Suburban Propane Partners, L.P. (SPH) is a nationwide distributor of propane, renewable propane, renewable natural gas, fuel oil, and related products and services. The company also markets natural gas and electricity, and invests in low-carbon fuel alternatives. With over 90 years of experience, Suburban Propane has established itself as a trusted provider of essential energy solutions to residential, commercial, industrial, and agricultural customers across the United States.

Business Overview

Suburban Propane Partners, L.P. was formed in 1996 in connection with the company's initial public offering. The partnership is principally engaged in the retail marketing and distribution of propane, renewable propane, fuel oil and refined fuels, as well as the marketing of natural gas and electricity in deregulated markets. The company also services a wide variety of home comfort equipment, particularly for heating and ventilation.

In 2003, the company formed Suburban Energy Finance Corp., a 100% owned subsidiary, to serve as co-issuer of the partnership's senior notes. This allowed Suburban Propane to diversify its financing sources and capital structure. Over the years, the partnership has strategically utilized debt financing, including senior notes, to fund acquisitions and capital expenditures to grow the business.

One of the key milestones for Suburban Propane was the acquisition and integration of nine propane businesses in strategic markets over a five year period, investing over $125 million in those efforts. This allowed the partnership to expand its customer base and geographic footprint to better serve its customers. However, the company has also faced challenges, such as dealing with volatile commodity prices and weather-related variability in customer demand for its products.

In 2022, Suburban Propane expanded into the renewable energy space through the acquisition of renewable natural gas production assets. This represented a strategic shift for the company as it began investing in innovative, renewable energy technologies and businesses to complement its core propane and fuel distribution operations. The partnership formed a wholly owned subsidiary, Suburban Renewable Energy, LLC, to serve as the platform for these renewable energy investments and initiatives.

Throughout its history, Suburban Propane has maintained a focus on returning capital to unitholders through steady quarterly distributions, while also investing in the long-term growth of the business. The partnership has navigated industry challenges, executed strategic acquisitions, and diversified into new energy segments, positioning itself as a diversified energy distribution and services company.

Suburban Propane has a diversified customer base, with no single customer accounting for more than 5% of its total volume. The company's operations span across 41 states, with a network of approximately 700 locations and over 3,200 dedicated employees. This extensive reach and experienced workforce have enabled Suburban Propane to consistently provide reliable energy solutions to its customers, even during challenging market conditions.

Financial Performance

For the fiscal year ended September 28, 2024, Suburban Propane reported total revenue of $1.33 billion, a decrease of 7% compared to the prior year. Net income for the fiscal year was $74.2 million, or $1.15 per common unit, down from $123.8 million, or $1.94 per common unit, in the previous year. The decline in financial performance was primarily due to unseasonably warm weather conditions throughout much of the company's service territory, which resulted in lower demand for propane and fuel oil. Annual operating cash flow was $160.6 million, and annual free cash flow was $101.2 million.

For the first quarter of fiscal 2025, Suburban Propane reported total revenues of $373.3 million, a 2% increase compared to the prior year period. Net income for the quarter was $19.4 million, or $0.30 per common unit, compared to $24.5 million, or $0.38 per common unit, in the prior year quarter, representing a 20.5% decrease. The decrease in net income was primarily due to lower propane volumes sold, partially offset by higher propane unit margins.

Adjusted EBITDA, a key financial metric for the partnership, was $75.3 million for the first quarter of fiscal 2025, relatively flat compared to the prior year period. Excluding the impact of mark-to-market adjustments, SPH's total gross margin for the first quarter of fiscal 2025 decreased $1 million or 0.5% compared to the prior year first quarter.

Liquidity

Despite the challenging market environment, Suburban Propane maintained a strong financial position. As of December 28, 2024, the company had total assets of $2.27 billion and a debt-to-equity ratio of 0.25. The company's liquidity position remained robust, with $4.44 million in cash and cash equivalents. Suburban Propane has a $500 million senior secured revolving credit facility, with $242.7 million outstanding as of December 28, 2024, leaving $257.3 million in available borrowing capacity.

The company's current ratio stood at 0.70, and its quick ratio was 0.51 as of December 28, 2024. These ratios indicate that while the company's short-term liquidity position is somewhat tight, it has sufficient resources to meet its near-term obligations.

Suburban Propane's financial performance is highly seasonal, with the majority of its revenue and earnings typically generated during the peak heating season in the first and second fiscal quarters. To manage this seasonality, the company utilizes its revolving credit facility to fund working capital needs during the off-season months.

Operational Highlights

One of Suburban Propane's key strategic priorities is to grow its core propane business through both organic initiatives and strategic acquisitions. In fiscal 2024, the company completed the acquisition of a well-run propane business in the Southwest region, which contributed to its customer base and helped offset the impact of the warm weather on its overall propane volumes.

