Business Context and Reporting Period
Company: STAR GROUP, L.P. (NYSE: SGU)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended December 31, 2025 (Fiscal Q1 2026)
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. The company operates as a single reportable segment.
Key Financial Metrics
| Metric (in thousands, except per unit) | Q1 2026 (Dec 31, 2025) | Q1 2025 (Dec 31, 2024) |
|---|---|---|
| Total Sales | $539,256 | $488,063 |
| Net Income | $35,790 | $32,884 |
| Net Income Available to Limited Partners | $35,441 | $32,577 |
| Diluted EPS (Limited Partner) | $0.89 | $0.79 |
| Adjusted EBITDA | $68,388 | $51,864 |
| Operating Cash Flow | $(55,182) | $(64,564) |
| Cash and Cash Equivalents | $19,857 | $24,683 |
| Total Debt (Carrying Amount) | $254,808 | $188,118 |
| Revolving Credit Facility Borrowings | $71,870 | $0 |
| Availability under Credit Facility | $168,600 | $165,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total sales increased 10.5% to $539.3 million, driven by a 13.9% increase in home heating oil and propane volume (93.9 million gallons vs. 82.4 million gallons) due to colder weather (18.8% colder than the prior year period).
- Profitability: Net income rose 8.8% to $35.8 million. Adjusted EBITDA increased significantly by 31.9% to $68.4 million, primarily due to higher volume and improved per-gallon margins ($1.8010 vs. $1.7039).
- Derivative Impact: The company recorded a $5.4 million charge related to the change in fair value of derivative instruments, compared to a $5.3 million credit in the prior year. This non-cash charge reduced operating income but is expected to be offset by future product costs.
- Weather Hedge Expense: Due to colder temperatures exceeding strike prices, the company incurred a $5.0 million expense under weather hedge contracts, compared to no expense in the prior year.
- Debt Utilization: Total debt increased by $66.7 million, primarily due to $71.9 million in borrowings under the revolving credit facility to fund working capital needs for the heating season.
- Customer Attrition: Net customer attrition was 1,500 accounts (0.4% of the base), slightly higher than the 1,400 accounts lost in the prior year.
Guidance, Outlook, and Risks
- Seasonality: The company notes that results for the first quarter are not indicative of the full year due to the seasonal nature of the business. Approximately 30% of home heating oil volume is typically sold in Q1.
- Outlook: Management expects capital requirements to be met by operating cash flows, cash on hand, and the revolving credit facility. Maintenance capital expenditures for the remainder of fiscal 2026 are estimated at $8.2 million to $9.2 million.
- Distributions: A quarterly distribution of $0.1850 per unit was declared for Q1 2026, payable February 4, 2026.
- Risks and Contingencies:
- Weather Dependence: Financial performance is highly sensitive to weather conditions (heating degree days).
- Commodity Volatility: Exposure to wholesale price volatility of home heating oil and propane, though mitigated by hedging strategies.
- Regulatory and Tariffs: Potential impacts from new U.S. tariffs and environmental regulations restricting greenhouse gas emissions.
- Customer Conversion: Risk of customer loss due to conversion to natural gas or electrification of heating systems.
- Unusual Items: The $5.0 million weather hedge expense and the $5.4 million derivative fair value charge are significant non-operating or non-cash items affecting the bottom line.
Investor Verification Checklist
- Derivative Settlements: Verify how the $5.4 million unrealized derivative loss will impact future cost of goods sold as hedges settle.
- Weather Hedge Final Settlement: Monitor the final settlement of weather hedge contracts for the period ending March 31, 2026, as the $5.0 million expense recorded may change based on actual degree days.
- Receivables Aging: Review the aging of the $198.2 million in accounts receivable, as borrowing base availability is tied to eligible receivables.
- Customer Attrition Trends: Track the 0.4% net attrition rate to ensure it does not accelerate due to natural gas conversions or price sensitivity.
- Debt Covenants: Confirm continued compliance with the fixed charge coverage ratio (1.10) and senior secured leverage ratio (max 5.5 for Q1) under the credit agreement.