Star Group, L.P. (SGU) is a leading provider of home energy products and services, with a focus on home heating oil, propane, and related services. The company has a long and storied history, tracing its roots back to the early 20th century when it was founded as a small fuel oil delivery business. Over the decades, Star Group has evolved and diversified its operations, becoming a full-service energy solutions provider serving residential and commercial customers across the Northeast and Mid-Atlantic regions of the United States.

Business Overview and History

Star Group, L.P. was founded as a limited partnership in Delaware in the early 1990s, focusing primarily on the distribution of home heating oil and propane in the Northeastern and Mid-Atlantic regions of the United States. The company's growth strategy involved a series of strategic acquisitions, which allowed it to expand its customer base and geographic footprint steadily over the years.

One of the major challenges Star Group faced in its early years was managing the seasonal nature of its business, with the majority of sales occurring during the cold winter months. To address this issue, the company introduced price-protected pricing plans and weather hedging contracts for its customers. These innovative offerings helped Star Group better manage its inventory and cash flow throughout the year, providing greater stability to its operations.

In the 2000s, Star Group made a significant move to diversify its business by expanding into the installation and servicing of heating, ventilation, and air conditioning (HVAC) equipment. This strategic decision allowed the company to offer a more comprehensive suite of home energy products and services to its growing customer base. However, this expansion also presented operational challenges as Star Group had to integrate new service technicians and processes into its existing distribution network.

Despite facing periods of market volatility, including fluctuations in wholesale energy prices and changes in consumer preferences, Star Group has successfully maintained its position as the nation's largest retail distributor of home heating oil. The company's ability to adapt to changing market conditions and its commitment to customer service have been key factors in its long-term success.

Today, Star Group is one of the largest retail distributors of home heating oil and propane in the United States, serving approximately 404,200 full-service residential and commercial customers and 64,700 delivery-only customers as of September 30, 2024. The company's operations are primarily concentrated in the Northeast and Mid-Atlantic regions, with a strong presence in states such as New York, Connecticut, and Pennsylvania.

Star Group's diversified product and service offerings include the sale of home heating oil, propane, and other petroleum products, as well as the installation, maintenance, and repair of heating and air conditioning equipment. The company also provides natural gas and other heating system services to customers outside of its core home heating oil and propane customer base.

Financial Performance and Ratios

Financials

Over the past few years, Star Group has demonstrated resilience in the face of fluctuating energy prices and market conditions. In the fiscal year ended September 30, 2024, the company reported total revenue of $1.77 billion, a decrease of 9.2% compared to the prior year. This decline was primarily driven by lower average selling prices for petroleum products, partially offset by an increase in service and installation revenue.

Despite the revenue decrease, Star Group's profitability remained solid, with the company reporting net income of $32.1 million and adjusted EBITDA of $111.6 million for the fiscal year 2024. The company's gross profit margin remained relatively stable at 26.6% for the year, compared to 22.5% in the prior year.

For the most recent quarter (Q1 2025), Star Group reported revenue of $488.06 million, a decrease of 7.6% from $528.10 million in Q1 2024. This decline was primarily due to lower average petroleum prices, even as product volumes rose slightly and service/installation revenue increased. However, net income for Q1 2025 increased significantly by 153.2% to $32.88 million, up from $12.98 million in Q1 2024. This substantial improvement was driven by a favorable change in the fair value of derivative instruments, increased Adjusted EBITDA, decreased depreciation/amortization, and decreased interest expense, partially offset by higher income taxes.

Star Group operates in two main product segments: Petroleum Products and Installations and Services. For Q1 2025, the Petroleum Products segment, which includes the sale of home heating oil, propane, and other petroleum products, accounted for 81.8% of total sales with product sales of $399.46 million. Within this segment, home heating oil and propane sales made up $322.84 million, or 81% of the segment's revenue. The remaining 19% came from the sale of other petroleum products like motor fuels.

The Installations and Services segment, which includes equipment installations, maintenance service contracts, and billable call services, saw an increase in revenue of $9.1 million, or 11.4%, to $88.6 million in Q1 2025. This growth was driven by $6.2 million of sales from recent acquisitions and increased service offerings to customers, as well as annual price increases.

Liquidity

Star Group's balance sheet remains strong, with a current ratio of 0.75 and a debt-to-equity ratio of 0.98 as of September 30, 2024. The company's cash and cash equivalents position stood at $117.33 million, providing ample liquidity to support its operations and growth initiatives. Star Group also maintains a $400 million revolving credit facility, which increases to $475 million during the heating season, with only $7.83 million outstanding as of December 31, 2024.

The company's quick ratio, which measures its ability to meet short-term obligations with its most liquid assets, stood at 0.64 as of September 30, 2024. This indicates that Star Group has sufficient liquid assets to cover a significant portion of its current liabilities.

Ongoing Challenges and Strategic Acquisitions

Like many companies in the energy sector, Star Group has faced its share of challenges in recent years. Volatile commodity prices, increased competition from alternative energy sources, and customer attrition have all weighed on the company's performance at times.

To address these challenges, Star Group has adopted a strategic approach, focusing on diversifying its product and service offerings, improving operational efficiency, and pursuing strategic acquisitions. In fiscal 2024, the company completed five acquisitions, adding over 20,000 customers and 23 million gallons of volume to its operations.

One notable acquisition was the company's purchase of a well-established home energy distributor located within its existing operating footprint for approximately $68 million in January 2025. This acquisition is expected to further strengthen Star Group's propane presence and add a reputable brand to its portfolio.

The home heating oil and propane distribution industry has seen modest growth, with a compound annual growth rate (CAGR) of around 2-3% over the past 5 years. Star Group has been able to grow through strategic acquisitions to expand its customer base and geographic footprint, positioning itself well within this steady market.

Recent Performance and Future Outlook

Star Group's recent performance has been encouraging, with the company benefiting from colder temperatures in the first quarter of fiscal 2025. The company saw temperatures that were 4% colder than the prior year and 10.5% colder than normal, resulting in a 3% increase in home heating oil and propane volume to 82 million gallons. This led to a 4% increase in product gross profit to $151 million, due to both the increase in per-gallon margins and higher volume.

The company's service and installation gross profit also increased by $2.5 million compared to the prior year, partially due to recent acquisitions as well as improvements in the base business. Overall, Adjusted EBITDA increased by $3 million to $52 million, as a $4 million increase from recent acquisitions and higher per-gallon margins offset the impact of a 3.8 million gallon decrease in the base business.

Looking ahead, Star Group appears well-positioned for the remainder of fiscal 2025. The company is benefiting from colder temperatures so far in Q2, with January finishing 20% colder than last year and 7% colder than normal. The recent "sizable strategic acquisition" completed after the quarter ended is expected to further strengthen the company's propane presence and contribute to future growth.

Conclusion

As Star Group looks to the future, the company remains committed to its strategy of growth through organic initiatives and strategic acquisitions. The recent acquisition of the home energy distributor, combined with the company's ongoing efforts to improve operational efficiency and customer service, position Star Group well to navigate the challenges facing the industry.

While the energy sector continues to face headwinds, Star Group's diversified product and service offerings, strong financial position, and disciplined approach to growth provide a solid foundation for the company to weather the storm. As the company continues to execute on its strategic initiatives, investors will be closely monitoring Star Group's ability to maintain its profitability and market share in the highly competitive home energy distribution industry.

With its focus on strategic acquisitions, operational efficiency, and customer service, coupled with favorable weather conditions and a strong balance sheet, Star Group appears well-equipped to capitalize on opportunities in the home energy market and drive long-term value for its shareholders.