As many successful companies have realized over the last several years, growth for growth’s sake is not always the best course of action; the customer continues to need service. If the customer suffers as a result of expansion, overall revenues can fall behind expectations. Ultimately, this leads to a general realignment of a company’s structure as it works to regain its forward motion. If an investor can find a company that has realized this, and is in the process of realigning for future sustained growth, they may have found a solid source of profit for the longer term.
United Fuel and Energy Inc., a petroleum and propane transportation and distribution company, distributes petroleum and propane products primarily in the southwestern US. The company serves several industrial sectors, with cardlock refueling stations and transportation services generating a bulk of revenue.
The company operates in several commercial fuel supply areas; fuels and lubricants and unattended fueling and propane distribution. Its fuels and lubricants division is supplied by 17 bulk plants servicing the oil rig, industrial and agricultural markets. Its unattended fueling operations consist of 90 stations across the busy transit corridor of Texas, Oklahoma and New Mexico, while its propane division is considered one of the larger operations within the region.
Although there has been a certain impact, the company has not seen an overly large amount of pressure on margins as a result of run-ups in crude prices. This is not to suggest that the company has not been affected by these run-ups, but rather not to the extent that one might think. In several ways, however, the company’s general aggressive acquisition program in the relatively recent past has found a certain amount of pressure being put on its operating margins.
Many of the company’s cardlock fueling stations have not been meeting revenue projections, resulting in the idling or closure of 19 units throughout the company’s system. It has also found overlapping personnel and equipment in several areas, leading to streamlining of administrating functions and the sale of certain non-performing capital assets. In a general sense, United Fuel & Energy has been a victim of its own successes and is working to bring its operations back in line with its core concept. As the company moves into the third quarter, it has adjusted its positions and appears ready to capitalize on its customer’s desires to make their fuel and general petroleum usage patterns as efficient as possible.
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