Star Group, L.P. (SGU) Delivers Strong Q2 2025 Results Amid Weather-Driven Growth

Star Group, L.P. (NYSE: SGU), the nation’s largest home heating oil distributor, reported robust financial results for its fiscal 2025 second quarter, with revenue surging 11.6% year-over-year to $743 million. The earnings beat, driven by colder-than-average weather and strategic acquisitions, highlights the company’s resilience in a volatile energy market. However, rising operational costs and weather-related risks underscore the need for sustained execution.

Key Financial Highlights

The quarter’s performance was fueled by a 22.9% jump in home heating oil and propane sales volume to 143.9 million gallons, benefiting from 12.9% colder weather compared to Q2 2024. Despite a 10.9% decline in wholesale product costs, net income rose to $85.9 million, a 24.8% increase year-over-year. Adjusted EBITDA surged 33.1% to $128.2 million, reflecting margin improvements and operational leverage.

However, colder weather also triggered $3.1 million in weather hedge expenses, a reversal from a $6.5 million benefit in the prior year. This underscores the dual-edged nature of temperature fluctuations on profitability.

Operational Momentum and Strategic Moves

• Acquisition Pipeline: Since February 2024, Star Group has spent $126.5 million on acquisitions to expand its footprint in existing markets. While some deals were not fully integrated by Q2, they are expected to boost future volumes.
• Dividend Growth: The annual dividend was increased by $0.05 to $0.74 per unit, yielding 5.86%, a strong draw for income investors.
• Weather Risk Management: The company plans to allocate $15 million to weather hedging for fiscal 2026, aiming to stabilize margins amid unpredictable temperature swings.

Challenges and Risks

• Weather Volatility: While colder weather drove sales, it also strained margins via hedge contracts. Management noted that temperatures in Q2 were still 4.5% warmer than historical averages, highlighting the fine line between opportunity and risk.
• Cost Pressures: Delivery and branch expenses rose $22 million year-over-year, partly due to acquisitions and higher labor costs.
• Regulatory and Market Risks: The shift toward electrification and natural gas could erode demand for heating oil over time, though Star Group’s geographic focus on cold-climate regions provides a natural barrier.

Market Reaction and Valuation

Despite the strong results, shares dipped 1.74% post-earnings to $12.62, reflecting investor concerns over margin pressures and macroeconomic risks. However, the 9.12 P/E ratio and 22% free cash flow yield suggest the stock is undervalued relative to its earnings growth and dividend strength.

Conclusion: SGU’s Path Forward

Star Group’s Q2 results underscore its ability to capitalize on favorable weather and strategic investments. With a 29.5% gross margin, robust balance sheet, and dividend yield, the company remains a compelling play on regional energy demand. However, investors must monitor weather patterns, operational cost trends, and the integration of acquisitions to gauge long-term sustainability.

The data paints a clear picture: SGU’s execution in Q2 positions it well for fiscal 2025, but its success hinges on mitigating weather-related risks and maintaining margin discipline. For income-focused investors, the 5.86% dividend yield and $15 million weather hedge allocation signal a balanced approach to growth and stability.

In a market where every degree counts, Star Group’s focus on its core Northeast and Mid-Atlantic markets—coupled with proactive risk management—could solidify its leadership in an industry where weather is both a blessing and a curse.