Star Group Stock Price, News & Analysis

Star Group, L.P. (NYSE: SGU) is a home energy distributor and services provider that focuses on heating-related products and services for residential and commercial customers. The partnership specializes in the sale of home heating products and services used to heat homes and buildings, with operations concentrated in the more northern and eastern states within the Northeast and Mid-Atlantic U.S. regions. According to the company, it believes it is the nation’s largest retail distributor of home heating oil based upon sales volume.

Core business and operating focus

Star Group’s primary business centers on supplying home heating oil and propane to customers whose main use is space heating. The company describes itself as a full service provider, indicating that it not only delivers fuel but also offers related services tied to heating systems. It operates as a Delaware partnership and reports its financial results as a single reportable operating segment focused on home energy distribution and services.

In addition to heating oil and propane, Star Group also sells diesel fuel, gasoline and home heating oil on a delivery-only basis. Petroleum products, which consist of home heating oil and propane as well as diesel fuel and gasoline, represent the majority of the company’s revenue, as noted in prior descriptions of its business. The company’s financial disclosures highlight how changes in wholesale product costs, weather conditions and customer volumes influence its sales and margins.

Services, equipment and customer base

Beyond fuel delivery, Star Group sells and services heating and air conditioning equipment for its home heating oil and propane customers. To a lesser extent, it provides these equipment-related offerings to customers outside of its core home heating oil and propane customer base. This service and installation activity is repeatedly referenced in the company’s public communications, where Star notes revenue from installations and services and discusses the profitability of this part of the business.

The company’s customer base includes both residential and commercial customers that use its products primarily to heat their homes and buildings. Management commentary in earnings releases discusses factors such as net customer attrition, customer acquisition through acquisitions, and the importance of retaining customers over time. These disclosures underscore that Star’s performance is closely tied to the size and behavior of its installed customer base in its geographic footprint.

Geographic footprint and scale

Star Group states that, including its propane locations, it serves customers in the more northern and eastern states within the Northeast and Mid-Atlantic U.S. regions. This regional focus aligns with its emphasis on home heating products, as colder climates drive demand for heating oil and propane. The company’s belief that it is the nation’s largest retail distributor of home heating oil based on sales volume provides a sense of its scale in this niche of the retail energy distribution market.

Weather plays a significant role in the company’s operations. In multiple financial updates, Star discusses how temperatures relative to prior periods and to “normal” levels, as reported by the National Oceanic and Atmospheric Administration, affect volumes of home heating oil and propane sold. Colder-than-prior-year temperatures and additional volume from acquisitions have been cited as drivers of higher volumes, while warmer weather and net customer attrition can reduce demand.

Revenue drivers and financial characteristics

Star Group’s revenue is influenced by product volumes, selling prices, and service and installation activity. The company has reported that total revenue can rise due to higher volumes sold and increased sales of installations and services, even when average selling prices decline in response to lower wholesale product costs. Conversely, revenue can decline when wholesale prices fall and product sales volumes are pressured by weather or customer attrition.

The company frequently reports on Adjusted EBITDA as a non-GAAP financial measure. In its public releases, Star explains that EBITDA and Adjusted EBITDA are used by management and external users to assess compliance with financial covenants, evaluate financial performance without regard to financing methods and capital structure, compare operating performance to other companies in the retail distribution of refined petroleum products, evaluate the ability to generate cash to pay interest and make distributions to partners, and assess the viability and returns of acquisitions and capital expenditure projects. Star also outlines the limitations of these measures, noting that they do not reflect capital expenditures, working capital changes, debt service, or tax payments.

Acquisitions and growth approach

Star Group’s disclosures highlight the role of acquisitions in its business. The company attributes increases in home heating oil and propane volumes and Adjusted EBITDA, in part, to additional volume and earnings contributions from recent acquisitions. It also notes that depreciation, amortization and interest expense have risen largely due to acquisitions, reflecting investment in acquired assets and related financing.

Management commentary references a focus on growing and diversifying the company by continuing to make heating oil and propane acquisitions, keeping net customer attrition as low as possible, and improving service and installation profitability over time. Star also discusses its use of weather hedge contracts, which can result in expenses or credits depending on whether temperatures are colder or warmer than specified strike prices during hedge periods. These hedges are another factor that can influence reported Adjusted EBITDA.

Partnership structure and distributions

Star Group is organized as a Delaware partnership, and its equity is represented by common units. The company regularly declares quarterly distributions per common unit, as reported in its press releases and related Form 8-K filings. These distributions are tied to fiscal quarters and are described as being paid on all units outstanding as of specified record dates.

The company’s communications note that the ability to generate cash sufficient to make distributions to partners is one of the reasons management and stakeholders monitor EBITDA and Adjusted EBITDA. Star has also publicly discussed increases in its annual distribution per unit and the continuity of annual distribution growth over multiple years, framing distributions as an important element of its partnership profile.

Risk factors and operating environment

In its forward-looking statements and risk discussions, Star Group identifies a range of factors that can affect its operations and financial results. These include wholesale product cost volatility, tariff regimes, inflation, customer consumption patterns, weather conditions, the ability to obtain and retain customers, the ability to make strategic acquisitions, litigation, natural gas conversions and electrification of heating systems, global health pandemics, recessionary conditions, union relations, governmental regulations including climate change and environmental, health and safety rules, labor availability, customer and counterparty creditworthiness, marketing plans, cyber-attacks, global supply chain issues, and new technology such as alternative methods for heating and cooling residences.

Star emphasizes that actual results may differ materially from expectations due to these and other risks, and it directs readers to the “Risk Factors” and “Business Strategy” sections of its Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q for more detail. The company also notes that subsequent written and oral forward-looking statements are qualified in their entirety by these cautionary statements.

Regulatory reporting and information access

Star Group files periodic and current reports with the U.S. Securities and Exchange Commission, including Forms 10-K, 10-Q and 8-K. Recent Form 8-K filings have covered quarterly and annual financial results as well as quarterly distribution declarations. The company’s public communications state that additional information is available by obtaining its SEC filings and that unitholders may request hard copies of complete audited financial statements free of charge.

Through its combination of home heating oil and propane distribution, related equipment sales and services, and regional focus in the Northeast and Mid-Atlantic U.S., Star Group, L.P. provides investors exposure to the retail distribution of refined petroleum products and associated home energy services within a partnership structure.