Suburban Propane Partners Q1 2025 Earnings Report

Suburban Propane Partners EPS Results

• Actual EPS: $0.30
• Consensus EPS: $0.76
• Beat/Miss: Missed by -$0.46
• One Year Ago EPS: $0.38

Suburban Propane Partners Revenue Results

• Actual Revenue: $373.33 million
• Expected Revenue: $374.00 million
• Beat/Miss: Missed by -$671.00 thousand
• YoY Revenue Growth: N/A

Suburban Propane Partners Announcement Details

• Quarter: Q1 2025
• Date: 2/6/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 9:00AM ET

Suburban Propane Partners (NYSE:SPH) (NYSE: SPH) is an energy distributor and marketer that supplies propane, fuel oil, and other refined fuels to residential, commercial, industrial, agricultural, and government customers. The company also markets natural gas and electricity and provides related energy services.

Its offerings include propane delivery for home heating, cooking, and equipment operation, as well as fuel delivery and services for businesses and agricultural users. Suburban Propane also sells and services heating equipment, propane-powered appliances, and hearth products, and provides installation, maintenance, and repair services in selected markets.

The company traces its history to 1928 and operates through a network serving customers across approximately 42 states, primarily in the United States. Suburban Propane Partners became a publicly traded master limited partnership in 1996. Michael A. Stivala serves as the company’s president and chief executive officer.

Suburban Propane Partners Q1 2025 Earnings Call Transcript

Key Takeaways

• Adjusted EBITDA was $75.3 million in Q1, essentially flat year-over-year despite unseasonably warm weather.
• Retail propane gallons sold were down 0.8% due to warm temperatures and weaker crop-drying demand, partially offset by hurricane relief volumes and a strategic Southwest acquisition.
• A planned RNG facility shutdown in Q1 reduced output, but completed upgrades will enhance production and new New York and Ohio digesters are on track for year-end commissioning with expected tax credit monetization.
• Leverage stood at 4.99x, comfortably below covenant levels, with expectations of deleveraging as RNG assets ramp and production tax credits begin flowing.
• The company took a $19.8 million impairment write-down on its minority stakes in Oberon Fuels and Independence Hydrogen, reflecting broader clean-energy funding challenges.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the Suburban Propane Partners First Quarter Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on February 6th, 2025. I would now like to turn the conference over to Davin D'Ambrosio, Vice President and Treasurer. Please go ahead.

[Davin D'Ambrosio, VP and Treasurer at Suburban Propane Partners]

Thank you, Jenny. Good morning, everyone. Thank you for joining us this morning for our Fiscal 2025 First Quarter Earnings Conference Call. Joining me this morning are Mike Stivala, our President and Chief Executive Officer, Mike Kuglin, our Chief Financial Officer, and Alex Centeno, Senior Vice President, Operations. This morning, we will review our first quarter financial results along with our current outlook for business. Once we've concluded our prepared remarks, we will open the session to questions. Our conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to the partnership's future business expectations and predictions and financial condition and results of operations. These forward-looking statements involve certain risks and uncertainties.

[Davin D'Ambrosio, VP and Treasurer at Suburban Propane Partners]

We have listed some of the important factors that could cause actual results to differ materially from those discussed in such forward-looking statements, which are referred to as cautionary statements in our earnings press release, which can be viewed on our website at suburbanpropane.com, while subsequent written and oral forward-looking statements attributable to the partnership or persons acting on its behalf expressly qualified in their entirety by such cautionary statements. Our annual report on Form 10-K for the fiscal year ended September 28th, 2024, and Form 10-Q for the period ended December 28th, 2024, which will be filed by the end of business today, contain an additional disclosure regarding forward-looking statements and risk factors. Copies may be obtained by contacting the partnership or the SEC. Certain non-GAAP measures will be discussed on this call.

[Davin D'Ambrosio, VP and Treasurer at Suburban Propane Partners]

We have provided a description of those measures as well as a discussion of why we believe this information to be useful in our Form 8-K, which was furnished to the SEC this morning. The Form 8-K will be available through a link in the investor relations section of our website. At this time, I will turn the call over to Mike Stivala for some opening remarks. Mike.

