10-K: Star Group Reports Strong FY25 Earnings, Driven by Acquisitions

Star Group, L.P. announced a significant increase in net income and Adjusted EBITDA for fiscal year 2025, fueled by strategic acquisitions and colder weather conditions.

Summary

• Net income for fiscal year 2025 increased by 108.7% to $73.5 million, up from $35.2 million in fiscal year 2024.
• Adjusted EBITDA rose by 22.2% to $136.4 million in fiscal year 2025, compared to $111.6 million in fiscal year 2024.
• Total sales for fiscal year 2025 were $1,784.4 million, a slight increase from $1,766.1 million in fiscal year 2024.
• Home heating oil and propane volume increased by 11.5% to 282.6 million gallons in fiscal year 2025, partly due to 8.2% colder temperatures in the base business compared to the prior year.
• The company completed four acquisitions (one heating oil, three propane) in fiscal year 2025 for $80.5 million in cash, contributing an estimated 11.7 million gallons of home heating oil and propane volumes annually.
• Gross profit from products increased by 12.2% to $525.2 million, with home heating oil and propane per gallon margins (before derivatives) rising by 1.3% to $1.7022 per gallon.
• Installations and services sales grew by 9.3% to $346.8 million, with $22.6 million generated from recent acquisitions.
• Basic and diluted income per Limited Partner Unit increased to $1.82 in fiscal year 2025 from $0.90 in fiscal year 2024.
• The company declared a quarterly distribution of $0.1850 per unit for the fourth quarter of fiscal 2025, totaling $0.74 per unit on an annualized basis.

Sentiment

Score: 7

Explanation: The company reported strong financial performance with significant increases in net income and Adjusted EBITDA, driven by strategic acquisitions and favorable weather. However, it faces ongoing challenges from declining industry demand, customer attrition, and increasing regulatory pressures related to climate change, which temper the overall positive sentiment.

Positives

• Net income more than doubled, increasing by 108.7% to $73.5 million in fiscal 2025.
• Adjusted EBITDA grew significantly by 22.2% to $136.4 million, indicating strong operational performance.
• Strategic acquisitions contributed $16.9 million to Adjusted EBITDA and added 11.7 million gallons of home heating oil and propane volume annually in fiscal 2025.
• Home heating oil and propane volume increased by 11.5% to 282.6 million gallons, supported by colder weather conditions.
• Per gallon gross profit margins for home heating oil and propane (before derivative effects) increased by 1.3% to $1.7022.
• Installations and services sales saw a healthy increase of 9.3% to $346.8 million.
• The company maintained $165.0 million in availability under its revolving credit facility and was in compliance with all financial covenants as of September 30, 2025.
• The company's disclosure controls and procedures and internal control over financial reporting were deemed effective as of September 30, 2025.

Negatives

• Net customer attrition for full-service residential and commercial home heating oil and propane customers increased to 4.7% in fiscal 2025, up from 4.2% in fiscal 2024, primarily due to increased credit losses.
• Motor fuel and other petroleum products volume decreased by 4.0% to 123.9 million gallons in fiscal 2025.
• Product sales decreased by 0.8% to $1,437.6 million, mainly due to a 12.5% decrease in average wholesale selling prices.
• Delivery and branch expenses increased by $34.4 million to $400.8 million, partly due to a $3.1 million expense from weather hedge contracts (compared to a $7.5 million credit in the prior year).
• Interest expense, net, increased by 23.9% to $14.3 million, driven by higher average borrowings.
• Cash provided by operating activities decreased by $40.0 million to $71.0 million, largely due to increased net trade receivables and higher cash usage for inventory.
• The company incurred a $3.1 million expense from weather hedge contracts in fiscal 2025 due to colder temperatures exceeding payment thresholds, contrasting with a $7.5 million credit in fiscal 2024.

