Star Group Navigates Declining Demand with Acquisition-Led Strategy

TL;DR

**SGU is fighting a losing battle against electrification, but smart acquisitions and service diversification could offer a temporary lifeline.**

AI Summary

STAR GROUP, L.P. (SGU) reported its fiscal year ended September 30, 2025, as a home heating oil and propane distributor primarily serving the Northeast and Mid-Atlantic U.S. regions. The company serves approximately 406,400 full-service residential and commercial customers and 63,200 delivery-only customers. Total sales for fiscal 2025 were comprised of approximately 63% from home heating oil and propane, 18% from other petroleum products (mainly diesel and gasoline), and 19% from equipment installation and repair. SGU believes it is the largest retail distributor of home heating oil in the U.S., holding over 5.5% market share. The company faces risks from declining market demand due to conversions to natural gas and electricity, which have ranged between 1.1% and 1.6% annually over the last five years, and legislative efforts to reduce greenhouse gas emissions. SGU's strategy focuses on acquisitions, superior customer service, complementary service offerings, and environmental sustainability opportunities.

Why It Matters

STAR GROUP, L.P.'s 10-K highlights the challenges facing traditional energy distributors as the market shifts towards natural gas and electricity, impacting investors through potential long-term revenue declines. The company's strategy of pursuing acquisitions and expanding complementary services is crucial for maintaining relevance and profitability in a mature, declining industry. Employees face evolving job roles as the company adapts to new energy solutions and environmental regulations. Customers benefit from SGU's focus on superior service and diverse offerings, but may also experience price volatility in heating oil and propane. The broader market will observe SGU's ability to successfully transition its business model amidst increasing environmental scrutiny and competitive pressures from alternative energy providers.

Risk Assessment

Risk Level: medium — The risk level is medium due to the inherent decline in the retail home heating oil industry, with customer conversions to natural gas and electricity ranging between 1.1% and 1.6% annually over the last five years. This trend is exacerbated by legislative and regulatory efforts to reduce greenhouse gas emissions, directly impacting SGU's core business. While the company pursues acquisitions and diversification, these efforts must outpace the structural decline to maintain profitability.

Analyst Insight

Investors should monitor SGU's acquisition pipeline and the success of its complementary service offerings, particularly in natural gas and heat pump systems. Evaluate the pace of customer attrition against new customer additions from acquisitions to gauge the effectiveness of its growth strategy in a declining market.

Financial Highlights

debt To Equity

N/A

revenue

N/A

operating Margin

N/A

total Assets

N/A

total Debt

N/A

net Income

N/A

eps

N/A

gross Margin

N/A

cash Position

N/A

revenue Growth

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Revenue Breakdown

Key Numbers

• 406,400 — full service residential and commercial customers (as of September 30, 2025)
• 63,200 — delivery-only customers (as of September 30, 2025)
• 63% — total sales from home heating oil and propane (during fiscal 2025)
• 18% — total sales from other petroleum products (during fiscal 2025)
• 19% — total sales from equipment installation and repair (during fiscal 2025)
• 5.5% — market share in retail home heating oil (believed to be the largest in the U.S.)
• 1.1%-1.6% — annual customer conversions to natural gas and electricity (over the last five years)
• 32,976,515 — common units outstanding (as of November 30, 2025)
• 99.0% — limited partner interest (represented by common units outstanding)
• 1.0% — general partner interest (represented by general partner units)

Key Players & Entities

• STAR GROUP, L.P. (company) — registrant
• SGU (company) — trading symbol
• Kestrel Heat, LLC (company) — general partner of Star Group, L.P.
• Petro Holdings, Inc. (company) — operating subsidiary
• Petroleum Heat and Power Co., Inc. (company) — indirect, wholly owned subsidiary and borrower
• New York Stock Exchange (regulator) — exchange where common units are registered
• U.S. Department of Energy—Energy Information Administration (regulator) — source of industry data
• Securities and Exchange Commission (regulator) — filing authority
• $402,396,722 (dollar_amount) — aggregate market value of common units held by non-affiliates on March 31, 2025
• $210 million (dollar_amount) — five-year senior secured term loan

FAQ

Risk Factors

• Declining Market Demand [high — market]: The company faces risks from declining market demand due to conversions to natural gas and electricity. These conversions have ranged between 1.1% and 1.6% annually over the last five years, indicating a persistent trend away from traditional heating fuels.
• Greenhouse Gas Emission Regulations [medium — regulatory]: Legislative efforts to reduce greenhouse gas emissions pose a significant risk. These regulations could impact the company's core business operations and product offerings, potentially leading to increased compliance costs or a shift in consumer preferences.
• Product Cost Volatility [medium — market]: Geopolitical events can lead to volatility in wholesale product costs. This volatility can impact the company's ability to secure sufficient product quantities and maintain satisfactory gross profit margins.
• Weather Dependency [medium — operational]: The company's financial performance is significantly affected by weather conditions. Extreme weather events or unseasonably mild winters can impact demand for heating fuels.
• Cybersecurity Threats [medium — operational]: The company is exposed to risks from cyber-attacks. Such attacks could disrupt operations, compromise sensitive data, and lead to financial losses.
• Customer Credit Worthiness [low — financial]: Customer credit worthiness is a financial risk. A deterioration in the credit quality of a significant number of customers could lead to increased bad debt expenses.
• Labor Shortages and Employee Relations [medium — operational]: The company faces risks related to labor shortages and new technology, as well as future union relations and the outcome of union negotiations. These factors can impact operational efficiency and costs.
• Recessionary Economic Conditions [medium — market]: Recessionary economic conditions can negatively impact customer consumption patterns and their ability to pay for services, affecting the company's revenue and profitability.