[Mike Stivala, President and CEO at Suburban Propane Partners]

Thanks, Davin, and good morning. Thank you all for joining us today. We're pleased to report another solid quarter despite several challenging conditions. Adjusted EBITDA for our first quarter of fiscal 2025 was $75.3 million, essentially flat to the prior year first quarter. Propane revenues for the quarter were marginally lower than the prior year first quarter, as strong demand in our southeast operations in the aftermath of Hurricanes Helene and Milton, combined with the benefit of incremental volumes from our acquisition of a well-run propane business in the southwest territory, which we closed in November 2024, were able to substantially offset the impacts of widespread unseasonably warm weather, especially in the month of November, and a less active crop drying season. Our field operations have done an excellent job managing selling prices in a higher commodity price environment and are leveraging our efficient operating model to help manage costs.

[Mike Stivala, President and CEO at Suburban Propane Partners]

As I will comment further in my closing remarks, colder temperatures arrived toward the end of December and carried into January 2025, creating strong momentum into the heart of the heating season. Our operations personnel are very well prepared to serve the increased demand from our customers during a period of sustained colder temperatures that have gripped much of the country in the early part of our fiscal second quarter. In our renewable natural gas operations, we completed an extended and planned shutdown of our anaerobic digester facility in Stanfield, Arizona, for routine maintenance and regulatory compliance upgrades, and as a result, RNG injection for the quarter was lower than the prior year first quarter.

[Mike Stivala, President and CEO at Suburban Propane Partners]

The upgrades and enhancements completed during the planned shutdown will improve the operating performance and resiliency of the facility, enhance the quality of feedstock coming into the facility, and is expected to result in increased RNG production moving forward. Since the restart of the facility in mid-November, we have continued to experience enhanced conversion of feedstock intake to RNG injection as we continue to instill the best-in-class operating model that we are known for within our core propane business. We also continue to advance our capital projects to construct our anaerobic digester facility in Upstate New York and the gas upgrade equipment at our anaerobic digester facility in Columbus, Ohio, which are both expected to be completed toward the end of this calendar year.

[Mike Stivala, President and CEO at Suburban Propane Partners]

We have taken the necessary steps to earn, report, and prepare to monetize production tax credits from our Stanfield facility, which became effective January 1, 2025, and we expect to be able to monetize PTCs at both the New York and Ohio facilities once we start RNG production and sales activities. So while warm weather weighed on customer demand in our propane operations during the first quarter, we continue to manage the things we can control and remain steadfast in our commitment to our strategic growth objectives. There's still a lot of heating season ahead, and we are very well prepared to handle increased demand from colder weather. In a moment, I will come back for some closing remarks and provide added color on our strategic initiatives. However, at this point, let me turn it over to Mike Kuglin to discuss our first quarter results in more detail. Mike.

[Mike Kuglin, CFO at Suburban Propane Partners]

Thanks, Mike, and good morning, everyone. To be consistent with previous reporting, as I discuss our first quarter results, I'm excluding the impact of unrealized mark-to-market adjustments on our commodity hedges, which resulted in an unrealized gain of $3.6 million for the first quarter of fiscal 2025, compared to an unrealized loss of $10.8 million in the prior year first quarter. Excluding these non-cash items, as well as non-cash equity losses and impairment charges related to our unconsolidated subsidiaries that are accounted for under the equity method, net income for the first quarter was $38 million, or $0.59 per common unit, compared to net income of $40.4 million, or $0.63 per common unit in the prior year. Adjusted EBITDA for the first quarter was $75.3 million, essentially flat to the prior year.

