Star Group (ticker not provided), a leading home heating oil and propane distributor, reported a significant improvement in its fiscal third-quarter 2024 results. The company saw a reduction in its adjusted EBITDA loss by nearly $19 million, compared to the same quarter in the previous year, despite facing a milder heating season.
The positive outcome was attributed to higher volumes, improved per gallon gross margin, strong expense control, and increased profitability from service and equipment installation. Star Group also announced the pending acquisition of a high-quality fuel dealer, marking its fifth acquisition in the fiscal year, which is expected to add 19 million gallons of heating oil to its annual volume.
Key Takeaways
- Star Group delivered solid results in the third quarter of fiscal 2024, with a reduction in adjusted EBITDA loss by nearly $19 million.
- The company benefited from higher volumes, improved per gallon gross margin, and strong expense control.
- A definitive agreement to purchase a fuel dealer is expected to contribute an additional 19 million gallons of heating oil annually.
- Net customer attrition remained stable and decreased slightly year-over-year.
- The company is actively evaluating future acquisition opportunities and focusing on improving efficiency and performance across existing businesses.
Company Outlook
- Star Group anticipates closing the acquisition of a fuel dealer in the fourth quarter.
- The company continues to evaluate an active pipeline of potential acquisitions.
- There is an emphasis on improving overall efficiency and performance, as well as customer retention strategies.
Bearish Highlights
- The third quarter saw temperatures 18% warmer than normal, which generally reduces demand for heating fuel.
- Net customer attrition, despite being stable, contributed to a decrease in volume.
- Operating expenses increased by $4.7 million year-over-year, partly due to acquisitions and rising insurance costs.
Bullish Highlights
- The company managed to increase adjusted EBITDA by $13 million through the first nine months of fiscal 2024.
- Higher home heating oil and propane volumes sold and higher per gallon margins contributed to a $20 million increase in product gross profit for the quarter.
- Service and installation profitability improved, adding an additional $3.5 million in gross profit compared to the prior year's quarter.
Misses
- Home heating oil and propane volume declined by 5.5 million gallons or 2% to 235 million gallons in the first nine months of fiscal 2024.
- The decline in volume was largely due to customer attrition and other factors, despite the additional volume from acquisitions.
Q&A Highlights
- There were no specific questions or answers highlighted from the Q&A session of the earnings call.
Star Group's fiscal third-quarter performance showcases resilience in the face of a milder heating season. The company's strategic acquisitions and focus on operational efficiency have contributed to its ability to adjust to varying weather conditions and maintain a stable financial outlook. The upcoming acquisition is expected to bolster the company's annual volume, reinforcing its market position as it prepares for the winter season.
InvestingPro Insights
Star Group's recent fiscal third-quarter results highlight the company's strategic resilience and ability to adapt to market conditions. To further understand the company's financial health and investment potential, let's delve into some key metrics and insights from InvestingPro.
InvestingPro Data shows that Star Group has a market capitalization of $367.76 million, indicating its size within the energy distribution market. The company's price-to-earnings (P/E) ratio stands at 8.56, which, when compared to the adjusted P/E ratio for the last twelve months as of Q3 2024 at 8.35, suggests that the company's earnings are stable and potentially undervalued. Additionally, the dividend yield as of mid-2024 is an attractive 6.5%, which is noteworthy for income-focused investors.
In terms of performance, Star Group's revenue for the last twelve months as of Q3 2024 was $1,792.7 million, with a gross profit margin of 27.59%. Despite a revenue decline of 9.58% in the same period, the company's quarterly revenue growth in Q3 2024 was up by 10.5%, indicating a potential turnaround or seasonal fluctuation.
InvestingPro Tips highlight several positive aspects of Star Group's investment profile. Notably, the management's aggressive share buyback strategy and the company's consistent dividend growth for 11 consecutive years demonstrate a commitment to returning value to shareholders. Additionally, the valuation implies a strong free cash flow yield, and the company is trading at a low earnings multiple, which might appeal to value investors.
For those considering an investment in Star Group, InvestingPro offers additional tips. There are 9 more InvestingPro Tips available that could provide further insights into the company's financial health and future prospects. These tips are accessible through the InvestingPro platform at https://www.investing.com/pro/SGU and could be instrumental in making an informed investment decision.
Full transcript - Star Gas Partners LP (SGU) Q3 2024:
Operator: Good day, and welcome to Star Group's Fiscal Third Quarter 2024 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] Also please be aware that today's call is being recorded. I would now like to turn the call over to Chris Witty, Investor Relations Adviser. Please go ahead.
