10-Q: Star Group Reports Mixed Q3 Results Amidst Volatile Energy Prices

Star Group, L.P. reported a net loss for the third quarter of fiscal 2026, despite year-over-year revenue and net income improvements for the nine-month period, driven by colder weather and higher product prices.

Summary

• For the three months ended June 30, 2026, Star Group reported a net loss of $27.99 million, a significant increase from the $16.63 million net loss in the same period of 2025.
• Total sales for the quarter increased by 17.2% to $358.1 million, driven by higher average selling prices for petroleum products.
• For the nine months ended June 30, 2026, net income was $116.1 million, an increase of 13.6% from $102.2 million in the prior year period.
• Total sales for the nine-month period increased by 8.3% to $1.66 billion.
• The company experienced colder weather in the nine-month period, leading to a 3.3% increase in home heating oil and propane volume sold.
• However, delivery and branch expenses increased by 9.2% for the quarter and 7.5% for the nine-month period, largely due to higher insurance-related expenses and weather impacts.
• The fair value of derivative instruments resulted in an $8.0 million charge for the quarter, compared to a $0.6 million credit in the prior year quarter.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a mixed report. While revenue and net income improved year-over-year for the nine-month period, the company experienced a significant net loss in the current quarter, driven by unfavorable derivative impacts and increased operating expenses. The colder weather provided a volume boost, but also increased costs and operational challenges.

Positives

• Total sales for the three months ended June 30, 2026, increased by 17.2% to $358.1 million compared to $305.6 million in the prior year period.
• Total sales for the nine months ended June 30, 2026, increased by 8.3% to $1.66 billion compared to $1.54 billion in the prior year period.
• Net income for the nine months ended June 30, 2026, increased by 13.6% to $116.1 million compared to $102.2 million in the prior year period.
• Home heating oil and propane margins increased by $0.1368 per gallon (8.3%) for the three months ended June 30, 2026, to $1.7915 per gallon.
• Home heating oil and propane margins increased by $0.1174 per gallon (6.9%) for the nine months ended June 30, 2026, to $1.8230 per gallon.
• Retail volume of home heating oil and propane sold increased by 8.6 million gallons (3.3%) for the nine months ended June 30, 2026, compared to the prior year period, driven by colder weather.
• Installation costs as a percentage of installation sales improved to 78.8% for the three months ended June 30, 2026, from 82.0% in the prior year period.
• The company maintained compliance with its financial covenants under its credit agreement.

Negatives

• The company reported a net loss of $27.99 million for the three months ended June 30, 2026, compared to a net loss of $16.63 million for the same period in 2025.
• Delivery and branch expenses increased by 9.2% to $98.9 million for the three months ended June 30, 2026, primarily due to a $6.2 million increase in insurance-related expenses.
• The change in the fair value of derivative instruments resulted in an $8.0 million charge for the three months ended June 30, 2026, compared to a $0.6 million credit in the prior year period.
• Adjusted EBITDA loss increased by $7.1 million to $17.7 million for the three months ended June 30, 2026, compared to the prior year period.
• Service expense increased by 3.7% to $49.7 million for the three months ended June 30, 2026, and by 5.5% to $159.6 million for the nine months ended June 30, 2026.
• Net customer attrition for the base business was 4.2% for the twelve months ended June 30, 2026.
• The company experienced a $3.2 million decrease in combined gross profit from service and installation for the nine months ended June 30, 2026, compared to the prior year period.
• Customer credit balances decreased significantly from $86.8 million to $39.5 million.

Risks

• Volatility in wholesale product costs, particularly home heating oil and propane, can impact customer conservation and increase gross customer losses.
• The company faces risks related to the price and supply of products it sells, influenced by economic and geopolitical forces.
• Natural gas conversions and electrification of heating systems pose a long-term risk to demand for heating oil and propane.
• The company's ability to pass on the full impact of high product costs to customers is uncertain.
• Adverse weather conditions can significantly affect financial performance.
• The company is subject to risks associated with customer credit worthiness and counterparty credit worthiness.
• Tariffs and their effects on trading relationships may affect the cost and availability of assets and products.
• The company's ability to attract and retain employees is a potential risk factor.

