Star Group Q1 2025 Earnings Report

Star Group EPS Results

• Actual EPS: $0.79
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Star Group Revenue Results

• Actual Revenue: $488.06 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Star Group Announcement Details

• Quarter: Q1 2025
• Date: 2/5/2025
• Time: After Market Closes
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 11:00AM ET

Star Group (NYSE:SGU), together with its subsidiaries, provides home heating oil and propane products and services to residential and commercial customers in the United States. It offers gasoline and diesel fuel; and installs, maintain, and repairs heating and air conditioning equipment. As of September 30, 2023, the company served approximately 402,200 full service residential and commercial home heating oil and propane customers and 52,400 customers on a delivery only basis. It also sells gasoline and diesel fuel to approximately 26,600 customers. The company was formerly known as Star Gas Partners, L.P. and changed its name to Star Group, L.P. in October 2017. Star Group, L.P. was incorporated in 1995 and is based in Stamford, Connecticut.

Star Group Q1 2025 Earnings Call Transcript

Key Takeaways

• Adjusted EBITDA rose by $3 million year‐over‐year to $52 million, driven by recent acquisitions, higher per‐gallon margins, and improved base‐business productivity.
• The company completed a sizable strategic propane acquisition after quarter end, expanding its footprint, adding a well-regarded brand, and integrating new employees into the Star Group family.
• Product gross profit increased 4% to $151 million on higher margins and volume, while service and installation gross profit grew by $2.5 million to $6.9 million thanks to acquisitions and base‐business improvements.
• Branch delivery and general & administrative expenses rose by $5 million, largely reflecting the impact of recent acquisitions and partially offsetting earnings gains.
• Net income climbed $20 million to $33 million, reflecting a favorable $24 million noncash derivative gain versus a prior‐year charge and higher adjusted EBITDA.

Presentation

[Operator]

Good day, and welcome to the Star Group Fiscal 2025 first quarter results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Advisor. Please go ahead.

[Chris Witty, Investor Relations Advisor at Star Group]

Thank you, and good morning. With me on the call today are Jeff Woosnam, President and Chief Executive Officer, and Rich Ambury, Chief Financial Officer. I would now like to provide a brief safe harbor statement. This conference call may include forward-looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements. All statements other than statements of historical facts included in this conference call are forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.

[Chris Witty, Investor Relations Advisor at Star Group]

Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call, the company's annual report on Form 10-K for the fiscal year ended September 30th, 2024, and the company's other filings with the SEC. All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the risk factors and other cautionary statements contained in the company's disclosures. Unless otherwise required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date of this conference call. I'd now like to turn the call over to Jeff Woosnam. Jeff?

[Jeff Woosnam, President and CEO at Star Group]

Thanks, Chris, and good morning, everyone. The first quarter was a busy one for Star due to our acquisition-related activities combined with slightly colder temperatures. Temperatures were 4.1% colder than the prior year quarter, and Adjusted EBITDA rose $3 million year over year. Despite our increased workload from a busy quarter, I'm pleased with our overall ability to control expenses as well as our ongoing improvement in the performance and contribution of our service and installation business. Increased productivity and efficiency within our base business has been a specific area of focus for our operating team, so it's quite encouraging to see our work having a positive and meaningful impact on the bottom line results. Looking ahead, we're benefiting from colder temperatures thus far in the second quarter, and in fact, January finished 20% colder than last year and 7% colder than normal.

[Jeff Woosnam, President and CEO at Star Group]

Through this period, our employees have been working tirelessly to serve our customers and keep up, keep pace with the added demand. I'm always delighted to see how well our entire team steps up when it matters the most, and I could not be more proud of their efforts. As previously reported, we completed a sizable strategic acquisition after the quarter ended. This has further strengthened our propane presence within the company's existing operating footprint, and we're excited to welcome our new employees as well as a quality, well-regarded brand to the Star Group family. We'll have to see how the remainder of the heating season progresses, but we remain 100% committed to providing our customers with the outstanding reliability and service they've come to expect. And at the same time, we will continue to focus on operational efficiency and controlling costs.