Chris Witty: 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 September 30, 2023, 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 cautionary statements. 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: Thanks, Chris, and good morning, everyone. Thank you for joining us to discuss our third quarter and fiscal year-to-date results. As the summer progresses, we continue to deliver solid results, benefiting from both higher volumes and improved per gallon gross margin versus the third quarter of fiscal 2023. This, coupled with strong expense control and higher service and equipment installation profitability has allowed us to reduce our adjusted EBITDA loss by nearly $19 million for the third quarter of fiscal 2024. Through the first nine months of fiscal 2024, temperatures were virtually identical to last year, but 15% warmer than normal. Despite the mild heating season, we were able to increase adjusted EBITDA by $13 million, which I believe is a testament to our team's ability to rapidly adjust and make the most of whatever weather conditions we faced during the year. In addition, I am pleased to announce that we have entered into a definitive agreement to purchase a very high-quality fuel dealer for approximately $35 million before working capital. The business, which is expected to add some 19 million gallons of heating oil annually is located within our existing operating footprint, and we anticipate closing on the transaction in the fourth quarter. This purchase will represent our fifth acquisition in the current fiscal year, and we continue to have an active pipeline of opportunities being evaluated for the future. Of course, we are also working to improve the overall efficiency and performance across our existing businesses, which is always a priority for us. Our net attrition for the quarter remained stable and was down slightly year-over-year, reflecting our ongoing focus on excellent customer service and strategies to elevate retention rates going forward. Given our investment in our operations and our people, we look forward to the return of winter in the coming months. With that, I'd like to turn the call over to Rich to provide additional comments on the quarter's results. Rich?
Rich Ambury: Thanks, Jeff, and good morning, everyone. For the third quarter, our home heating oil and propane volume increased by 7.6 million gallons or 25% to 38 million gallons as the additional volume provided from acquisitions and other factors was reduced by net customer attrition. Temperatures for the fiscal 2024 third quarter were equal to last year and 18% warmer than normal. Our product gross profit increased by $20 million or 37% to $75 million due to an increase in home heating oil and propane volumes sold and higher per gallon margins. We realized a combined gross profit from service and installation of $13.5 million or $3.5 million higher than the prior year's comparable quarter as we continue to focus on improving both revenue and controlling expenses. Delivery, branch and G&A expenses increased by $4.7 million year-over-year, due in part to the additional operating costs attributable to acquisitions of $1.6 million. In addition, insurance expense rose by $1.6 million due to increasing premiums and expected higher claim costs. The balance of the expenses rose by just $1.5 million or 1.7% as we were successful in managing such costs and mitigating the impact from inflationary pressures. We posted a net loss of $11 million in the third quarter of fiscal 2024 or $13 million less than the prior year period, reflecting the after-tax impact of a non-cash unfavorable change in the fair value of derivative instruments of $2 million and an $18.9 million decrease in the adjusted EBITDA loss. The adjusted EBITDA loss decreased by $18.9 million to $4 million as the impact of higher home heating oil and propane volume and expansion of per gallon margins and improvement in service and installation profitability and the additional EBITDA from acquisitions more than offset an increase in operating expenses. Turning to the results for the first nine months of fiscal 2024, our home heating oil and propane volume declined by 5.5 million gallons or 2% to $235 million as the additional volume provided from acquisitions was more than offset by net customer attrition and other factors. Temperatures for the period were unchanged from last year but still approximately 15% warmer than normal. Our product gross profit increased by $18 million or 4% to $426 million as higher home heating oil and propane margins was reduced by the 2% decline in home heating oil and propane sold and, to a certain extent, lower gross profit from the sale of motor fuels. We realized the combined gross profit from service and installation of $18 million or $6.3 million higher than the prior year's comparable quarter, again, as we continue to focus on improving both revenue and controlling these operating costs. Delivery, branch and G&A were higher by $9.7 million year-over-year, which included $5 million attributable to our weather hedging program. In fiscal 2024, we recorded a benefit of $7.5 million under our weather hedge compared to $12.5 million recorded in fiscal 2023. Recent acquisitions accounted for an increase of approximately $4 million in operating expenses and the base business rose by just $400,000. We posted net income of $70 million in the first nine months of fiscal 2024 or $19 million higher than the prior year period as the after-tax impact of a non-cash favorable change in the fair value of derivative instruments of $11 million and an increase in adjusted EBITDA of $13 million. Adjusted EBITDA increased by $13 million to $141 million as the expansion of per gallon margins and improvement in service and installation profitability and the additional EBITDA provided from acquisitions more than offset a reduction in home heating oil and propane volume in the base business and the $5 million decline in the weather hedge benefit year-over-year. With regard to our weather hedge for fiscal 2025, the maximum that the company can receive is $15 million, and we are obligated to make an annual payment capped at $5 million if the degree days exceed the payment threshold. If we had the same coverage in place in fiscal 2024, we would have received an additional $7.5 million more in fiscal 2024. And with that, I'd like to turn the call back over to Jeff.
Jeff Woosnam: Thanks, Rich. At this time, we'd be pleased to address any questions you may have. Joe, please open the phone lines for questions.
Operator: [Operator Instructions] And with that, that will conclude the question-and-answer session. I'd like to turn the conference back over to Jeff Woosnam for any closing remarks.
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Jeff Woosnam: Well, thank you for taking the time to join us today and your ongoing interest in Star Group. We look forward to sharing our 2024 fiscal fourth quarter results in December. Thanks, everyone.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
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