Additionally, Suburban Propane has been actively investing in the development of renewable energy solutions, such as renewable propane and renewable natural gas (RNG). The company's subsidiary, Suburban Renewable Energy, serves as the platform for these investments, which include ownership stakes in companies like Oberon Fuels and Independence Hydrogen. These investments align with Suburban Propane's commitment to sustainability and its "Go Green with Suburban Propane" initiative, which aims to promote the use of clean-burning and versatile propane and renewable propane as solutions to reduce greenhouse gas emissions.

In the first quarter of fiscal 2025, Suburban Propane's retail propane gallons sold were 105.7 million, a 0.8% decrease compared to the prior year period. This decline was primarily due to the widespread unseasonably warm weather, particularly in the month of November 2024, as well as lower agricultural demand for crop drying. However, the company was able to partially offset these impacts through strong demand in its Southeast region following Hurricanes Helene and Milton, as well as contributions from its customer base growth and retention initiatives, including the previously mentioned propane business acquisition.

Suburban Propane's renewable energy investments faced some challenges during the first quarter of fiscal 2025, with the company recognizing impairment charges of $9.6 million and $10.2 million for its investments in Independence Hydrogen and Oberon Fuels, respectively. These impairment charges were largely due to the broader challenges faced by the clean energy startup landscape, including difficulties in raising new capital and uncertainty around government policy support. Despite these setbacks, Suburban Propane remains committed to its long-term strategic growth initiatives in the renewable energy sector, as it believes these investments will position the company for success in the evolving low-carbon energy landscape.

Risks and Challenges

Suburban Propane's business is subject to various risks and challenges, including:

1. Commodity price volatility: The cost of propane, fuel oil, and other energy commodities can fluctuate significantly, which can impact the company's profitability and customer demand.

2. Weather conditions: Unseasonably warm or mild weather can adversely affect demand for the company's products, particularly during the peak heating season.

3. Competition: Suburban Propane faces competition from other energy providers, including those offering alternative energy sources, which could impact its market share and pricing power.

4. Regulatory changes: The company's operations are subject to various environmental, health, and safety regulations, which could change and result in increased compliance costs.

5. Cyber threats: As with many modern businesses, Suburban Propane is vulnerable to the risk of cyber attacks, which could disrupt its operations and compromise sensitive customer information.

6. Acquisition integration: The successful integration of acquired businesses is critical to Suburban Propane's growth strategy, and any challenges in this process could impact the company's financial performance.

Despite these risks, Suburban Propane has a long history of navigating challenging market conditions and remains well-positioned to continue delivering reliable energy solutions to its customers.

Outlook and Conclusion

Looking ahead, Suburban Propane remains focused on its strategic priorities of growing its core propane business, expanding its renewable energy investments, and maintaining a strong financial position. The company's ongoing initiatives to improve customer service, enhance operational efficiency, and diversify its revenue streams are expected to support its long-term growth and profitability.

For fiscal 2025, Suburban Propane expects capital spending to range between $40 million and $45 million for propane operations and between $35 million and $45 million for their RNG projects. The company's board of supervisors has declared a quarterly distribution of $0.325 per common unit for the first quarter of fiscal 2025, which equates to an annualized rate of $1.30 per common unit. The distribution coverage ratio remains strong at 1.87 times for the trailing twelve-month period ended December 2024, indicating the company's ability to sustain its dividend payments.

While the company faced some headwinds in the first quarter of fiscal 2025, the arrival of colder weather patterns in late December and January 2025 has created strong momentum heading into the heart of the heating season. Suburban Propane's experienced operational team is well-prepared to serve the increased demand from customers during this period of sustained colder temperatures.

Moreover, the company's investments in renewable energy technologies, such as renewable propane and RNG, position Suburban Propane as a forward-thinking energy provider that is adapting to the evolving energy landscape. As the company continues to navigate the challenges and opportunities in its industry, its commitment to delivering reliable, cost-effective, and environmentally-friendly energy solutions is expected to remain a key competitive advantage.

The propane distribution industry has seen moderate growth, with a compound annual growth rate of approximately 3-4% over the past 5 years. This growth has been driven by increased residential and commercial demand, as well as the rising popularity of propane as a clean-burning alternative fuel. Suburban Propane is well-positioned to capitalize on these industry trends with its extensive distribution network and growing renewable energy portfolio.

Suburban Propane operates in four main reportable segments: Propane, Fuel Oil and Refined Fuels, Natural Gas and Electricity, and All Other. The Propane segment is the company's largest, generating approximately 88% of total revenues. For the first quarter of fiscal 2025, Propane segment revenues grew 5.4% to $330.3 million, driven by higher average retail selling prices, partially offset by a 0.8% decrease in retail gallons sold. The Fuel Oil and Refined Fuels segment, accounting for around 5% of revenues, saw a 26.1% decline to $17.7 million due to lower volumes and prices. The Natural Gas and Electricity segment, generating approximately 2% of total revenues, decreased 6.8% to $6.1 million.

Overall, Suburban Propane's long history of operational excellence, financial discipline, and strategic foresight suggest that the company is well-equipped to navigate the dynamic energy market and capitalize on opportunities for future growth and value creation. The company's focus on both its core propane business and renewable energy initiatives positions it well for long-term success in the evolving energy landscape.