[Mike Kuglin, CFO at Suburban Propane Partners]

Retail propane gallons sold of 105.7 million gal were 0.8% lower than the prior year, primarily due to lower heat-related demand from widespread unseasonably warm temperatures, especially during the month of November, and lower agricultural demand for crop drying, which was almost entirely offset by an increase in demand in our southeast region following Hurricanes Helene and Milton, and the positive contributions from our customer-based growth and retention initiatives, including the strategic propane acquisition in the southwest that was completed in November 2024. With respect to the weather, average temperatures during the first quarter of fiscal 2025 were 7% warmer than normal and flat to the prior year first quarter. In the month of November 2024, average temperatures were 15% warmer than normal and 17% warmer than November 2023, making one of the top five warmest Novembers on record.

[Mike Kuglin, CFO at Suburban Propane Partners]

From a commodity perspective, average wholesale propane prices for fiscal 2025 first quarter of $0.77 per gallon basis Mont Belvieu increased 15% compared to the prior year first quarter. Since the end of December and with the burst of cold weather in January, propane prices have increased from the average prices during the first quarter, with posted prices rising toward $0.95 per gallon and are now trending in the range of $0.85-$0.90 per gallon. Excluding the impact of the mark-to-market adjustments on our commodity hedges that I mentioned earlier, total gross margin of $222.5 million for the first quarter decreased $1 million, or 0.5%, compared to the prior year first quarter, primarily due to slightly lower propane volume sold and lower margin contribution from the RNG operations, partially offset by an increase in propane unit margins of $0.02 per gallon, or 1.3%.

[Mike Kuglin, CFO at Suburban Propane Partners]

With respect to expenses, combined operating and G&A expenses of $150 million increased $2.4 million, or 1.6%, compared to the prior year first quarter, primarily due to higher payroll and benefit-related costs, accruals for settling certain legal matters, offset to an extent by lower vehicle fuel costs. Net interest expense of $19.6 million for the first quarter increased $1.4 million, or 7.8%, compared to the prior year first quarter due to a higher level of average outstanding borrowings under our revolving credit facility. During the quarter, we recognized $3 million of income representing the fair value of contingent consideration due from Equilibrium Capital Group, which was reported within other net on the statement of operations.

[Mike Kuglin, CFO at Suburban Propane Partners]

In accordance with the purchase agreement that we entered into with Equilibrium in December 2022 for the acquisition of the anaerobic digester facilities in Stanfield, Arizona, and Columbus, Ohio, expenditures for the gas upgrade equipment project at the Columbus facility that exceeded a certain threshold would be funded by Equilibrium up to a total of $3 million if the partnership incurred those costs prior to December 31, 2024. Based on the status of the capital project at Columbus, we have triggered that cost reimbursement from Equilibrium. Excluded from Adjusted EBITDA for the first quarter of fiscal 2025 are impairment charges for our investments in Independence Hydrogen and Oberon Fuels of $9.6 million and $10.2 million, respectively, in order to write down the carrying values of these investments to their estimated fair values. These non-cash charges were reported within other net on the statement of operations.

[Mike Kuglin, CFO at Suburban Propane Partners]

Michael provides some additional commentary on these investments in a few moments. Total capital spending for the quarter of $23.8 million was $12.7 million higher than the prior year first quarter, primarily due to higher growth CapEx associated with the construction of the gas upgrade equipment at our Columbus, Ohio facility and ongoing construction of the anaerobic digester facility in New York. As I mentioned on our last call, capital spending for fiscal 2025 is expected to range between $40 million and $45 million for our propane operations and between $35 million-$45 million for our RNG projects. During the quarter, we also closed on the acquisition of a propane business with operations in New Mexico and Arizona for a total consideration of $53 million, inclusive of future non-compete payments.

[Mike Kuglin, CFO at Suburban Propane Partners]

Turning to our balance sheet, given the seasonal nature of our business, we typically borrow under our revolving credit facility during the first quarter to help fund a portion of our seasonal working capital needs. During the first quarter, we borrowed $91.7 million under our revolver to fund the propane acquisition, as well as to fund seasonal working capital and growth capital expenditures. Our consolidated leverage ratio for the trailing 12-month period ended December 2024 was 4.99x. Although the leverage metric is elevated relative to our historical levels, we remain well within our debt covenant requirement of 5.75x. We expect our leverage metric to benefit from increased earnings as we complete our growth projects as the RNG platform reaches runway capacity with the monetization of production tax credits under the IRA.

