Suburban Propane Partners, L.P. (NYSE:SPH) is a leading propane distributor and retailer, with a growing focus on renewable energy investments. The company has weathered the challenges of an unseasonably warm fiscal 2024 heating season, leveraging its operational expertise to deliver solid financial results. As the energy transition gains momentum, Suburban Propane is positioning itself for long-term growth and sustainability through strategic investments in innovative renewable energy technologies.

Financials

For the fiscal year ended September 30, 2023, Suburban Propane reported annual net income of $123,752,000, annual revenue of $1,429,194,000, annual operating cash flow of $225,239,000, and annual free cash flow of $180,290,000. These strong financial metrics demonstrate the company's ability to navigate market conditions and generate consistent cash flows to support its operations and growth initiatives.

Second Quarter Fiscal 2024 Results

In the second quarter of fiscal 2024, the company reported net income of $111,500,000, or $1.73 per common unit, compared to $104,477,000, or $1.63 per common unit, in the prior year second quarter. Adjusted EBITDA for the quarter was $147,022,000, a slight decrease of 1.3% compared to the prior year period. The decrease in Adjusted EBITDA was primarily due to lower heat-related demand resulting from widespread warm weather across the company's service territories, partially offset by organic growth in the customer base, higher unit margins, and increased contribution from the company's renewable natural gas (RNG) production facilities.

Retail propane gallons sold in the second quarter of fiscal 2024 were 140,243,000 gallons, a decrease of 2.7% compared to the prior year period. This decline was largely attributable to the impact of the warm weather, which resulted in lower heating demand. However, the company's operational excellence and focus on customer service helped to mitigate the impact of the weather-related volume decline.

Gross margin for the second quarter of fiscal 2024, excluding the impact of unrealized mark-to-market adjustments on commodity hedges, increased by 0.9% to $302,100,000 compared to the prior year period. This increase was driven by higher propane unit margins and greater contribution from the company's RNG assets, partially offset by the lower propane volumes sold.

Combined operating and general and administrative expenses for the second quarter of fiscal 2024 increased by 0.8% to $154,382,000, primarily due to higher payroll and benefit-related costs, partially offset by lower volume-related variable operating costs and the absence of acquisition-related costs incurred in the prior year period.

Liquidity

Suburban Propane's balance sheet remains strong, with total debt outstanding of $1,235,145,000 as of March 30, 2024. The company's Total Consolidated Leverage Ratio, as defined in its credit agreement, improved to 4.61x for the trailing twelve-month period ended March 30, 2024, compared to 4.72x at the end of the first quarter. The company utilized cash flows from operating activities during the second quarter to repay $32,300,000 in outstanding borrowings under its revolving credit facility, further strengthening its financial position.

Recent Developments

In addition to its core propane distribution and retail business, Suburban Propane is actively investing in renewable energy initiatives through its Suburban Renewable Energy subsidiary. The company recently completed the acquisition of a platform of RNG production assets from Equilibrium Capital Group, which has expanded its renewable energy footprint. Suburban Propane is also continuing to advance its capital improvement plans for the installation of RNG upgrade equipment at its Columbus, Ohio facility and the construction of an anaerobic digester facility at Adirondack Farms in Upstate New York, both of which are expected to be completed in the second half of calendar 2025.

Furthermore, Suburban Propane holds equity stakes in Oberon Fuels, a developer of low-carbon renewable dimethyl ether (rDME) transportation fuel, and Independence Hydrogen, a company focused on the research and development of hydrogen fuel cell technologies. These strategic investments align with the company's commitment to advocating for the clean-burning and versatile nature of propane and renewable propane as solutions to a lower carbon future.

Outlook

Despite the challenges posed by the warm weather during the fiscal 2024 heating season, Suburban Propane's management team has demonstrated its ability to navigate market conditions and execute on its strategic initiatives. The company's focus on operational excellence, customer service, and diversification into renewable energy projects positions it well for long-term growth and sustainability.

Looking ahead, Suburban Propane expects to continue leveraging its experience and expertise to manage through any future weather-related impacts on its core propane business. The company also remains committed to its strategic investments in renewable energy, which it believes will be critical in supporting the energy transition and creating long-term value for its unitholders.

Conclusion

Overall, Suburban Propane's solid financial performance, strong balance sheet, and strategic focus on renewable energy initiatives make it a compelling investment opportunity in the evolving energy landscape.