Star Group (ticker not provided) has reported its fiscal 2024 second-quarter results, which were influenced by warmer-than-normal temperatures, leading to lower delivery volumes and a decline in adjusted EBITDA. Despite these challenges, the company managed to realize a net income increase, thanks to a favorable change in the fair value of derivative instruments. The company also highlighted its focus on service and equipment installation profitability, as well as the completion of strategic acquisitions to strengthen its portfolio.
Key Takeaways
- Warmer temperatures in Star Group's service areas resulted in reduced delivery volumes.
- Net income increased due to a favorable change in derivative instruments' fair value.
- Adjusted EBITDA declined due to lower volumes and a decrease in weather hedge benefits.
- The company completed strategic acquisitions to enhance its operations.
- Star Group remains disciplined in its acquisition strategy and is evaluating high-quality opportunities.
Company Outlook
- Star Group is well-positioned for the remainder of fiscal 2024 and is focusing on investing in people and business development.
- The company has placed $15 million of weather hedges for fiscal 2025 to mitigate potential weather-related impacts.
Bearish Highlights
- Home heating oil and propane volume decreased by 4 million gallons, or roughly 3%, to 117 million gallons in Q2.
- Adjusted EBITDA declined by $6 million to $96 million in Q2, and by the same amount to $145 million for the first half of fiscal 2024.
- The weather hedge benefit decreased by $6.4 million in Q2 and by $5 million in the first half of the year.
Bullish Highlights
- Product gross profit increased by $3 million, or 1.5%, to $206 million in Q2, despite lower volumes.
- Per gallon margins on home heating oil and propane improved.
- The company's net income rose by $6 million in Q2, and by the same amount for the first half of fiscal 2024.
Misses
- The company's delivery and branch expenses increased by $8 million year-over-year in Q2.
- The after-tax cash flow declined by approximately $2.7 million for the first half of fiscal 2024.
Q&A Highlights
- Jeff Woosnam provided insights on recent acquisitions, emphasizing their strategic fit and quality.
- Rich Ambury declined to comment on the financial multiples of the acquisitions.
- The company discussed its positioning in light of potential energy transitions, highlighting its commitment to bioheat.
Star Group's second-quarter earnings call revealed a mix of challenges and strategic moves aimed at maintaining the company's growth trajectory. The warmer weather patterns have affected delivery volumes, but the company's strategic acquisitions and focus on service profitability demonstrate its proactive approach to navigating the industry's dynamics. With additional weather hedges in place for the upcoming fiscal year, Star Group is preparing to mitigate the impacts of unpredictable weather on its financial performance.
InvestingPro Insights
Star Group's recent fiscal 2024 second-quarter results reflect the company's resilience in the face of warmer temperatures and their impact on delivery volumes. To provide further context on the company's financial health and strategic positioning, here are some insights derived from InvestingPro data and tips:
InvestingPro Data:
- Market Cap (Adjusted): 405.19M USD, indicating the company's size and investment scale.
- P/E Ratio (Adjusted) for the last twelve months as of Q2 2024: 9.64, which suggests that the stock may be undervalued when considering its earnings.
- Dividend Yield as of the most recent data in 2024: 6.06%, highlighting the company's commitment to returning value to shareholders through significant dividend payments.
InvestingPro Tips:
- Star Group has demonstrated a commitment to shareholder returns, having raised its dividend for 11 consecutive years. This is a positive signal for investors looking for stable income.
- The company is trading at a low P/E ratio relative to near-term earnings growth, which could indicate that the stock is currently undervalued and may represent a buying opportunity for value investors.
For readers interested in a deeper dive into Star Group's financials and strategic analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/SGU. These tips can offer further insights into the company's valuation, dividend sustainability, and potential risks, such as the fact that short term obligations exceed liquid assets, which could point to liquidity concerns.
For those considering an InvestingPro subscription, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With this subscription, investors can access all 10 InvestingPro Tips for Star Group, providing a comprehensive understanding of the company's investment potential and areas of caution.
