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Star Group, L.P. Reports Fiscal 2019 Second Quarter Results

May 1, 2019 4:15 PM

STAMFORD, Conn., May 01, 2019 (GLOBE NEWSWIRE) -- Star Group, L.P. (the "Company" or "Star") (NYSE: SGU), a home energy distributor and services provider, today announced financial results for the fiscal 2019 second quarter and six months ended March 31, 2019.

Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018For the fiscal 2019 second quarter, Star reported a 2.3 percent increase in total revenue to $699.6 million compared with revenue of $684.0 million in the prior-year period, primarily due to higher wholesale per-gallon product costs.

The volume of home heating oil and propane sold during the fiscal 2019 second quarter decreased by 6.8 million gallons, or 3.8 percent, to 173.3 million gallons, as the impact of colder temperatures and acquisitions was more than offset by net customer attrition, a year-over-year delivery scheduling variance, and other factors. Temperatures in Star's geographic areas of operation for the fiscal 2019 second quarter were 2.9 percent colder than during the fiscal 2018 second quarter but 2.6 percent warmer than normal, as reported by the National Oceanic and Atmospheric Administration. The aforementioned delivery scheduling variance year-over-year reflects the fact that the volume of home heating oil and propane delivered in the second quarter of fiscal 2018 was positively impacted by the extremely cold weather experienced near the end of that year’s fiscal first quarter (ended December 31, 2017). Volume of other petroleum products sold in the second quarter of fiscal 2019 increased by 8.9 million gallons, or 29.6 percent, to 39.0 million, largely due to acquisitions.

Net income increased by $17.5 million, or 32.0 percent, to $72.3 million in the fiscal 2019 second quarter as a non-cash favorable change in the fair value of derivative instruments of $25.0 million more than offset a decline in Adjusted EBITDA of $5.3 million, described below. Regarding the favorable change in the fair value of derivative instruments, during the second quarter of fiscal 2019 a non-cash gain of $13.4 million was recorded while, in the second quarter of fiscal 2018, a non-cash charge of $11.6 million was recorded. The Company also benefited from a decline in its effective income tax rate to 28.8 percent for the second quarter of fiscal 2019 from 33.8 percent during the second quarter of fiscal 2018.

Adjusted EBITDA decreased by $5.3 million, or 5.1%, to $99.5 million in the fiscal 2019 second quarter as the additional Adjusted EBITDA provided by acquisitions of $3.4 million was more than offset by an $8.7 million decline in Adjusted EBITDA within the base business. The impact of colder temperatures and higher home heating oil and propane margins in the base business more than offset greater total operating expenses and the impact of the previously-described delivery scheduling volume variance, improving year-over-year Adjusted EBITDA by $0.7 million prior to the following exceptional items: i) $3.8 million due to implementation of a new revenue recognition accounting standard (the majority of which is expected to be reversed by the end of fiscal 2019); ii) $2.1 million of higher legal and professional expenses; iii) a charge of $1.5 million related to the discontinued use of a tank monitoring system; iv) a $0.6 million net Adjusted EBITDA loss associated with the Company’s concierge program, which was greatly curtailed this past January; and v) $1.3 million of expense tied to an increase in the amount due under Star’s weather hedge contracts.

“With a new management team now in place, I am pleased to reaffirm our commitment to being the most reputable firm in the home energy services space and providing long-term returns to our shareholders,” said Jeffrey M. Woosnam, Star Group’s President and Chief Executive Officer. “Rich Ambury, Jeff Hammond, Joe McDonald and I – along with our talented team here at Star – are ready to take the Company to the next level in terms of growth, quality service, and market presence. That said, the second quarter was negatively impacted by greater-than-expected net customer attrition due to our decision not to renew certain low-margin accounts, credit issues and, lastly, the price of home heating oil and propane. We are dedicated to limiting the loss of customers as much as possible.

“In the coming months, we will be evaluating all of Star’s operations to determine our best path forward and align the organization with core strategic objectives. While accomplishing a great deal over the past decade, we need to focus on improved business execution so that we remain the premier energy services provider we are today – strengthening customer satisfaction, reducing attrition, streamlining our operations where appropriate, and utilizing technology to effectively compete. We believe these actions will position Star to continue as a major force in the industry for years to come.”

Six Months Ended March 31, 2019 Compared to the Six Months Ended March 31, 2018Star reported a 10.1 percent increase in total revenue to $1.2 billion compared with revenue of $1.1 billion in the prior-year period, reflecting higher wholesale per-gallon product costs and an increase in total volume sold.

The volume of home heating oil and propane sold during the first half of fiscal 2019 increased by 3.1 million gallons, or 1.1 percent, to 286.6 million gallons, as the impact of colder temperatures and acquisitions was largely offset by net customer attrition and other factors. Temperatures in Star's geographic areas of operation for the first six months of fiscal 2019 were 4.0 percent colder than during the prior year comparable period but 1.8 percent warmer than normal, as reported by the National Oceanic and Atmospheric Administration. Volume of other petroleum products sold increased by 20.2 million gallons, or 33.3 percent, to 80.9 million gallons, largely due to acquisitions.

