8-K: Star Group, L.P. Announces Fiscal 2024 Second Quarter Results with Revenue Decline but Increased Net Income

Star Group, L.P. reported a decrease in revenue but an increase in net income for the second quarter of fiscal year 2024, driven by changes in derivative values and lower interest expenses.

Summary

• Star Group, L.P. announced its financial results for the second quarter of fiscal year 2024, which ended on March 31, 2024.
• Total revenue decreased by 9.7% to $666.0 million compared to $737.6 million in the same period last year, due to lower sales volume and prices of petroleum products.
• The volume of home heating oil and propane sold decreased by 3.3% to 117.1 million gallons.
• Despite warmer than normal temperatures, which were 15.2% above average, net income increased by $6.3 million to $68.4 million.
• This increase in net income was primarily due to a $14.8 million favorable change in the fair value of derivative instruments and a $1.2 million decrease in interest expense.
• Adjusted EBITDA decreased by $5.9 million to $96.3 million, due to lower sales volume and a reduced weather hedge benefit.
• For the first six months of fiscal 2024, total revenue decreased by 13.8% to $1.2 billion, and the volume of home heating oil and propane sold decreased by 6.2% to 197.3 million gallons.
• Net income for the first six months increased by $5.8 million to $81.4 million, while Adjusted EBITDA decreased by $5.9 million to $145.4 million.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While net income increased, the decrease in revenue and sales volume, along with the decrease in adjusted EBITDA, indicates some challenges. The company is managing costs and making acquisitions, but the overall performance is mixed.

Positives

• Net income increased by $6.3 million in the second quarter due to favorable changes in derivative values and lower interest expenses.
• The company improved per-gallon margins and employed solid expense control.
• Net customer attrition was kept at modest levels during the quarter.
• The company closed on two strategic acquisitions in February on Long Island.
• Net income for the first six months increased by $5.8 million.

Negatives

• Total revenue decreased by 9.7% in the second quarter and 13.8% for the first six months.
• The volume of home heating oil and propane sold decreased by 3.3% in the second quarter and 6.2% for the first six months.
• Adjusted EBITDA decreased by $5.9 million in the second quarter and $5.9 million for the first six months.
• The company experienced a $6.4 million reduction in the weather hedge benefit in the second quarter.
• Temperatures were 15.2% warmer than normal in the second quarter, negatively impacting sales volume.

Risks

• The company faces risks related to geopolitical events impacting wholesale product costs.
• Fluctuations in the price and supply of products could affect the company's performance.
• The company's ability to purchase sufficient quantities of product to meet customer needs is a risk.
• Rapid increases in inflation could impact the company's profitability.
• Weather conditions significantly affect the company's financial performance.
• The company faces risks related to customer attrition and the ability to acquire new customers.
• The company is exposed to risks related to litigation, natural gas conversions, and the electrification of heating systems.
• Pandemics, recessionary economic conditions, and labor shortages pose risks to the company.
• Governmental regulations, including climate change and environmental regulations, could impact the company.
• Cyber-attacks and global supply chain issues are also potential risks.

Future Outlook

The company believes it is well prepared for the months ahead and the opportunities summer brings to further invest in its people and business development activity. The company also provided forward-looking statements regarding various risks and uncertainties that could impact future results.

Management Comments

• Jeff Woosnam, Star Groups President and Chief Executive Officer, stated that while temperatures were warmer than normal, the company was able to mute the impact on adjusted EBITDA by improving per gallon margins and employing solid expense control.
• Management noted that they were able to keep net customer attrition at modest levels during the quarter.

Industry Context

The home energy distribution industry is sensitive to weather conditions, and Star Group's results reflect the impact of warmer-than-normal temperatures. The company's focus on acquisitions and expense control is a common strategy in this industry to mitigate the impact of fluctuating demand and prices.

Comparison to Industry Standards

• Star Group's performance is impacted by weather patterns, similar to other home heating oil and propane distributors such as Suburban Propane Partners and AmeriGas Partners.
• The decrease in sales volume due to warmer weather is a common challenge in the industry, as seen in the results of other companies in the sector.
• Star's focus on acquisitions to expand its customer base is a strategy also employed by competitors like UGI Corporation.
• The company's efforts to improve per-gallon margins and control expenses are consistent with industry best practices to maintain profitability in a volatile market.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and adjusted EBITDA, but encouraged by the increase in net income.
• Employees may be impacted by the company's focus on expense control.
• Customers may experience changes in service due to acquisitions and operational adjustments.
• Suppliers may see changes in demand based on the company's sales volume.

Next Steps

• The company will host a webcast and conference call on May 2, 2024, to discuss the results.
• The company will continue to focus on business development and investing in its people.

Key Dates

Keywords

home heating oil, propane, energy distribution, financial results, revenue, net income, EBITDA, acquisitions, weather, derivatives