Future Outlook

The company anticipates continued volatility in wholesale product costs and potential impacts on customer collection and interest expense. Future capital requirements are expected to be met by operating cash flows, cash on hand, or the revolving credit facility. Maintenance capital expenditures for the remainder of fiscal 2026 are estimated between $5.5 million and $6.5 million.

Management Comments

• The company believes that the per gallon margins should be evaluated before the effects of increases or decreases in the fair value of derivative instruments, as these realized margins should not include the impact of non-cash changes in the market value of hedges before the settlement of the underlying transaction.
• Management believes that the provision for income taxes reflects the most probable outcome, based on an assessment of many factors including past experience and interpretation of tax law.
• The company believes that its insurance policies are reasonable and prudent, but cannot assure that this insurance will be adequate to protect it from all material expenses related to current and potential future claims.

Industry Context

StockSavvy.ai notes that Star Group operates in the highly seasonal and competitive home heating oil and propane distribution market. The company's performance is significantly influenced by weather patterns, commodity price volatility, and customer retention. The recent geopolitical events and resulting product cost increases highlight the inherent risks in this sector, impacting both operational costs and customer behavior.

Comparison to Industry Standards

• The company's net customer attrition rate of 4.2% for the twelve months ended June 30, 2026, for its base business, needs to be compared against industry benchmarks for customer retention in the home heating oil and propane sector.
• The reported per gallon gross profit margins for home heating oil and propane ($1.7915 for Q3 2026) should be benchmarked against industry averages to assess competitive positioning.
• The company's reliance on derivative instruments for hedging commodity price risk is a common practice in the energy distribution sector, but the magnitude of its hedging activities and their impact on earnings volatility should be compared to peers.
• The company's strategy of acquiring smaller businesses is a typical growth driver in this fragmented industry. The success of these acquisitions, as reflected in their contribution to revenue and profitability, should be evaluated against industry acquisition success rates.

Legal Proceedings

• In the opinion of management, the company is not a party to any litigation that, individually or in the aggregate, could reasonably be expected to have a material adverse effect on its results of operations, financial position, or liquidity.

Stakeholder Impact

• Shareholders: The net loss in the current quarter and increased Adjusted EBITDA loss may negatively impact shareholder sentiment and potentially the stock price. However, the year-over-year improvement in net income for the nine-month period and the declared quarterly distribution provide some positive aspects.
• Creditors: The company's compliance with financial covenants under its credit agreement is positive. However, the increased receivables and potential for slower collections could impact liquidity metrics.
• Customers: Higher product prices due to volatile wholesale costs may lead to customer conservation and increased attrition. The company's ability to pass on costs and maintain competitive pricing is crucial.
• Employees: The company accrues profit sharing based on Adjusted EBITDA, which may be impacted by the quarterly performance. Increases in salaries and benefits expenses were noted.

Next Steps

• The company will continue to monitor wholesale product costs and their impact on customer collections and interest expense.
• Maintenance capital expenditures for the remainder of fiscal 2026 are estimated between $5.5 million and $6.5 million.
• The company plans to invest $0.1 million to $0.2 million in its propane operations.
• The company intends to continue repurchasing Common Units pursuant to its unit repurchase plan.
• The company will seek attractive acquisition opportunities within the Availability constraints of its revolving credit facility and funding resources.

Key Dates

Recommendation

Star Group's third quarter results showed a significant net loss and increased Adjusted EBITDA loss, driven by derivative impacts and higher operating expenses, despite revenue growth and improved nine-month performance. While colder weather boosted volumes, it also increased costs and operational challenges. The company's ability to manage volatile commodity prices, customer retention, and operational efficiency remains key. Given the mixed results and ongoing market uncertainties, a 'hold' recommendation is appropriate, pending clearer signs of sustained profitability and improved operational cost control.

Keywords

home heating oil, propane, petroleum products, installations, services, weather hedge, derivative instruments, customer attrition