[Jeff Woosnam, President and CEO at Star Group]

I believe we are well positioned for the remainder of fiscal 2025. With that, I'll turn the call over to Rich to provide additional comments on the quarter's financial results. Rich?

[Rich Ambury, CFO at Star Group]

Thanks, Jeff, and good morning, everyone. For the quarter, our home heating oil and propane volume rose by 2 million gallons, or 3%, to approximately 82 million gallons, as the additional volume provided from acquisitions and somewhat colder temperatures was slightly offset by the impact of net customer attrition and other factors. Temperatures for the three months ending December 31st, 2024, were 4% colder than the prior year and 10.5% warmer than normal. Our product gross profit increased by $5.6 million, or 4%, to approximately $151 million due to an increase in per-gallon margins and higher home heating oil and propane volume sold.

[Rich Ambury, CFO at Star Group]

We realized a combined gross profit from service and installation of $6.9 million for the three months ending December 31st, 2024, compared to gross profit of $4.4 million in the prior year, with a $2.5 million increase due in part to recent acquisitions as well as improvements in the base business. Branch, delivery, and G&A expenses increased by $5 million in the first quarter of fiscal 2025, largely due to recent acquisitions. Expenses in the base business were largely unchanged. During the first quarter of fiscal 2025, we recorded a $5 million non-cash credit related to the change in fair value of our derivative instruments. By comparison, in the first quarter of fiscal 2024, we recorded a $19 million non-cash charge.

[Rich Ambury, CFO at Star Group]

Net income did increase by $20 million in the quarter to $33 million, as the favorable non-cash change in the fair value of derivative instruments of $24 million and an increase in adjusted EBITDA of $3 million was only partially offset by higher income taxes of $8 million. Adjusted EBITDA increased by $3 million to $52 million, as a $4 million increase in adjusted EBITDA from recent acquisitions and an increase in per-gallon margins in the base business more than offset the impact of a 3.8 million gallon decrease in home heating oil and propane volume sold in the base business. And with that, I'll turn the conversation and call back to Jeff.

[Jeff Woosnam, President and CEO at Star Group]

Thanks. Thanks, Rich. At this time, we're pleased to address any questions you may have. Wyatt, please open the phone lines for questions.

[Operator]

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one, on your touch-tone phone. If you are using a speakerphone, please pick up your headset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. And our first questioner comes from Tim Mullen with Laurelton Management. Please go ahead.

[Tim Mullen, Founder at Laurelton Management]

Hi, thanks very much. I have two quick questions. One is just curious to hear your views in terms of what's driving the increase in the service and installation business. I don't know if there's maybe a focus for some of the recent acquisitions, or maybe it's a function of kind of colder weather that we're requiring more services to be completed. And then the second question is just in terms of customer credit, it didn't seem like there were any dramatic changes in terms of provisions and write-offs, but just curious, anecdotally, if you've seen any weakening in terms of people's ability to pay and pay on time. Thanks.

[Jeff Woosnam, President and CEO at Star Group]

Yeah, Tim, in regards to service and installation and the improvement in the results, certainly there's a component of that, a rather significant component that's related to recent acquisitions, and that's helped improve the results overall, but we have also undertaken an initiative internally on our base business to really focus on improving performance, notably productivity, which our employees have really bought into, and we've seen some progress and gained some traction there, and then just also look to every opportunity really to sell more products and services to our existing customers, and that's been a program that has been recently launched that has so far gone well for us, so we're optimistic about that and we'll have to see how it goes, but certainly we're pleased with the results overall.

[Rich Ambury, CFO at Star Group]

Now, with regard to credit, we, yeah, there has been some in the general economy. You keep hearing about weakness in credit. I can't say that that doesn't exist, but to a certain extent, our customers did get a bit of a relief, if you will, in the quarter as cost of product is down and selling prices generally are down this year versus last year because of the lower cost of product. We did sell a little bit more because it was a bit colder, and we had some acquisitions, but sales are down even though EBITDA is up because of the lower underlying cost of product. But we'll have to see how this all settles up at the end of the heating season, frankly.

