 2013 and the first quarter of 2014. Suburban paid a high price to invest in their own future, and should see the payoff of this investment in the upcoming years. This confidence is evident in the former-CEO Michael J. Dunn, who recently retired, investing over $200,000 in Suburban Propane Partners, L.P. stock. Weve already seen a turnaround in Suburbans first quarter numbers and expect this positive trend to continue. This, along with Suburbans high dividend payout, makes Suburban Propane an enticing buy. However, we would recommend that investors hold on this stock until the end of this fiscal year. If the companys financial data continues to trend positively by the end of this fiscal year, we would suggest investing in Suburban Propane. For the current time, however, we recommend holding. A recent analyst report from JP Morgan agrees with our decision, stating that the future for Suburban can be bright but it is currently unproven.

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10-Year Forecast
As mentioned before, Suburbans future for the next year or two is bright but currently unproven. In the long run, Suburban should be fine. Their future largely depends on a few key factors; integration with Inergy Propane, propane, natural gas, and oil prices, interest rates, weather, and the strength of the American economy. A few of these factors are shown below in a chart from MarketRealist.com that articulates how different trends in certain factors affect propane distributors, either positively or negatively.

Integration with Inergy Propane Suburban should be fully integrated with Inergy Propane by 2015. The acquisition has already shown its potential with the good numbers Suburban posted for the first quarter of 2014 despite having a few uncharacteristically warm months. We expect this integration to be successful, and so do Suburban and a recent analyst report from JP Morgan. For more information on the acquisition and integration of these two companies, see the buy-sell-hold analysis above. Propane Prices Propane prices are historically lower than natural gas and oil prices, but not by much. Propane prices will continue to be competitive with these other forms of fuel in the future, and with the expansion of propane powered cars will continue to be a cheaper and cleaner option than gasoline due to a higher demand of Propane while still being competitive, according to the economic law of supply. Propane is also a derivative of crude oil and natural

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gas, making its price and supply correlate closely with theirs. This decreased price for propane is good for Suburbans future outlook. Natural Gas and Oil Prices Natural gas prices will also be making a move soon with the discovery of the marcellus shale. We also have a much more stable oil supply than in previous years, meaning future crude oil prices will also dip. The US, already the number two natural gas exporter in the world, will be exporting much more natural gas in the future. Because of this, natural gas price should also be decreasing in the future, something that will also lower propanes price. These two decreases should all positively affect Suburbans future. Interest Rates Our countrys interest rates should be going up soon. As the economy continues to become better, our really low interest rates will rise. These numbers are heavily dependant on the state of the US economy. For the next few years, we predict the rates will rise. This is bad news for consumption and therefore propane consumption, but the effect wont be too large because propane is a commodity that isnt one households or companies can easily stop using. To heat their homes and power their cars or industrial machines, the consumption of propane will need to persist. We dont see the rising interest rates as a threat for Suburbans future. Weather The consumption of propane is largely reliant on how cold winters are, since a large portion of propane consumption is to heat residential homes. One might be concerned about global warming destroying the demand for propane in the next few decades, but that simply isnt the case. Since 1988, global temperatures have risen by only about 0.05C per decade. If this trend continues, propane consumption wont decrease significantly for a hundred years or so. Weve also had a few uncharacteristically cold winters recently, and the possibility for this remains large for the next few years. Overall, the weather for America wont significantly increase or decrease in the next few decades. If we have more cold winters like weve had the past two years, Suburban Propane will benefit. US Economy The economy is another factor affecting sales of propane. With a worse economy, lower household income results and leads to less consumption. However, based on the information we gathered for the years of 2007-2009, during the great recession, propane sales and demand didnt take too much of a hit. The beta for Suburban Propanes stock is also only 0.57, which means that if the economy takes a turn for the worse and many other stocks go
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down the drain, Suburbans wont follow that same trend. For this reason, we think that Suburbans outlook for the next decade wont be negatively affected by any downturn in the economy, barring a catastrophic depression. On the other hand, a good economy will slightly increase propane sales and positively affect Suburbans future. Overall, the future looks bright for Suburban. All of the factors that impact propane demand and sales have a positive outlook. For these reasons, we believe the 10 year outlook of Suburban Propane Partners, L.P. is positive.

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Bibliography
2013 SPH Annual Report. Rep. Print. 8 Trends Affecting Propane Chart. Digital image. Web. 9 Apr. 2014. <http://marketrealist.com/2013/09/conclusion2/?utm_source=yahoo&utm_medium=feed&utm_content=inline1&utm_campaign=correlation-propane-prices-propane-demand>. "Ford Introduces Propane-powered Super Duty F-Series." PickupTruck.Com. Web. 08 Apr. 2014. <http://www.pickuptrucks.com/html/news/propane_super.html>. "Fuel Dealers in the U.S." IBISWorld. IBISWorld. Web. <http%3A%2F%2Fclients1.ibisworld.com%2Freports%2Fus%2Findustry%2Foperatingcon ditions.aspx%3Findid%3D1115>. "Press Release." About Suburban Propane -. Web. 08 Apr. 2014. <http://investor.suburbanpropane.com/phoenix.zhtml?c=75495&p=irolnewsArticle&ID=1721529&highlight>. "Propane Frequently Asked Questions (FAQs)." Propane Frequently Asked Questions (FAQs). Web. 08 Apr. 2014. <http://www.rrc.state.tx.us/about/faqs/propanefaqs.php>. PWC logo. Digital image. Web. 9 Apr. 2014. <http://www.inroads.org/sites/default/files/images/PWC.jpg>.

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Red Suburban logo. Digital image. Suburban Propane. Web. 9 Apr. 2014. <http://www.suburbanpropane.jobs/sites/all/themes/subpro/images/sp_brand.png>. "SPH: Summary for Suburban Propane Partners, L.P.- Yahoo! Finance." Yahoo! Finance. Web. 08 Apr. 2014. <http://finance.yahoo.com/q?s=SPH>. Suburban employees. Digital image. Web. 9 Apr. 2014. <http://i.ytimg.com/vi/OWhHHOsMitk/0.jpg>. "Suburban Propane." - About Suburban. Web. 08 Apr. 2014. <http://www.suburbanpropane.com/about/>. "Suburban to Buy Inergy Propane Unit for $1.8 Billion." Bloomberg.com. Bloomberg. Web. 08 Apr. 2014. <http://www.bloomberg.com/news/2012-04-26/suburban-to-buy-inergypropane-unit-for-1-8-billion.html>. Suburban Truck. Digital image. Web. 9 Apr. 2014. <http://www.suburbanpropane.com/images/splash/fall_truck.jpg>. Winter 2013-2014 chart. Digital image. Web. 9 Apr. 2014. <http://marketrealist.com/2014/04/correlation-weather-propane-demand/>.

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