[Mike Kuglin, CFO at Suburban Propane Partners]

Given the seasonality of our business, working capital needs typically peak towards the end of the heating season, late February or early March timeframe, after which we expect to generate excess cash flows. We will continue to remain focused on utilizing excess cash flows to strengthen the balance sheet and as opportunities arise to fund strategic growth. We have more than ample borrowing capacity under our revolver to fund our remaining working capital needs for the heating season, as well as to support our capital expansion plans and ongoing strategic growth initiatives. Back to you, Mike.

[Mike Stivala, President and CEO at Suburban Propane Partners]

Thanks, Mike. As announced on January 23rd, our Board of Supervisors declared our quarterly distribution of $0.325 per common unit in respect of our first quarter of fiscal 2025, and that equates to an annualized rate of $1.30 per common unit. The quarterly distribution will be paid on February 11th to unit holders of record as of February the 4th. Our distribution coverage continues to remain strong at 1.87x for the trailing 12-month period ended December 2024. I'd like to comment next on our long-term strategic growth plans. Our long-term strategic growth initiatives continue to focus on fostering the growth of our core propane business and growing our renewable energy platform through strategic investments in renewable energy businesses and assets that will help position our business for the long term as the country continues to evolve to a low-carbon economy, all while maintaining balance sheet flexibility.

[Mike Stivala, President and CEO at Suburban Propane Partners]

Over the past five years, the strong free cash flow that our business generates, supplemented by borrowings as needed, has allowed us to fund strategic acquisitions in support of our core propane business, which resulted in the successful acquisition and integration of nine propane businesses in strategic markets, investing more than $125 million in those efforts, as well as our continued execution of our organic growth plans by providing exceptional customer service, driving our growth and retention initiatives, and fostering new market expansions in propane. We've made investments in renewable fuels, hydrogen, and renewable natural gas, helping to pave the way for us to have a scaled presence in the evolving low-carbon renewable energy landscape with diversified revenue streams, investing approximately $320 million in support of those efforts over the past five years.

[Mike Stivala, President and CEO at Suburban Propane Partners]

Over that same span of years, we returned a total of $475 million to unit holders in the form of strong and steady cash distributions, therefore striking a good balance of returning capital to unit holders while investing in long-term growth. Now, let me just comment on the accounting charges reflected in our first quarter results. As Mike mentioned, during the first quarter, we took an accounting charge in the amount of $19.8 million to write down the value of our investments in Oberon Fuels and Independence Hydrogen. As part of our long-term strategic growth initiatives, we have been committed to investing in innovative renewable energy businesses and technologies. In line with that strategy, we made our initial investments in these early-stage companies in September 2020 for Oberon and in March 2022 for Independence Hydrogen.

[Mike Stivala, President and CEO at Suburban Propane Partners]

We maintain a minority stake of 38% in Oberon Fuels and 25% in Independence Hydrogen. And since our initial investments, we have worked closely with the entrepreneurial leaders of both companies to support and advance their respective business models and technological development, inclusive of regulatory support, engineering and logistics, commercial development, PR and marketing, back office assistance, and readiness for scale. Both Oberon Fuels and Independence Hydrogen have made great progress over the past few years, advancing their respective business models and products, which in the case of Oberon is the production of renewable DME, and for Independence Hydrogen is small-scale distributed clean hydrogen. They are each operating pilot plants that are producing rDME and clean hydrogen, respectively, and generating real revenues from the sale of their products to customers.

[Mike Stivala, President and CEO at Suburban Propane Partners]

Each have identified locations for their first commercial-scale production facilities, including securing feedstock agreements, advancing engineering work, and developing commercial demand, and both are engaging with several potential new investors, strategic and financial, to raise the necessary capital to scale their platforms, which will require significantly more capital beyond the commitment of capital from Suburban Propane to further fund their early-stage innovations. We continue to believe strongly in the business models and the impact that both companies and their respective low-carbon fuels can have as contributors to a low-carbon renewable energy future, especially as localized distributed energy sources. Through our ownership and engagement with these innovative early-stage companies, Suburban Propane has gained significant knowledge and exposure to the development of new disruptive technologies, insights into market sentiment, and built relationships throughout the supply chain for renewable fuels and hydrogen.