Full transcript - Star Gas Partners LP (SGU) Q2 2024:
Operator: Good day, and welcome to the Star Group Fiscal 2024 Second Quarter Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After the today’s presentation, there will be a question-and-answer session. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Adviser. Please go ahead, sir.
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 second quarter and fiscal year-to-date results. Temperatures in the second quarter were 15.2% warmer than normal throughout Star's footprint. While slightly colder than the same period last year, it was unfortunately not enough to drive higher delivery volumes. However, we were able to move the impact on adjusted EBITDA, even with a lower weather hedge benefit and some ongoing inflationary pressures, by improving per gallon margins and employing solid expense control. We also kept net customer attrition at modest levels during the quarter and, as previously noted, closed on two strategic acquisitions in February on Long Island, giving us a total of four transactions thus far in the current fiscal year. Our team has remained very busy evaluating various heating oil and propane opportunities that align with our goal of strengthening and broadening our portfolio of brands. Through the first six months of fiscal 2024, temperatures were 0.2% warmer than the same period last year and 14.7% warmer than normal. While there is nothing we can do to control the weather, we believe our team is quite adept at adjusting to it and making the most of the conditions. An area of note is the year-over-year improvement we've made in service and equipment installation profitability, which has been an area of focus for us. I'm quite pleased with our progress, which I believe is evidence of the quality of service that we provide, and certainly a direct result of the hard work and dedication of our employees. With the heating season now behind us, we believe we are well positioned for the remainder of fiscal 2024, as well as the opportunities that summer brings to further invest in our people and business development activities. With that, I'll 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 second quarter, our home heating oil and propane volume decreased by 4 million gallons, or roughly 3%, to 117 million gallons, as the additional volume provided from acquisitions and colder weather was more than offset by net customer attrition and other factors. Temperatures for the fiscal 2024 second quarter were 7% colder than last year, but still 15% warmer than normal. Our product gross profit increased by $3 million, or 1.5%, to $206 million, as an increase in per gallon margins was reduced by the 3% decline in home heating oil and propane volume sold. Delivery and branch expenses increased by $8 million year-over-year, of which $6.4 million was attributable to our weather hedging program. In the second quarter of fiscal 2024, we recorded a benefit of $6.5 million under our weather hedge, compared to a benefit of $12.5 million recorded in the comparable period last year. Recent acquisitions accounted for an increase of $1.8 million in operating expenses. We posted a net income of $68 million in the second quarter of fiscal 2024, or $6 million more than the prior year period, reflecting the after-tax impact of a noncash, favorable change in the fair value of derivative instruments of $15 million, and a $6 million decrease in adjusted EBITDA. Adjusted EBITDA declined by $6 million to $96 million, as an increase in home heating oil and propane per gallon margins was more than offset by the 4 million gallon decrease in home heating oil and propane volume sold, and a $6.4 million decline in our weather hedge benefit. Turning to the results for the first half of fiscal 2024, our home heating oil and propane volume declined by 13 million gallons, or 6%, to 197 million gallons, again as the additional volume provided from acquisitions was reduced by slightly warmer temperatures, net customer attrition, and other factors. Temperatures for the first half of fiscal 2024 were just 0.2% warmer than last year and 15% warmer than normal. Our product gross profit decreased by $3 million, or 1%, to $351 million, as the impact of higher home heating oil and propane per gallon margins was largely offset by lower motor fuel gross profit and a 6% decline in home heating oil and propane volume. Delivery, branch, and G&A expenses rose by $4.8 million year-over-year, of which $5 million was attributable to our weather hedging program. In fiscal 2024, we recorded a benefit of $7.5 million under our weather hedge, compared to a $12.5 million benefit recorded in the first half of fiscal 2023. We had net income of $81 million for the first six months of fiscal 2024, or $6 million higher than the prior year period, largely due to the after-tax impact of a noncash favorable change in the fair value of derivative instruments of $13 million, partially offset by a decrease in adjusted EBITDA of $6 million. Adjusted EBITDA declined by $6 million to $145 million as an increase in home heating oil and propane per gallon margins was more than offset by a 13 million gallon decrease in home heating oil and propane volume sold and a $5 million decline in the weather hedge benefit year-over-year. The decrease in adjusted EBITDA of $6 million was muted by a $2 million favorable change in net interest expense. As a result, our after-tax cash flow declined by approximately $2.7 million. And we'd like everyone to note that for fiscal 2025, we have put in $15 million of weather hedges. If we had the same amount of coverage in place during 2024 and the same temperatures, we would have been paid an additional $7.5 million more in fiscal 2024 for a total of $15 million under the weather hedges. And with that, I'll turn the call back to Jeff.