Risks

• Fluctuations in wholesale product costs can reduce profit margins, lead to customer conservation and attrition, decrease liquidity, and increase interest and bad debt expenses.
• Supply constraints or shortages, exacerbated by geopolitical events (e.g., wars in Ukraine and the Middle East), could adversely affect product delivery, increase wholesale prices, and result in lost sales.
• Interruptions in service at third-party terminals, pipelines, barge companies, or haulers could disrupt operations.
• The company's hedging strategy, particularly for commodity derivatives not designated as hedging instruments, can introduce significant volatility in earnings due to mark-to-market adjustments.
• Significant net customer attrition, driven by price competition, customer relocations, credit losses, and conversions to natural gas and electricity, could materially adversely affect business and operating results.
• The retail home heating oil industry is mature, with total market demand expected to decline due to conversions to natural gas and electricity, and the installation of more fuel-efficient heating systems.
• Inability to make acquisitions on economically acceptable terms could hinder the company's ability to maintain or grow its declining customer base.
• Acquisition activities carry risks such as increased indebtedness, integration difficulties, customer loss from acquired businesses, loss of key employees, and exposure to post-closing liabilities.
• Weather conditions, especially warmer-than-normal winters, significantly impact demand for home heating oil and propane, making the business vulnerable to climate change and increased weather volatility.
• Federal, state, and local legislation aimed at limiting greenhouse gas (GHG) emissions, such as New York's Climate Leadership and Community Protection Act and Fossil Fuel Ban, could negatively impact operations and reduce demand for fossil fuel products.
• Increased state law minimum biodiesel blending requirements (e.g., NY, CT, RI) could increase wholesale product costs.
• The company is subject to various environmental, health, and safety regulations, with potential for increased compliance costs, liabilities from noncompliance, and remediation costs for contamination.
• Reliance on information technology systems makes the company vulnerable to cyber-attacks, which could disrupt operations, lead to data breaches (e.g., employee PII/PHI), damage reputation, and incur significant costs.
• Inability to attract, hire, and retain qualified employees, especially in a unionized workforce (40% of employees), could lead to labor actions, higher labor costs, and service quality issues.
• Participation in underfunded multi-employer pension plans could require significantly higher future contributions or withdrawal liabilities.
• Conflicts of interest may arise between the general partner and its affiliates and the company or its limited partners, potentially leading the general partner to favor its own interests.
• Substantial debt and other financial obligations could impair the company's ability to obtain additional financing and expose it to interest rate risk, with restrictive covenants limiting operating flexibility.
• International tariffs could increase operating costs and reduce demand for products and services.
• Recessionary economic conditions and rapid inflation could adversely affect customer spending, increase bad debts, and negatively impact liquidity and financial condition.

Future Outlook

The company expects continued demand decline in the retail home heating oil industry due to conversions to natural gas and electricity, and the installation of more fuel-efficient heating systems. It plans to mitigate this through strategic acquisitions and growth in complementary service offerings. For fiscal year 2026, the company has entered into weather hedge contracts with a maximum potential receipt of $15.0 million and an obligation to pay up to $5.0 million if degree days exceed the payment threshold. Maintenance capital expenditures for fiscal 2026 are estimated at approximately $12.9 million, with an additional $1.5 million planned for propane operations. The company intends to continue common unit repurchases and pursue attractive acquisition opportunities, subject to liquidity and credit facility constraints. The impact of ongoing legal challenges to New York's Fossil Fuel Ban and New York City's Building Electrification Law, as well as potential shifts in U.S. climate change strategy under the second Trump administration, remains uncertain.

Management Comments

• We believe we are the largest retail distributor of home heating oil in the United States, based upon sales volume with a market share in excess of 5.5%.
• We believe this [customer conversions to natural gas and electricity] may continue or even increase.
• Our business strategy is to increase Adjusted EBITDA and cash flow by effectively managing operations while growing and retaining our customer base as a retail distributor of home heating oil and propane and provider of related products and services.
• We are committed to pursuing initiatives that reduce greenhouse gas emissions across our product offerings, by selling biodiesel products and by offering energy efficient heating and air conditioning equipment to our customers.
• We believe that our relations with both our union and non-union employees are generally satisfactory.
• Although we have experienced cybersecurity incidents, we do not believe they have, or are likely to have, a material impact on the business.
• We believe that our employees have adapted well and continue to be flexible to the changing working conditions [hybrid work since March 2020].
• We cannot assume that the per gallon margins realized during fiscal 2025 are sustainable for future periods.
• Management concludes, it is more likely than not that the Company will realize the full benefit of its deferred tax assets, net of existing valuation allowance related to State net operating loss carryforwards at September 30, 2025.

Industry Context

The company operates in a mature and highly fragmented retail home heating oil industry, which faces a secular decline in demand due to increasing conversions to natural gas and electricity, as well as the adoption of more fuel-efficient heating systems. This trend is exacerbated by legislative and regulatory efforts in key operating regions like New York and Massachusetts to reduce greenhouse gas emissions and phase out fossil fuel usage in new constructions. The company's strategy of growth through acquisitions and expansion of complementary services (e.g., natural gas and heat pump systems, energy-efficient equipment) is a direct response to these industry headwinds. The volatility in wholesale product costs, influenced by geopolitical events, also significantly impacts the industry, requiring robust hedging strategies.

Comparison to Industry Standards

• The company believes it is the largest retail distributor of home heating oil in the United States, with a market share exceeding 5.5%.
• The average percentage increase in base salary for executives in the company's peer group (Atmos Energy Corporation, Global Partners, L.P., New Jersey Resources Corporation, Suburban Propane Partners, L.P., and Sunoco L.P.) was approximately 7.9%, while Star Group's named executive officers received a 3.5% increase.
• For peers on a similar fiscal year, the average percentage increase in Adjusted EBITDA was 18.0%, and average total compensation increased by 26.1%, compared to Star Group's 23% increase in Adjusted EBITDA (under profit sharing plan calculation) and higher profit sharing for named executives.
• The company's customer losses to natural gas and electricity conversions (1.3% in FY25) are within the historical range of 1.1% to 1.6% per year over the last five years, indicating a consistent industry trend.

