Business Context and Reporting Period
Company: STAR GROUP, L.P. (NYSE: SGU)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Nine months ended June 30, 2025 (Fiscal Year 2025)
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 413,600 full-service accounts in the Northeast and Mid-Atlantic U.S.
Key Financial Metrics
| Metric (in thousands, except per unit) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 |
|---|---|---|
| Total Sales | $1,536,726 | $1,525,768 |
| Net Income | $102,166 | $70,309 |
| Net Income (Limited Partners) | $101,214 | $69,672 |
| Diluted EPS (Limited Partners) | $2.45 | $1.66 |
| Operating Cash Flow | $56,543 | $72,367 |
| Adjusted EBITDA | $169,464 | $141,300 |
| Cash and Cash Equivalents (End of Period) | $28,082 | $45,951 (Total cash/restricted) |
| Total Debt (Carrying Amount) | $193,297 | $208,816 |
| Revolving Credit Facility Availability | $167,600 | $166,500 |
Material Changes vs. Prior Period
- Revenue Growth: Total sales increased 0.7% year-over-year. Product sales decreased 0.9% due to lower wholesale costs, while Installations and Services revenue increased 9.9% driven by acquisitions and price increases.
- Profitability: Net income increased 45.3% to $102.2 million. This was driven by a $28.2 million increase in Adjusted EBITDA and a favorable $20.2 million change in the fair value of derivative instruments.
- Volume Trends: Retail volume of home heating oil and propane increased 11.8% (27.7 million gallons) due to colder weather (8.2% colder than prior year) and acquisitions, offsetting net customer attrition of 4.4% in the base business.
- Acquisitions: The Company spent approximately $80.5 million on four acquisitions (one heating oil, three propane) during the nine-month period, compared to $22.6 million in the prior year.
- Cash Flow: Operating cash flow decreased $15.9 million to $56.5 million, primarily due to increased accounts receivable balances and higher inventory purchases for the heating season.
Guidance, Outlook, and Risks
- Weather Hedging: The Company incurred a $3.1 million expense under weather hedge contracts for the period ended March 31, 2025, due to colder-than-strike temperatures. This contrasts with a $7.5 million credit in the prior year.
- Regulatory Changes: New state laws in New York, Connecticut, and Rhode Island effective July 1, 2025, increase minimum biodiesel blending requirements (to 10% and 20% respectively), which may impact product costs.
- Tariffs: The Company is monitoring the impact of new U.S. tariffs (10% baseline plus reciprocal tariffs) announced in April 2025 on asset costs and inflation.
- Customer Attrition: Net customer attrition remains a risk, with 13,000 accounts lost (net) in the nine-month period. Approximately 1.0% of accounts were lost to natural gas and electricity conversions.
- Capital Allocation: The Company continues to repurchase units (0.8 million units repurchased in the period) and pay quarterly distributions ($0.1850 per unit declared for Q3 2025).
Investor Verification Checklist
- Derivative Valuation: Verify the impact of the $12.0 million credit from derivative instruments on net income, as this is a non-cash mark-to-market adjustment that may reverse in future periods.
- Weather Sensitivity: Assess the exposure to weather variability, noting the $10.6 million swing in weather hedge expenses compared to the prior year.
- Acquisition Integration: Review the performance of the $80.5 million in new acquisitions to ensure they meet projected Adjusted EBITDA targets.
- Liquidity Position: Monitor the decline in cash and cash equivalents from $117.3 million to $28.1 million and the reliance on the revolving credit facility for working capital during the heating season.
- Customer Retention: Track the 4.4% net attrition rate in the base business and the effectiveness of marketing efforts to offset losses to natural gas/electricity conversions.