Star Group, L.P. Faces a Critical Test: Can It Navigate Volatile Markets in Q2?

Star Group, L.P. (NYSE: SGU), the nation’s largest distributor of home heating oil, is set to host its fiscal 2025 second quarter earnings call on May 8, 2025, following the release of results after markets close on May 7. The event will mark a pivotal moment for the company, as it seeks to reassure investors amid a landscape riddled with geopolitical risks, inflationary pressures, and the looming threat of climate policy shifts.

The Company’s Core Business and Challenges

Star Group dominates the home heating oil market in the Northeast and Mid-Atlantic regions, where reliance on fossil fuels for winter heating remains high. The company’s diversified portfolio—spanning heating oil, propane, HVAC services, and diesel/gasoline delivery—has historically insulated it from sector-specific downturns. However, its reliance on volatile commodities like oil and propane exposes it to macroeconomic headwinds.

Key Risks:
- Energy Price Volatility: Geopolitical tensions (e.g., Middle East conflicts, Russia’s oil exports) and supply chain disruptions can spike wholesale costs, squeezing margins.
- Weather Dependency: Colder-than-average winters boost demand, but warmer trends or mild seasons can hurt volumes. The Q1 report noted temperatures were 10.5% warmer than historical norms.
- Regulatory Shifts: Climate policies pushing electrification or natural gas adoption threaten long-term demand for oil-based heating.

Financial Performance: Q1 2025 Offered Mixed Signals

While Star Group’s Q2 results remain under wraps, its Q1 performance provides critical context. Total revenue fell 7.6% to $488 million due to plunging petroleum prices, though volumes rose 2.8% to 82.4 million gallons. Net income nearly tripled to $32.9 million, driven by a $24.3 million swing in derivative valuations—a reminder of the company’s exposure to hedging strategies.

Investors should note that Star Group’s reliance on derivatives to stabilize profits raises questions about the sustainability of its income. A prolonged period of price volatility could strain this model.

Institutional Investor Sentiment: A Divided Crowd

Institutional ownership data highlights divergent views. While 18 funds added shares in Q1 (notably Joel Isaacson & Co. with +191,832 shares), 28 reduced stakes, including Citadel (-74.1%) and Trexquant (-100%). This split reflects skepticism about Star Group’s ability to withstand structural challenges like declining demand for fossil fuels and rising operational costs.

What to Watch for in the Q2 Call

1. Margin Resilience: Can gross margins hold steady despite potential energy price spikes or supply chain bottlenecks?
2. Customer Retention: Management will likely address net customer attrition trends and strategies to stabilize its customer base.
3. Strategic Acquisitions: Details on the “sizable propane-focused acquisition” post-Q1 could signal market-share gains.
4. Weather Impact: Whether colder-than-expected temperatures in Q2 boosted volumes, offsetting price pressures.

Conclusion: A High-Stakes Quarter for a Fossil Fuel Reliant Firm

Star Group’s Q2 results will test its ability to navigate a perfect storm of risks: volatile energy prices, regulatory headwinds, and shifting consumer preferences toward greener heating solutions. While its Q1 performance showed resilience in net income, the reliance on derivatives and customer attrition underscore vulnerabilities.

Investors should scrutinize management’s guidance on long-term demand trends, margin sustainability, and the efficacy of strategic acquisitions. With climate policies tightening and winter weather patterns increasingly erratic, Star Group’s path to growth hinges on executing operational efficiencies and adapting to a low-carbon future—two tall orders in a high-risk industry.

The May 8 webcast will offer clarity on whether the company is weathering the storm or merely delaying the reckoning.