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, 2026 (Fiscal Year 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) | Nine Months Ended June 30, 2026 | Nine Months Ended June 30, 2025 |
|---|---|---|
| Total Sales | $1,664,042 | $1,536,726 |
| Net Income | $116,084 | $102,166 |
| Net Income (Limited Partners) | $114,947 | $101,214 |
| Diluted EPS (Limited Partners) | $2.90 | $2.45 |
| Adjusted EBITDA | $189,321 | $169,464 |
| Operating Cash Flow | $57,203 | $56,543 |
| Total Assets | $1,010,088 | $937,331 |
| Total Debt (Carrying Amount) | $172,569 | $188,118 |
| Cash and Cash Equivalents | $27,003 | $24,683 |
| Availability (Credit Facility) | $229.9 million | $165.0 million |
Material Changes vs. Prior Period
- Revenue Growth: Total sales increased 8.3% year-over-year, driven by a 9.7% increase in product sales ($1.40 billion) due to higher average selling prices and a 3.3% increase in home heating oil and propane volume (271.2 million gallons). This volume increase was primarily due to colder weather (11.5% colder than the prior year).
- Profitability: Net income increased 13.6% to $116.1 million. Adjusted EBITDA rose 11.7% to $189.3 million, driven by higher per-gallon margins ($1.82 vs. $1.71) and increased volume, partially offset by higher operating expenses.
- Derivative Impact: The company recorded a $13.4 million credit from the change in fair value of derivative instruments for the nine-month period, compared to a $12.0 million credit in the prior year. This non-cash gain significantly impacted operating income.
- Expense Increases: Delivery and branch expenses increased 7.5% to $338.7 million. This was driven by an $11.3 million increase in insurance-related expenses due to adverse claims development and higher costs associated with extreme weather conditions (heavy snowfall).
- Debt Reduction: Total debt decreased by approximately $15.5 million as the company repaid $15.8 million of its term loan.
Outlook, Risks, and Management Commentary
- Weather and Pricing Volatility: Management notes that wholesale product costs became more volatile following geopolitical events in early 2026, with heating oil prices peaking at $4.61/gallon in March. The company expects potential slowing in accounts receivable collections as customers respond to higher prices.
- Customer Attrition: Net customer attrition for the nine months ended June 30, 2026, was 2.7% (11,000 accounts), an improvement over the 3.1% attrition in the prior year. Approximately 1.0% of accounts were lost to natural gas and electricity conversions.
- Renewal Challenges: With wholesale costs significantly higher than the prior year, price-protected customers face higher renewal rates, which has adversely impacted acceptance rates for new contracts.
- Liquidity: The company maintains strong liquidity with $229.9 million in availability under its credit facility. It is in compliance with all financial covenants.
- Capital Allocation: The company continues its unit repurchase plan, having repurchased 0.5 million units for $5.5 million in the period. A quarterly distribution of $0.1975 per unit was declared for the third quarter of fiscal 2026.
- Risks: Key risks include commodity price volatility, weather dependence, customer attrition due to fuel switching (electrification/natural gas), and potential impacts from tariffs and inflation.
Investor Verification Checklist
- Derivative Accounting: Verify the impact of the $13.4 million non-cash gain on derivatives on the reported net income and operating cash flow reconciliation.
- Insurance Liabilities: Review the $11.3 million increase in insurance-related expenses and the adequacy of self-insurance liability estimates given adverse claims development.
- Receivables Quality: Monitor the $160.1 million accounts receivable balance, specifically the $113.4 million due from residential customers, for potential collection delays due to high fuel prices.
- Customer Retention: Assess the long-term impact of the 1.0% conversion rate to natural gas/electricity and the ability to retain price-protected customers at higher renewal rates.
- Debt Covenants: Confirm continued compliance with the fixed charge coverage ratio and senior secured leverage ratio, particularly if working capital needs increase due to price volatility.