Net income decreased by $10.3 million, or 12.1 percent, to $74.6 million as a non-cash unfavorable change in the fair value of derivative instruments of $17.4 million and a higher effective income tax rate was partially offset by an increase in Adjusted EBITDA of $12.1 million, described below. Regarding the unfavorable change in the fair value of derivative instruments, during the first half of fiscal 2019 a non-cash charge of $17.6 million was recorded versus a non-cash charge of $0.2 million during the first half of fiscal 2018. The Company also recorded a $3.7 million income tax benefit during the six months ended March 31, 2018 to reflect the impact of the Tax Cuts and Jobs Act, which lowered its effective income tax rate during that period to 23.8 percent. The effective income tax rate for the first half of fiscal 2019, in contrast, was 28.8 percent.

Adjusted EBITDA for the six months increased by $12.1 million, or 9.2 percent, to $144.3 million year-over-year. Acquisitions provided $5.1 million of the increase in Adjusted EBITDA while, in the base business, Adjusted EBITDA rose by $7.0 million. The impact of colder temperatures and higher home heating oil and propane margins in the base business more than offset greater total operating expenses, improving year-over-year Adjusted EBITDA by $17.5 million prior to the following exceptional items: i) $3.2 million due to the implementation of a new revenue recognition accounting standard (the majority of which is expected to be reversed by the end of fiscal 2019); ii) $2.6 million of higher legal and professional expenses; iii) a charge of $1.5 million related to the discontinued use of a tank monitoring system; iv) a $3.0 million net Adjusted EBITDA loss associated with the Company’s concierge program, which was greatly curtailed this past January; and v) $0.2 million of expense tied to an increase in the amount due under Star’s weather hedge contracts.

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, multiemployer pension plan withdrawal charge, net other income, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and research analysts, to assess:

The method of calculating Adjusted EBITDA may not be consistent with that of other companies, and EBITDA and Adjusted EBITDA both have limitations as analytical tools and so should not be viewed in isolation but in conjunction with measurements that are computed in accordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are:

REMINDER:Members of Star's management team will host a webcast and conference call at 11:00 a.m. Eastern Time on May 2, 2019. The webcast will be accessible on the company’s website, at www.stargrouplp.com, and the telephone number for the conference call is 877-327-7688 (or 412-317-5112 for international callers).

About Star Group, L.P.Star Group, L.P. is a full service provider specializing in the sale of home heating products and services to residential and commercial customers to heat their homes and buildings. The Company also sells and services heating and air conditioning equipment to its home heating oil and propane customers and, to a lesser extent, provides these offerings to customers outside of its home heating oil and propane customer base. In certain of Star's marketing areas, the Company provides plumbing services, primarily to its home heating oil and propane customer base. Star also sells diesel, gasoline and home heating oil on a delivery only basis. Star is the nation's largest retail distributor of home heating oil based upon sales volume. Including its propane locations, Star serves customers in the more northern and eastern states within the Northeast, Central and Southeast U.S. regions. Additional information is available by obtaining the Company's SEC filings at www.sec.gov and by visiting Star's website at www.stargrouplp.com, where unit holders may request a hard copy of Star’s complete audited financial statements free of charge.

Forward Looking InformationThis news release includes "forward-looking statements" which represent the Company’s expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of weather conditions on our financial performance; the price and supply of the products we sell; the consumption patterns of our customers; our ability to obtain satisfactory gross profit margins; our ability to obtain new customers and retain existing customers; our ability to make strategic acquisitions; the impact of litigation; our ability to contract for our current and future supply needs; natural gas conversions; future union relations and the outcome of current and future union negotiations; the impact of future governmental regulations, including environmental, health and safety regulations; the ability to attract and retain employees; customer creditworthiness; counterparty creditworthiness; marketing plans; general economic conditions and new technology. All statements other than statements of historical facts included in this news release are forward-looking statements. Without limiting the foregoing, the words "believe," "anticipate," "plan," "expect," "seek," "estimate" and similar expressions are intended to identify 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 be correct and actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, those set forth under the heading "Risk Factors" and "Business Strategy" in our Annual Report on Form 10-K (the "Form 10-K") for the fiscal year ended September 30, 2018. Important factors that could cause actual results to differ materially from the Company’s expectations ("Cautionary Statements") are disclosed in this news release and in the Form 10-Q. 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 update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this news release.