[Mike Stivala, President and CEO at Suburban Propane Partners]

The accounting write-down is more a function of the challenges that have impacted the broader clean energy startup landscape over the past several years, including challenges related to raising new capital and uncertainty over government policy support, than it is a reflection on the actual performance of either company or the potential impact that they can have on the future of clean energy. We continue to believe in and support both companies as they advance their respective renewable energy technologies. And through the execution of our long-term strategic growth plans, Suburban Propane remains committed to leveraging our core competencies as trusted local distributors of energy to grow the markets for renewable fuels and clean hydrogen well into the future. Our vision for the future hasn't changed.

[Mike Stivala, President and CEO at Suburban Propane Partners]

We are committed to continuing to advance solutions in the form of reliable, versatile, cost-effective, and clean propane that support decarbonization efforts while pioneering new energy sources to power local communities for generations to come. Finally, looking ahead to the rest of fiscal 2025, as I stated earlier, there is still a significant amount of the heating season ahead, and we are very well positioned both operationally and financially to adapt to as demand dictates. In fact, we experienced a widespread cold weather pattern across much of our operating footprint during the month of January, with sustained cold temperatures the likes of which we haven't seen since 2014. The foundation of our ongoing success continues to be rooted in our more than 3,200 dedicated employees at Suburban Propane, and their hard work and unwavering focus on the safety and comfort of our customers and the communities we serve.

[Mike Stivala, President and CEO at Suburban Propane Partners]

I want to take a moment to thank them for all of their efforts in supporting our customers during some of the more challenging weather conditions that we have seen over the past few years and during a time when our customers needed us most to help them manage a sustained period of cold weather that most of the country experienced throughout much of January, and as always, we appreciate your support and attention this morning, and now I would like to open it up for questions, and Jenny, could you help us out with that, please?

[Operator]

Yes, thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please select a handset before pressing any key. Once again, that is star one. Should you wish to ask a question? Your question is from Christopher Jeffrey from Mizuho Securities. Your line is now open.

[Christopher Jeffrey, Equity Research Senior Associate at Mizuho Securities]

Hi, good morning. Thanks for taking my question. Maybe, Mike, just to start off on that colder weather we've been seeing that you talked about at the end, just kind of curious how the system is handling it operationally, reaching all the inbounds, and then maybe you've also talked about the kind of quicker appreciation in propane prices we've seen over the last month, so just how the pricing aspect of that is and the unit margins. Thanks.

[Mike Stivala, President and CEO at Suburban Propane Partners]

Sure. Great. Thanks, Chris. Thanks for the interest. Look, our platform is built for this kind of weather. We've been so ready for this. We haven't had sustained periods of cold weather where you have weeks upon weeks upon weeks of good, solid, what I would call normal, if not slightly colder than normal in certain parts of the country weather. We've always had, for the past decade, frankly, we've had lots of fits and starts. And this kind of weather is certainly what Suburban Propane is built for. And I'm really proud of the people at Suburban Propane for how they're stepping up in some challenging conditions. This morning is a perfect example. There's a lot of sleet and ice on the road, and we're out there taking care of our customers.

[Mike Stivala, President and CEO at Suburban Propane Partners]

All I can ask of our people is to continue to be safe, which is something we stress at all times. So this is the kind of weather that we've been built for. Our customers can rely on us, and we're doing a heck of a job with the increased demand. As far as pricing goes, with weather comes higher prices, right? You're going to see that. You see it in the natural gas market. You also see it in the propane market. And so that's something that we have to continue to stay ahead of, is to make sure that as pricing moves as dramatically as it can at times, our field has to do a good job of making sure that we're managing our selling prices accordingly. And I'm very pleased to say that we are doing a heck of a job with that.

