Star Group’s Earnings Call Contradictions: Weather Hedge and Acquisition Plans Don’t Match

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Date of Call: Aug 6, 2026

Business Commentary:

Home Heating Oil and Propane Volume and Profitability:

• For the third quarter of fiscal 2026, the volume of home heating oil and propane sold decreased by 3.4 million gallons or 9.4% to 33 million gallons.
• Product gross profit remained virtually unchanged at $72 million, as an increase in per gallon margins was offset by the lower volume sold.
• The decrease in volume was due to net customer attrition and additional factors, despite moderately colder temperatures than the previous year.

Service and Installation Business Improvement:

• The service and installation business delivered a gross profit of $15.6 million, which is $1.4 million higher than the prior year period.
• This improvement is attributed to the company's strategy of selling more value-added products and services to existing clients and expanding HVAC offerings.

Operating Costs and Insurance Expense:

• Operating costs were elevated in the quarter primarily due to a $6.2 million increase in higher insurance claims related to adverse developments in certain claims.
• This increase in operating expenses, including insurance costs, offset the positive effects of higher per gallon margins and service profitability.

Adjusted EBITDA and Net Loss:

• The adjusted EBITDA loss increased by $7 million to $17.7 million, due to higher operating expenses, including insurance costs, and lower home heating oil and propane volume sold.
• The company posted a net loss of $28 million, reflecting a deterioration in financial performance due to these factors.

Fiscal Year-to-Date Volume and Adjusted EBITDA Growth:

• For the nine months of fiscal 2026, the volume of home heating oil and propane increased by 8.6 million gallons or 3.3% to 271 million gallons.
• Adjusted EBITDA rose by $20 million to $189 million, driven by increased volume, higher per gallon margins, and acquisitions, despite higher operating expenses.

Sentiment Analysis:

Overall Tone: Neutral

• Management acknowledges seasonal factors and net customer attrition in line with prior year, but highlights ongoing improvement in service/installation business and a strong pipeline of attractive businesses. They state 'Star remains in great shape and on track for strong financial performance in fiscal 2026.'

Q&A:

• Question from Michael Prouting (10K Capital): Assuming things continue as they are vis-à-vis Iran, I'm just wondering if you see what risks you might see in terms of product availability or competitive dynamics or customer behavior in terms of the upcoming heating season?
  Response: No product availability issues seen; contracts for next year are being secured. Higher prices may impact customer behavior, influencing timing of price commitment decisions.

• Question from Michael Prouting (10K Capital): Just a quick question on the acquisition pipeline. Any potential for transformational acquisitions or anything?
  Response: Pipeline is full and active, but no deals are categorized as transformational. The team continues to assess attractive businesses, though approach remains unchanged.

Contradiction Point 1

Forward-Looking Weather Hedge for Fiscal 2027

Contradiction on the status of the weather hedge for the upcoming fiscal year.

N/A - N/A

2026Q2: A $12.5 million weather hedge has been put in place for fiscal 2027. - [Rich Amberry](CFO)

N/A - N/A

2026Q2: [No weather hedge benefit, versus a $3.1 million expense in the prior year period.] - [Rich Amberry](CFO)

Contradiction Point 2

Operational Readiness for Severe Weather

Contradiction on company's preparedness and response to abnormal winter conditions.

Michael Prouting (10K Capital) - Michael Prouting (10K Capital)

2026Q2: The company is built for and plans for such conditions as a full-service provider. - [Jeffrey Woosnam](CFO)

How might the current situation in Iran impact product availability, competitive dynamics, and customer behavior during the upcoming heating season? - Timothy Mullen (Laurelton Management)

2026Q1: January was colder than normal, and February is starting off that way with a strong forecast and ongoing storms, presenting operational challenges. - [Jeffrey Woosnam](CFO)

Contradiction Point 3

Acquisition Pipeline Outlook

Contradiction on the nature of the most attractive acquisition targets.

Michael Prouting (10K Capital) - Michael Prouting (10K Capital)

2026Q2: The pipeline is full, and the team is actively assessing several attractive businesses. However, none of the current targets are categorized as transformational. - [Jeff Woosnam](CEO)

Are there any transformational acquisitions in the pipeline? - N/A

2026Q2: [Completed one small heating oil acquisition and has other opportunities under review.] - [Jeff Woosnam](CEO)

Contradiction Point 4

Nature of Acquisition Targets

Contradiction on the potential for large-scale strategic acquisitions.

Michael Prouting (10K Capital) - Michael Prouting (10K Capital)

2026Q2: The pipeline is full... none of the current targets are categorized as transformational. - [Jeff Woosnam](CFO)

Are there potential transformational acquisitions in the pipeline? - Timothy Mullen (Laurelton Management)

2026Q1: The pipeline is full, and the team is actively assessing several attractive businesses. - [Jeff Woosnam](CFO)

Contradiction Point 5

Customer Acquisition Challenges

Contradiction on the primary challenge affecting new customer gains.

How does Michael Prouting of 10K Capital view the company's current earnings performance? - Michael Prouting (10K Capital)

2026Q2: The primary factor is a low level of prospect activity in the marketplace... impacted by lower real estate activity (fewer prospects)... - [Jeffrey Woosnam](CEO)

Given Iran's current situation, what risks do you foresee related to product availability, competitive dynamics, or customer behavior during the upcoming heating season? - Michael Prouting (10K Capital)

20251209-2025 Q4: The primary factor is a low level of prospect activity in the marketplace... and the fact that the year... was 8% warmer than normal with little disruptive weather that typically attracts new customers. - [Jeffrey Woosnam](CEO)

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