Star Group, L.P. (NYSE:SGU) Q2 2023 Earnings Call Transcript May 7, 2023

Operator: Good morning, everyone, and welcome to the Star Group Fiscal 2023 Second Quarter Results Conference Call. [Operator Instructions] Please also note today’s event is being recorded. And at this time, I’d like to turn the floor over to Chris Witty, Investor Relations Advisor. Sir, please go ahead.

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 that 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, 2022 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. As the largest provider of home heating oil in nation, our business remains highly dependent on weather, and the second quarter was particularly challenging due to the mild temperatures experienced throughout our footprint. . To put this in perspective, not only were temperatures 22% warmer than normal, but the period was also the warmest in New York City in 123 years. Year-to-date, it was the fourth warmest period on record in this key market. While there’s nothing we can do to influence mother nature, we are adept at mitigating, to every extent possible, unusual weather swings like this, managing costs and working capital and adjusting short-term investment decisions.

At the same time, our weather hedge program worked as intended and provided an important buffer under such conditions, as did our disciplined approach to controlling operating expenses even in the face of certain inflationary pressures. The warmer temperatures also negatively impacted our net customer attrition during the period. Due to our size and scale, we are often in a position to add new customers as a result of various service-related disruptions brought on peak seasonal demand, usually in January and February. The warmer-than-normal temperatures that we experienced in these months, however, significantly muted this activity, thus reducing the opportunity to win over new accounts. While we did not complete any acquisitions in the quarter, our team has remained very busy evaluating various energy organizations that align with our goal of strengthening and broadening our portfolio of brands.

Our acquisition program remains an important part of our growth strategy. Given the various headwinds encountered through the first half of fiscal 2023, I am pleased with our overall performance, including adjusted EBITDA of $151 million, which is generally in line with the same period last year as well as slightly improved net customer attrition. We achieved this despite weather that was 7% warmer than fiscal 2022 and 16% warmer than normal. While April temperatures were also quite warm, I remain confident in our ability to provide the best possible customer experience and continue to proactively adjust our operations to ensure that we effectively deal with any changes or opportunities that may present themselves as we navigate through the summer months.

With that, I will turn the call over to Rich to provide additional comments on the quarter.

Rich Ambury: Thanks, Jeff and good morning everyone. For the second fiscal quarter, our home heating oil and propane volume decreased by 28 million gallons, or 19%, to 121 million gallons as the additional volume provided from acquisitions was more than offset by extremely warm weather, net customer attrition and other factors. Temperatures for the fiscal 2023 second quarter were 19% warmer than last year and 22% warmer than normal. Our product gross profit decreased by $17 million, or 8%, to 203 million gallons as the 19% decline in home heating oil and propane volumes sold was partially offset by an increase in per gallon margins. Delivery, branch and G&A expenses decreased by $11 million year-over-year primarily due to $14 million attributable to our weather hedging program.

In the second quarter of fiscal 2023, we recorded a benefit of $13 million under our weather hedge compared to a charge of $1 million recorded in the comparable period last year. This positive variance was offset by the impact of recent acquisitions, which accounted for an increase of $1 million in operating costs, while expenses in the base business rose by just $2 million. We posted net income of $62 million in the second fiscal quarter of fiscal 2023, or $19 million less than the prior year, reflecting the after-tax impact of a non-cash unfavorable change in the fair value of derivative instruments of $21 million and a $5 million decrease in adjusted EBITDA. Adjusted EBITDA declined by $5 million to $102 million as the impact of lower home heating oil and propane volume of 28 million gallons and a modest increase in operating expenses was partially offset by a $14 million weather hedge benefit and an increase in home heating oil and propane per gallon margins.

Turning to the results for the first half of fiscal 2023, our home heating oil and propane volume, again declined by 26 million gallons, or 11%, to 210 million gallons as the additional volume provided from acquisitions was reduced by the warmer temperatures, net customer attrition and certain other factors. Temperatures for the first half of fiscal 2023 were 7% warmer than last year, but still 16% warmer than normal. Our product gross profit decreased by $3 million, or 1%, to $354 million as higher home heating oil and propane margins, along with an increase in motor fuel gross profit partially offset the 11% decline in home heating oil and propane volume. Branch, delivery and G&A expenses were lower by $1.5 million year-over-year, which included $11.4 million attributable to our weather hedge program.

In fiscal 2023 year-to-date, we recorded a benefit of $12.5 million under the weather hedge compared to a benefit of $1.1 million recorded in the first half of fiscal 2023. Recent acquisitions accounted for an increase of $2 million in operating expenses, while base business expenses rose by $8 million. In addition, as sales were higher year-over-year, reflecting increased product cost, bad debt and credit card fees rose by $4 million and vehicle fuels were also higher due to the higher energy cost by $3 million. The remaining expense in the base business was approximately $1.3 million or less than 1%. We posted net income of $76 million for the first half of fiscal 2023 or $20 million lower than the prior period due to the after-tax impact of a non-cash unfavorable change in the fair value of derivative instruments of $25 million, an increase in net interest expense of $4.5 million and a decrease in adjusted EBITDA of just $900,000.

Adjusted EBITDA declined by $900,000 to $151 million as the impact of lower home heating oil and propane volume of 26 million gallons and slightly higher operating expenses were almost totally offset by an increase in heating oil and propane margins and the weather hedge benefit of $11.4 million. And with that, I’ll turn the call back over to Jeff.

Jeff Woosnam: Thanks, Rich. At this time, we’re pleased to address any questions you may have. Operator, please open the phone lines for questions.

Q&A Session

Operator: [Operator Instructions] And our first question today comes from Steve Errico from Locust Wood Capital. Pleas go ahead with your question.

Operator: Our next question comes from Tim Mullen from Laurelton Management. Please go ahead with your question.

Operator: [Operator Instructions] And gentlemen, at this time, I’m showing no additional questions. I’d like to turn the floor back over to Mr. Woosnam for any closing remarks.

Jeff Woosnam: Okay. Well, thank you for taking the time to join us today and your ongoing interest in Star Group. We look forward to sharing our 2023 fiscal third quarter results in August. Thanks, everyone.

Operator: And with that, ladies and gentlemen, we will conclude today’s conference call. We thank you for attending. You may now disconnect your lines.