Here's How Regency Energy Partners May Be Failing You
Margins matter. The more Regency Energy Partners (NYS: RGP) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Regency Energy Partners' competitive position could be.
Here's the current margin snapshot for Regency Energy Partners and some of its sector and industry peers and direct competitors.
Regency Energy Partners
Alliance Resource Partners (NAS: ARLP)
Atlas Energy (NYS: ATLS)
DCP Midstream Partners (NYS: DPM)
Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.
Unfortunately, that table doesn't tell us much about where Regency Energy Partners has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.
Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter. You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.
Here's the margin picture for Regency Energy Partners over the past few years.
Source: Capital IQ, a division of Standard & Poor's. Dollar amounts in millions. FY= fiscal year. TTM = trailing 12 months.
Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them. Here's how the stats break down:
- Over the past five years, gross margin peaked at 21.2% and averaged 17.5%. Operating margin peaked at 9.3% and averaged 6.8%. Net margin peaked at 14% and averaged 3.3%.
- TTM gross margin is 20.3%, 280 basis points better than the five-year average. TTM operating margin is 3%, 380 basis points worse than the five-year average. TTM net margin is 2.1%, 120 basis points worse than the five-year average.
With recent TTM operating and net margins below historical averages, Regency Energy Partners has some work to do.
If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. To stay ahead, learn more about how I use analysis like this to help me uncover the best returns in the stock market. Got an opinion on the margins at Regency Energy Partners? Let us know in the comments below.
- Add Regency Energy Partners to My Watchlist.
- Add Alliance Resource Partners to My Watchlist.
- Add Atlas Energy to My Watchlist.
- Add DCP Midstream Partners to My Watchlist.
At the time this article was published Motley Fool newsletter serviceshave recommended buying shares of Alliance Resource Partners. Try any of our Foolish newsletter servicesfree for 30 days.Seth Jaysonhad no position in any company mentioned here at the time of publication. You can view his stock holdingshereHe is co-advisor ofMotley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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