Jeff Woosnam: Thanks, Rich. At this time, we're pleased to address any questions you may have. Anthony, please open the phone lines for questions.
Operator: [Operator Instructions] Our first question will come from Tim Mullen (NASDAQ:MULN) with Laurelton Management.
Tim Mullen: First, just given the larger size of the acquisitions that you've completed more recently, I was just wondering if you could provide any color on those businesses in terms of their strategic objective. I mean, obviously, from a geographical standpoint, they seem like natural fits for you all, but just wanted to see if you could provide any color, types of customers, product fit, any financial information regarding the acquisitions.
Jeff Woosnam: Sure. So, we closed on two acquisitions in November. Both of those were heating oil acquisitions, smaller opportunities that are tuck-ins to our existing New Jersey operations, and then we closed on two businesses in February -- in early February, one was a propane business and the other one a heating oil business, as I mentioned, both located in Long Island.
Tim Mullen: I know typically you don't like to give any financial information, but is there any color you can provide on multiples or kind of anything along those lines?
Rich Ambury: No, not at this time.
Tim Mullen: Okay. And then, just when you think about the business more kind of on a medium and longer-term basis, how do you think about the possibility of homes transitioning away from using home heating oil as their energy source, and does that impact M&A strategy or how you think about organic growth?
Jeff Woosnam: Yes. I guess what I'd say is, I don't want to necessarily comment on specific state or federal legislation and how that might impact our business long-term. We as a business and as an industry feel like we've made a very strong commitment to bioheat, which is a blend of renewable biodiesel and ultra-low-sulfur heating oil, and have increased our sales of that product and have committed to continue to do that. We all have, I guess, our views on the whole energy transition and how quickly it's going to occur, but we feel like we're properly positioned to deal with those changes.
Operator: [Operator Instructions] Our next question will come from Michael Prouting with 10K Capital.
Michael Prouting: Yes. I had a question related actually to the prior questions on acquisitions. It seems like the pace of acquisitions has picked up recently. Jeff, I'm just wondering if that's a reflection of sellers being or rather [harnessing] more willing to sell. And then, I guess, related to that, even though you might not want to comment on the valuations of the acquisitions you've closed, I'm just wondering what you're seeing in the market as far as multiples are concerned, and I guess also related to the prior question, if multiples are reflecting both the warmer weather environment as well as transition risks.
Jeff Woosnam: Sure, Michael. Yes. So, our team has been very busy. As I mentioned, we've closed on four transactions already this year that we feel are high quality. What I'd say is, it kind of goes ebbs and flows, the activity level and the businesses that are on the market. What I would note is that what we've been evaluating more recently over the last six months have been what we would consider some very high-quality businesses that seem to be a very good fit for us. And it's hard to predict what is actually going to come to fruition from that. We have to go through our process. We're going to remain very disciplined in that regard. And we'll just have to see how that plays out. I have not seen multiples depressed in any way as a result of weather. And we typically, when we're evaluating a business, we'll kind of normalize the results when we value the business.
Operator: [Operator Instructions] At this point, there appears to be no further questions in the queue, so I'll turn it back to Mr. Woosnam for any closing remarks.
Jeff Woosnam: Well, thank you for taking the time to join us today and for your ongoing interest in Star Group. We look forward to sharing our 2024 fiscal third quarter results in August. Thank you, everyone.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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