Management Changes

Corporate Governance

Legal Proceedings

• Climate and environmental justice groups filed a lawsuit against the New York Department of Energy Conservation (NYDEC) in March 2025 for not adopting regulations implementing the CLCPA's GHG emissions limits by the January 1, 2024 deadline.
• A coalition of businesses, trade associations, and labor unions filed a federal lawsuit (Mulhern Gas Co., Inc. et al v. Rodriguez, et al.) on October 12, 2023, seeking to declare New York's Fossil Fuel Ban invalid, arguing it is preempted by the federal Energy Policy and Conservation Act (EPCA). The case was dismissed on August 21, 2025, and the plaintiffs appealed.
• A group of trade associations and a labor union filed a lawsuit (Association of Contracting Plumbers of the City of New York, Inc. et al v. City of New York) on December 29, 2023, challenging the enforcement of the New York City Building Electrification Law on similar legal grounds. The case was dismissed on March 18, 2025, and the plaintiffs appealed.
• On October 14, 2025, the Second Circuit Court of Appeals ordered that the appeals of the Mulhern and Association of Contracting Plumbers cases be heard in tandem.
• On November 12, 2025, attorneys for the State of New York agreed to delay implementation of the Fossil Fuel Ban (scheduled for January 1, 2026) until the appellate court rules on the appeal of the case.
• The company is involved from time to time in litigation incidental to the conduct of its business but is not currently a party to any material lawsuit or proceeding.

Related Party Transactions

• The company has an agreement to lease real estate for its Pennsylvania operations from Douglas Woosnam, the father of CEO Jeffrey Woosnam. The lease was extended in June 2024 for an additional ten-year period (September 13, 2026, to September 12, 2036), with total rent of $2,186,095.20 payable in escalating monthly installments. For fiscal year 2025, the company paid $200,850 in aggregate to the lessor. The lease and amendments were negotiated at arm's length and are comparable to market rates.

Stakeholder Impact

• Shareholders/Unitholders: Benefited from a 108.7% increase in net income and a 22.2% increase in Adjusted EBITDA, leading to an increase in basic and diluted income per Limited Partner Unit to $1.82. Quarterly distributions increased to $0.1850 per unit. The unitholder rights plan may discourage potential acquirers, impacting liquidity for some.
• Employees: The company is focused on attracting and retaining employees, offering benefits packages and professional development. However, 40% of the workforce is unionized, with 13 collective bargaining agreements up for renewal in fiscal 2026, posing potential labor action risks. Participation in underfunded multi-employer pension plans could lead to higher future contributions.
• Customers: Benefited from superior customer service and various pricing alternatives. However, customer attrition remains a challenge due to price competition, move-outs, credit losses, and conversions to alternative energy sources. Increased biodiesel blending requirements could impact product costs.
• Suppliers/Counterparties: The company relies on the continued solvency of its wholesale product and equipment suppliers, and derivatives, insurance, and weather hedge counterparties.
• Creditors: The company's substantial debt and restrictive covenants in its credit agreement could limit its financial flexibility and ability to obtain additional financing. However, the company was in compliance with financial covenants as of September 30, 2025.

Next Steps

• Continue to pursue select acquisitions to grow and retain the customer base.
• Deliver superior customer service to improve retention and drive revenue.
• Expand complementary service offerings, including heating and air conditioning equipment, standby home generators, and natural gas/heat pump systems.
• Pursue environmental sustainability initiatives, such as selling biodiesel products and offering energy-efficient equipment.
• Negotiate 13 collective bargaining agreements up for renewal in fiscal 2026, covering approximately 428 employees.
• Monitor and adapt to evolving federal, state, and local climate change regulations, including the outcomes of legal challenges to New York's Fossil Fuel Ban and New York City's Building Electrification Law.
• Manage exposure to market risks through derivative instruments and weather hedge contracts for fiscal 2026.
• Invest approximately $12.9 million in maintenance capital expenditures and $1.5 million in propane operations for fiscal 2026.
• Continue common unit repurchases under the existing plan, subject to liquidity and credit facility constraints.

Key Dates

Recommendation

Star Group, L.P. delivered strong financial results in fiscal year 2025, with significant increases in net income and Adjusted EBITDA, largely driven by successful acquisitions and favorable weather conditions compared to the prior year. The company's strategic focus on acquisitions and expanding service offerings is a sound approach to counter the secular decline in the core heating oil market. However, persistent challenges such as increasing net customer attrition, the inherent volatility of wholesale product costs, and the growing regulatory pressures related to climate change (including fossil fuel bans and blending requirements) introduce considerable uncertainty. The ongoing legal challenges to climate regulations in key operating states and the potential for increased labor costs from union negotiations also present headwinds. While the company's financial health appears robust and management is actively addressing industry trends, these significant external and operational risks warrant a cautious stance. Therefore, a 'hold' recommendation is appropriate, suggesting investors maintain their current positions while closely monitoring the company's ability to navigate these complex industry and regulatory dynamics.

Keywords

home heating oil, propane distribution, energy services, SEC filing, 10-K, financial results, Adjusted EBITDA, acquisitions, customer attrition, climate change regulation, biodiesel blending, cybersecurity, unionized workforce, debt covenants, New York, Massachusetts, Connecticut, Rhode Island, fossil fuels, energy industry