Business Context and Reporting Period
Company: STAR GROUP, L.P. (NYSE: SGU)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended March 31, 2026 (Fiscal 2026 Q2)
Business Overview: Star Group is a full-service provider specializing in the sale of home heating and air conditioning products and services to residential and commercial customers. It is the nation's largest retail distributor of home heating oil by sales volume. Operations are conducted primarily through its subsidiary, Petro Holdings, Inc., serving approximately 403,700 full-service accounts in the Northeast and Mid-Atlantic U.S.
Key Financial Metrics
| Metric (in thousands, except per unit) | Six Months Ended Mar 31, 2026 | Six Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2026 | Three Months Ended Mar 31, 2025 |
|---|---|---|---|---|
| Total Sales | $1,305,971 | $1,231,108 | $766,715 | $743,045 |
| Net Income | $144,073 | $118,795 | $108,283 | $85,911 |
| Net Income (Limited Partners) | $142,661 | $117,686 | $107,220 | $85,109 |
| EPS (Basic & Diluted) | $3.55 | $2.80 | $2.66 | $2.01 |
| Adjusted EBITDA | $207,042 | $180,047 | $138,654 | $128,183 |
| Cash & Equivalents (End of Period) | $12,190 | $18,752 (6mo prior) | $12,190 | N/A |
| Total Debt | $265,189 | $188,118 | $265,189 | N/A |
| Revolving Credit Facility Borrowed | $87,436 | $0 | $87,436 | N/A |
| Operating Cash Flow (6mo) | ($61,077) | ($15,959) | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total sales increased 6.0% year-over-year for the quarter and 6.1% for the six-month period. Product sales rose due to higher average selling prices driven by increased wholesale costs and volume growth.
- Profitability Surge: Net income increased 25.9% for the quarter and 21.3% for the six-month period. This was significantly driven by a favorable non-cash change in the fair value of derivative instruments ($26.8M gain in Q2 vs. $6.1M in prior year Q2).
- Volume Drivers: Home heating oil and propane volume increased 0.4% in Q2 and 5.3% for the six months, primarily due to colder weather (11.0% colder than the prior year for the six-month period) and acquisitions.
- Expense Pressures: Delivery and branch expenses increased 3.9% in Q2 and 6.9% for the six months. This was largely due to extreme weather conditions (heavy snowfall) impacting operational efficiency and higher insurance claims. Service expenses also rose, resulting in a combined loss from service and installation in Q2 compared to a profit in the prior year.
- Debt Utilization: Total debt increased significantly to $265.2M from $188.1M at the prior year-end, driven by $87.4M in borrowings under the revolving credit facility to fund working capital needs associated with higher product costs and receivables.
Guidance, Outlook, and Risks
- Price Volatility: Management notes significant volatility in wholesale heating oil prices following geopolitical events (military operations in the Middle East). Prices peaked at $4.61/gallon in March 2026. The company anticipates potential slowing of receivable collections as customers react to higher prices.
- Weather Impact: The company experienced severe backwardation in futures markets, discouraging physical inventory holding. Extreme cold weather increased demand but also operational costs (snow removal, service calls).
- Liquidity: Cash used in operating activities was $61.1M for the six months ended March 31, 2026, compared to $16.0M in the prior year. This is attributed to seasonal working capital needs, higher receivables, and increased inventory costs. The company maintains $241.8M in availability under its credit facility.
- Customer Attrition: Net customer attrition for the six months ended March 31, 2026, was 1.0% (4,100 accounts), an improvement over the 1.5% attrition in the prior year. However, losses to natural gas and electricity conversions remain a risk.
- Regulatory/Tax: The "One Big Beautiful Bill Act" signed in July 2025 reinstated 100% bonus depreciation for assets placed in service after January 19, 2025, impacting future tax deductions.
- Distributions: A quarterly distribution of $0.1975 per unit was declared for Q2 2026, payable May 6, 2026.
Investor Verification Checklist
- Derivative Valuation: Verify the sustainability of the $26.8M gain from derivative instruments in Q2, as this is a non-cash item that significantly inflated net income.
- Receivables Aging: Monitor the $262.2M accounts receivable balance, particularly the $210.2M from residential customers, for potential collection delays due to high fuel prices.
- Service Margin Trends: Review the trend of service expenses exceeding service revenue (loss of $1.5M in Q2), driven by weather-related inefficiencies, to assess long-term profitability of the service segment.
- Debt Covenants: Confirm continued compliance with the fixed charge coverage ratio and senior secured leverage ratio covenants, especially given the increased debt load and potential cash flow volatility.
- Weather Hedge Exposure: Assess the impact of the $5.0M weather hedge expense cap reached in Q2 and the terms of the new fiscal 2027 hedge contract.