Star Group, L.P. (NYSE:SGU) Q2 2024 Earnings Call Transcript May 4, 2024
Star Group, L.P. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
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.
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