Earnings call transcript: Star Gas Partners LP sees strong Q4 2024 growth

Star Gas Partners LP reported robust financial results for the fourth quarter of 2024, with notable increases in net income and adjusted EBITDA. The company experienced a 3% rise in home heating oil and propane volumes, contributing to a 4% increase in product gross profit. With a strong gross profit margin of 28.4% and an impressive return on equity of 12%, the company’s operational efficiency remains solid. Following the earnings release, the stock price rose by 3.8%, reflecting investor confidence in the company’s performance and future prospects. According to InvestingPro analysis, the company maintains a "GREAT" financial health score of 3.06 out of 4.

Key Takeaways

• Home heating oil and propane volume increased by 3%.
• Net income rose by $20 million to $33 million.
• Adjusted EBITDA improved by $3 million to $52 million.
• Stock price increased by 3.8% following earnings announcement.
• Strategic acquisition strengthened propane market presence.

Company Performance

Star Gas Partners LP demonstrated strong operational performance in Q4 2024, marked by a 3% increase in home heating oil and propane volumes. This growth, coupled with improved productivity and efficiency, contributed to a significant rise in net income and adjusted EBITDA. The company also reported one of its best quarters in terms of customer retention, maintaining low levels of customer losses.

Financial Highlights

• Revenue: $488.06 million
• Net income: $33 million, up from $13 million in the previous year.
• Adjusted EBITDA: $52 million, a $3 million increase year-over-year.

Market Reaction

Following the earnings announcement, Star Gas Partners LP’s stock price rose by 3.8%, closing at $12.87. This increase reflects a positive market reaction, driven by the company’s solid financial performance and strategic initiatives. The stock’s current price is nearing its 52-week high of $12.93, indicating strong investor sentiment. InvestingPro analysis suggests the stock is slightly undervalued based on its Fair Value calculation, while trading at an attractive P/E ratio of 14.3x. InvestingPro subscribers have access to 10 additional key insights about Star Gas Partners’ valuation and growth potential.

Outlook & Guidance

Star Gas Partners LP remains committed to operational efficiency and cost control, with potential for modest distribution increases pending board approval. The company has demonstrated strong commitment to shareholder returns, having raised its dividend for 12 consecutive years and currently offering a substantial 5.56% dividend yield. The company is closely monitoring customer additions, with early signs of a rebound in January. Future guidance projects EPS of $0.87 for both FY2025 and FY2026, with revenue forecasts of $1.77 billion for each year. For detailed dividend analysis and growth projections, consider accessing the comprehensive Pro Research Report available on InvestingPro, which covers 1,400+ top US stocks.

Executive Commentary

CEO Jeff Woosnam emphasized the company’s commitment to service excellence and operational efficiency, stating, "Increased productivity and efficiency within our base business has been a specific area of focus for our operating team." He also highlighted the strategic acquisition’s role in strengthening the company’s propane market presence.

Risks and Challenges

• Fluctuating fuel prices could impact profit margins.
• Weather variability may affect heating fuel demand.
• Economic downturns could lead to reduced consumer spending.
• Competition in the home heating market remains intense.
• Potential supply chain disruptions could affect operations.

Q&A

During the earnings call, analysts inquired about the drivers of improvement in the service and installation business, as well as trends in customer credit and payment. Questions also focused on capital allocation strategy and potential distribution increases, reflecting investor interest in the company’s financial planning and customer retention strategies.

Full transcript - Star Gas Partners LP (SGU) Q1 2025:

Conference Operator: Good day, and welcome to the Star Group Fiscal twenty twenty five First Quarter Results Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Chris Whitty, Investor Relations Advisor.

Please go ahead.

Chris Whitty, Investor Relations Advisor, 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. 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 09/30/2024, 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 Chief Executive Officer, 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 $3,000,000 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. 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 further strengthens 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. I believe we are well positioned for the remainder of fiscal twenty twenty five. With that, I’ll turn the call over to Rich to provide additional comments on the quarter’s financial results.

Rich?

Rich Ambury, Chief Financial Officer, Star Group: Thanks, Jeff, and good morning, everyone. For the quarter, our home heating oil and propane volume rose by 2,000,000 gallons or 3% to approximately 82,000,000 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 12/31/2024 were 4% colder than the prior year and 10.5% warmer than normal. Our product gross profit increased by 5,600,000 or 4% to approximately $151,000,000 due to an increase in per gallon margins and higher home heating oil and propane volume sold. We realized a combined gross profit from service and installation of $6,900,000 for the three months ending 12/31/2024, compared to gross profit of $4,400,000 in the prior year with a $2,500,000 increase due in part to recent acquisitions as well as improvements in the base business.

Branch delivery and G and A expenses increased by $5,000,000 in the first quarter of fiscal twenty twenty five, largely due to recent acquisitions. Expenses in the base business were largely unchanged. During the first quarter of fiscal twenty twenty five, we recorded a $5,000,000 non cash credit related to the change in fair value of our derivative instruments. By comparison, in the first quarter of fiscal twenty twenty four, we recorded a $19,000,000 non cash charge. Net income did increase by $20,000,000 in the quarter to $33,000,000 as the favorable non cash change in the fair value of derivative instruments of $24,000,000 and an increase in adjusted EBITDA of $3,000,000 was only partially offset by higher income taxes of $8,000,000 Adjusted EBITDA increased by $3,000,000 to $52,000,000 as a 4,000,000 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 3,800,000 gallon decrease in home heating oil and propane volumes sold in the base business.

And with that, I’ll turn the conversation and call back to Jeff.

Jeff Woosnam, President and Chief Executive Officer, 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.

Conference Operator: Thank you. We will now begin the question and answer session. And our first questioner comes from Tim Mullen (NASDAQ:MULN) with NOLINN Management. Please go ahead.

Unidentified Participant: Hi.

Tim Mullen, Analyst, NOLINN Management: 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 it was maybe a focus for some of the recent acquisitions or maybe it’s a function of kind of colder weather and 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 was 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 Chief Executive Officer, Star Group: Yes, Tim, in regards to service and installation, the improvement in the results, certainly there’s a component of that, rather significant component that’s related to recent acquisitions and that’s helped to 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, Chief Financial Officer, Star Group: Now with regard to credit, we yes, 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, Analyst, NOLINN Management: Sure. All right. Thanks very much.

Conference Operator: And our next question comes from Michael Breunig with ten ks Capital. Please go ahead.

Unidentified Participant: Hi, good 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 your 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 Chief Executive Officer, 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.

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

Unidentified Participant: Okay, terrific. So it doesn’t sound like Dan 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, Chief Financial Officer, Star Group: I would say you’re trying to put words in my mouth, but the Board will make that decision and at the next time we get together, which I believe is in April. But we’ll have to see, Michael.

Unidentified Participant: 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 Chief Executive Officer, Star Group: Yes, 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 gains have been the new customer additions have continued to be sluggish. I think to some degree that’s a reflection of while 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 there wasn’t as much movement in the marketplace as there was, let’s just say, in fiscal twenty twenty three in the first quarter that we observed. So those things kind of all combined for fewer gains in the first quarter.

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.

Unidentified Participant: Okay, great. Thanks for the updates.

Conference Operator: With no further questions, this concludes our question and answer session. I would like to turn the conference back over to Jeff

Jeff Woosnam, President and Chief Executive Officer, 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 twenty twenty five fiscal second quarter results in May. Thanks, everybody.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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