[Tim Mullen, Founder at Laurelton Management]

Sure. All right. Thanks very much.

[Jeff Woosnam, President and CEO at Star Group]

Yeah.

[Operator]

Again, if you have a question, please press star, then one. Please wait as we assemble our roster. And our next question comes from Michael Prouting with 10K Capital. Please go ahead.

[Michael Prouting, Equity Analyst at 10K Capital]

Hi, morning, guys. Congratulations on just terrific execution across the board. Just a couple of questions. So as far as capital allocation is concerned, congratulations on the recent spate of acquisitions. I'm just wondering what your thinking is at this point in terms of both additional further acquisitions, your ability to execute on those, and also capital allocation in terms of dividends and share buybacks. Thanks.

[Jeff Woosnam, President and CEO at Star Group]

So, Michael, I would say in terms of capital allocation, we typically wait. When we talk about the distribution, we typically wait until after the heating season to make any decisions on changes or increase to the distribution. We just want to have a better sense of how the year is progressing. We know we want to, we need to make what we would consider to be replacement acquisitions to replace any business that has been lost. And then it really basically boils down to unit repurchases and growth acquisitions, and those are decisions we make or make it on a regular basis just in terms of the economics and the return as well as just the timing because, as you're aware, some of the most ideal acquisitions and sizable deals aren't always available. They kind of tend to come in chunks.

[Jeff Woosnam, President and CEO at Star Group]

It's timing and things that we talk about all the time in terms of what's the best investment for the company.

[Michael Prouting, Equity Analyst at 10K Capital]

Okay, terrific. So it doesn't sound like then, and obviously this is a, as I'm sure Rich is wanting to remind us, obviously it is a decision for the board of directors, but it doesn't sound like the recent acquisitions you've made should prevent further modest increases in the distribution going forward.

[Rich Ambury, CFO at Star Group]

I would say you're trying to put words in my mouth, but the board will make that decision at the next time we get together, which I believe is in April. But we'll have to see, Michael.

[Michael Prouting, Equity Analyst at 10K Capital]

Okay, terrific. Thanks. And just finally, Jeff, any observations on customer churn? Either as a function of the current heating season or acquisitions you've made, or just, I guess, anything new on the customer churn front? Thanks.

[Jeff Woosnam, President and CEO at Star Group]

Yeah, I'd say reflecting on the first quarter, our customer losses remained in check, and in fact, on a percentage basis and a gross basis, we probably had one of our better quarters in a number of years from a loss standpoint. The new customer additions have continued to be sluggish. I think to some degree that's a reflection of why the temperatures were slightly cooler than last year, the prior quarter last year, but they're still 10% warmer than normal, and there was relative price stability in that period, so those things kind of all combined for fewer gains in the first quarter.

[Jeff Woosnam, President and CEO at Star Group]

I am pleased to report, and we'll just have to see how the rest of the quarter progresses, but we're off to a pretty, we've got off to a pretty cold January, and it looks like we've got a pretty stable forecast for February, and thus far in January, it seems like our new customer additions have rebounded a bit, but we'll see how the quarter progresses.

[Michael Prouting, Equity Analyst at 10K Capital]

Okay, great. Thanks for the updates.

[Jeff Woosnam, President and CEO at Star Group]

Sure.

[Operator]

Again, if you have a question, please press star, then one. And please wait as we assemble any additional questions. With no further questions, this concludes our question and answer session. I would like to turn the conference back over to Jeff Woosnam for any closing remarks.

[Jeff Woosnam, President and CEO at Star Group]

Well, thank you for taking the time to join us today and your ongoing interest in Star Group. We look forward to sharing our 2025 fiscal second quarter results in May. Thanks, everybody.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Jeff Woosnam, President and CEO
• Chris Witty, Investor Relations Advisor
• Rich Ambury, CFO

Analysts

• Tim Mullen, Founder at Laurelton Management
• Michael Prouting, Equity Analyst at 10K Capital