[Mike Stivala, President and CEO at Suburban Propane Partners]

And we've had some volatility over the past couple of weeks, sort of range-bound in the $0.85-$0.90 basis Belvieu range right now. But we could certainly expect to see prices move one way or the other depending on both weather and sort of what happens in broader commodity markets.

[Christopher Jeffrey, Equity Research Senior Associate at Mizuho Securities]

Great. Thank you. And then maybe just coming back to the conversation around leverage, as you kind of mentioned, a little bit elevated for this quarter in the last few. And I think Mike spoke about some of the drivers on the growth end. So maybe just if you could expand on those in terms of timing when you see the credits kind of coming through, and then also just if there's any additional thoughts on maybe the debt side of it as far as addressing that or doing something more with the rest of the capital stack.

[Mike Stivala, President and CEO at Suburban Propane Partners]

Yeah. So first of all, we have plenty of liquidity. That's not at all an issue. Second of all, when you look at our leverage metric at the end of December, it's a rolling 12 metric. So it's got some of last year's challenging heating season and the lower earnings that we experienced in the second quarter of last year built into that metric. And obviously, we've been deploying capital on growing the renewable natural gas business, particularly the assets in Upstate New York and Columbus, which are not yet generating real earnings. So as those come online towards the tail end of this year, those will start to naturally bring leverage down. And as far as the production tax credits, we're already earning them in our Stanfield locations effective January 1st. The guidance came out very, very late in the calendar 2024 and into early part of January.

[Mike Stivala, President and CEO at Suburban Propane Partners]

But we've been studying and paying very close attention to that law since it was put out there. The facility in Stanfield, Arizona, produces RNG at a very deep negative CI score. And as a result, it will generate sort of the high end of production tax credits, and they'll be earned. We're already earning them from January 1 forward. So that'll be a good contributor both in the second quarter as well as throughout the rest of the year. We're also working towards the efforts to monetize those to bring in real cash as we monetize those PTCs. So that will help us bring in incremental cash flow to the company as well. So it's a lot of noise, Chris, to be honest. But we have done a lot to invest in the growth of the business.

[Mike Stivala, President and CEO at Suburban Propane Partners]

We are moving forward, and we will start to see the benefit of that growth capital come to fruition. The other thing is, as you know, we're very much balance sheet focused. As opportunities arise, we will continue to look to strengthen the balance sheet. We view that as the backbone that helps us to be strategic and to be growth-oriented. To the extent that the balance sheet needs repair, we'll continue to look for opportunities to do that, whether that be in free cash flow or otherwise. I think we've gotten a pretty good reputation of being good balance sheet hawks. I think we'll continue to do that because, again, it has given us the opportunity to be very, very strategic over the course of the past several years.

[Mike Stivala, President and CEO at Suburban Propane Partners]

I made comments in my opening remarks about the balanced approach towards capital deployment. That's real. And a lot of that's been done on our free cash flow generation and a little bit of leverage. So we're very proud of the investments we're making, and they are going to pay off in the long run.

[Christopher Jeffrey, Equity Research Senior Associate at Mizuho Securities]

Great. Thank you, Mike. Appreciate the time today.

[Mike Stivala, President and CEO at Suburban Propane Partners]

All right, Chris. Thanks.

[Operator]

Thank you. Once again, ladies and gentlemen, that is star one, should you wish to ask a question.

[Mike Stivala, President and CEO at Suburban Propane Partners]

Great, Jenny. Looks like we're all set. I appreciate your help today. Again, appreciate everybody's attention and support. We look forward to talking to you at the end of our second quarter earnings in the May timeframe. And as always, as I say to the employees of Suburban Propane, as I'm in front of them, please be safe out there.

[Operator]

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.

Participants

Executives

• Davin D'Ambrosio, VP and Treasurer
• Mike Kuglin, CFO
• Mike Stivala, President and CEO

Analysts

• Christopher Jeffrey, Equity Research Senior Associate at Mizuho Securities