(financials follow)
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2019 2018
(in thousands) (unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 16,372 $ 14,531
Receivables, net of allowance of $9,804 and $8,002, respectively 286,997 132,668
Inventories 60,119 56,377
Fair asset value of derivative instruments - 17,710
Prepaid expenses and other current assets 32,288 35,451
Total current assets 395,776 256,737
Property and equipment, net 89,346 87,618
Goodwill 239,294 228,436
Intangibles, net 89,489 98,444
Restricted cash 250 250
Captive insurance collateral 54,148 45,419
Deferred charges and other assets, net 18,539 13,067
Total assets $ 886,842 $ 729,971
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable $ 33,459 $ 35,796
Revolving credit facility borrowings 115,000 1,500
Fair liability value of derivative instruments 1,518 -
Current maturities of long-term debt 10,000 7,500
Accrued expenses and other current liabilities 157,524 116,436
Unearned service contract revenue 63,718 60,700
Customer credit balances 22,781 61,256
Total current liabilities 404,000 283,188
Long-term debt 86,857 91,780
Deferred tax liabilities, net 15,872 21,206
Other long-term liabilities 24,692 24,012
Partners’ capital
Common unitholders 373,748 329,129
General partner (1,146) (1,303)
Accumulated other comprehensive loss, net of taxes (17,181) (18,041)
Total partners’ capital 355,421 309,785
Total liabilities and partners’ capital $ 886,842 $ 729,971

STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, Six Months Ended March 31,
(in thousands, except per unit data - unaudited) 2019 2018 2019 2018
Sales:
Product $ 637,400 $ 622,962 $ 1,096,107 $ 989,696
Installations and services 62,182 61,069 138,502 131,169
Total sales 699,582 684,031 1,234,609 1,120,865
Cost and expenses:
Cost of product 415,639 403,293 721,865 646,073
Cost of installations and services 65,394 64,659 139,711 134,214
(Increase) decrease in the fair value of derivative instruments (13,401) 11,609 17,638 209
Delivery and branch expenses 110,684 106,605 213,357 197,809
Depreciation and amortization expenses 7,858 7,703 15,603 15,444
General and administrative expenses 9,849 6,221 17,664 12,872
Finance charge income (1,443) (1,532) (2,294) (2,295)
Operating income 105,002 85,473 111,065 116,539
Interest expense, net (3,194) (2,383) (5,710) (4,470)
Amortization of debt issuance costs (244) (307) (503) (616)
Income before income taxes 101,564 82,783 104,852 111,453
Income tax expense 29,239 28,005 30,212 26,493
Net income $ 72,325 $ 54,778 $ 74,640 $ 84,960
General Partner’s interest in net income 454 319 469 494
Limited Partners’ interest in net income $ 71,871 $ 54,459 $ 74,171 $ 84,466
Basic and diluted income per Limited Partner Unit: $ 1.15 $ 0.81 $ 1.19 $ 1.26
Weighted average number of Limited Partner units outstanding:
Basic and Diluted 51,427 55,642 52,174 55,766

SUPPLEMENTAL INFORMATION
STAR GROUP, L.P. AND SUBSIDIARIES
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(Unaudited)
Three Months Ended March 31,
(in thousands) 2019 2018
Net income $ 72,325 $ 54,778
Plus:
Income tax expense 29,239 28,005
Amortization of debt issuance cost 244 307
Interest expense, net 3,194 2,383
Depreciation and amortization 7,858 7,703
EBITDA 112,860 93,176
(Increase) / decrease in the fair value of derivative instruments (13,401) 11,609
Adjusted EBITDA 99,459 104,785
Add / (subtract)
Income tax expense (29,239) (28,005)
Interest expense, net (3,194) (2,383)
Provision for losses on accounts receivable 3,439 3,154
Increase in accounts receivables (63,506) (74,337)
Decrease in inventories 16,446 11,778
Decrease in customer credit balances (24,356) (27,890)
Change in deferred taxes (8,719) 29,994
Change in other operating assets and liabilities 30,200 (14,135)
Net cash provided by operating activities $ 20,530 $ 2,961
Net cash used in investing activities $ (19,198) $ (3,326)
Net cash (used in) provided by financing activities $ (8,749) $ 14,655
Home heating oil and propane gallons sold 173,300 180,100
Other petroleum products 39,000 30,100
Total all products 212,300 210,200

SUPPLEMENTAL INFORMATION
STAR GROUP, L.P. AND SUBSIDIARIES
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(Unaudited)
Six Months Ended March 31,
(in thousands) 2019 2018
Net income $ 74,640 $ 84,960
Plus:
Income tax expense 30,212 26,493
Amortization of debt issuance cost 503 616
Interest expense, net 5,710 4,470
Depreciation and amortization 15,603 15,444
EBITDA 126,668 131,983
(Increase) / decrease in the fair value of derivative instruments 17,638 209
Adjusted EBITDA 144,306 132,192
Add / (subtract)
Income tax expense (30,212) (26,493)
Interest expense, net (5,710) (4,470)
Provision for losses on accounts receivable 4,968 3,465
Increase in accounts receivables (159,249) (170,530)
Increase in inventories (3,741) (108)
Decrease in customer credit balances (38,476) (42,184)
Change in deferred taxes (9,335) 27,254
Change in other operating assets and liabilities 55,088 20,599
Net cash used in operating activities $ (42,361) $ (60,275)
Net cash used in investing activities $ (27,310) $ (41,217)
Net cash provided by financing activities $ 71,512 $ 84,463
Home heating oil and propane gallons sold 286,600 283,500
Other petroleum products 80,900 60,700
Total all products 367,500 344,200

CONTACT:Star Group, L.P.Investor Relations 203/328-7310

Chris Witty Darrow Associates646/438-9385 or [email protected]

Source: Star Group, L.P.

STAR.jpg

Source: Star Group, L.P.

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