Industry Context

STAR GROUP, L.P. operates in the home heating oil and propane distribution sector, a market facing structural shifts. The industry is characterized by a gradual but persistent customer migration towards natural gas and electrification, driven by both cost and environmental concerns. While SGU holds a significant market share (over 5.5%) in retail home heating oil, it must navigate these demand-side challenges and increasing regulatory pressures related to greenhouse gas emissions.

Regulatory Implications

The company faces significant regulatory headwinds, particularly concerning federal, state, and municipal laws aimed at reducing greenhouse gas emissions. Compliance with these evolving environmental regulations could necessitate operational changes, increased capital expenditures, or impact the long-term viability of its core products, posing a material risk to its business model.

What Investors Should Do

1. Monitor conversion trends and company's adaptation strategy.
2. Evaluate the impact of environmental regulations.
3. Assess acquisition strategy effectiveness.
4. Analyze gross profit margin trends.

Glossary

Forward-looking statements

Statements about future expectations, plans, or beliefs that are not based on historical facts. They often use words like 'believe,' 'anticipate,' or 'expect.' (Investors should be aware that these statements are subject to risks and uncertainties and that actual results may differ materially from projections.)

Gross Profit Margins

The difference between revenue and the cost of goods sold, expressed as a percentage of revenue. It indicates how efficiently a company manages its production and direct costs. (The company's ability to obtain satisfactory gross profit margins is a key factor in its financial performance and is subject to product cost volatility.)

Greenhouse Gas (GHG) emissions

Gases that trap heat in the atmosphere, such as carbon dioxide and methane. Regulations on these emissions are increasingly impacting industries like energy distribution. (Governmental regulations restricting GHG emissions represent a significant risk factor for STAR GROUP, L.P. due to its business in fossil fuel distribution.)

Limited Partner Interest

Represents the ownership stake of investors who are not involved in the day-to-day management of the partnership. In SGU's case, this is represented by common units. (Understanding the LP interest is key to understanding the ownership structure and distribution of profits for a Master Limited Partnership like SGU.)

General Partner Interest

Represents the ownership stake of the entity that manages and controls the partnership. In SGU's case, this is a small percentage of the total units. (The General Partner has control over the partnership's operations and typically receives incentive distribution rights, though not explicitly detailed here.)

Year-Over-Year Comparison

Information comparing key metrics to the previous year, such as revenue growth, margin changes, or newly identified risks, is not available in the provided text. The filing mentions risks such as geopolitical events, inflation, and cybersecurity, but does not provide a comparative analysis of their impact or changes from the prior period.

Key Financial Figures

• $210 million — amended and restated credit agreement's $210 million five-year senior secured term loan and
• $400 million — e-year senior secured term loan and the $400 million ($475 million during the heating season
• $475 million — secured term loan and the $400 million ($475 million during the heating season of December t

Filing Documents

• sgu-20250930.htm (10-K) — 5787KB
• sgu-ex21.htm (EX-21) — 11KB
• sgu-ex31_1.htm (EX-31.1) — 15KB
• sgu-ex31_2.htm (EX-31.2) — 15KB
• sgu-ex32_1.htm (EX-32.1) — 14KB
• sgu-ex32_2.htm (EX-32.2) — 14KB
• 0001193125-25-311490.txt ( ) — 22079KB
• sgu-20250930.xsd (EX-101.SCH) — 2247KB
• sgu-20250930_htm.xml (XML) — 4998KB

Business

Business 3 Item 1A.

Risk Factors

Risk Factors 13 Item 1B. Unresolved Staff Comments 25 Item 1C. Cybersecurity 25 Item 2.

Properties

Properties 26 Item 3. Legal Proceedings—Litigation 26 Item 4. Mine Safety Disclosures 26 PART II Item 5. Market for the Registrant's Units, Related Unitholder Matters and Issuer Purchases of Units 27 Item 6. (Reserved) 28 Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 29 Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 44 Item 8.

Financial Statements and Supplementary Data

Financial Statements and Supplementary Data 44 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 44 Item 9A.

Controls and Procedures

Controls and Procedures 44 Item 9B. Other Information 45 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 45 PART III Item 10. Directors, Executive Officers and Corporate Governance 46 Item 11.

Executive Compensation

Executive Compensation 50 Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters

Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters 62 Item 13. Certain Relationships and Related Transactions, and Director Independence 63 Item 14. Principal Accountant Fees and Services 65 PART IV Item 15. Exhibits and Financial Statement Schedules 66 Item 16. Form 10-K Summary 66 2 PART I This Annual Report on Form 10-K (this "Report") includes "forward-looking statements" which represent our expectations or beliefs concerning future events that involve risks and uncertainties, including the impact of geopolitical events on wholesale product cost volatility, tariff regimes, including newly imposed U.S. tariffs and any additional responsive non-U.S. tariffs or additional U.S. tariffs, the price and supply of the products that we sell, our ability to purchase sufficient quantities of product to meet our customer's needs, rapid increases in levels of inflation, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, the effect of weather conditions on our financial performance, our ability to obtain new customers and retain existing customers, our ability to make strategic acquisitions, the impact of litigation, natural gas conversions and electrification of heating systems, pandemic and future global health pandemics, recessionary economic conditions, future union relations and the outcome of current and future union negotiations, the impact of current and future governmental regulations, including federal, state and municipal laws restricting greenhouse gas ("GHG") emissions and federal, state and local environmental, health, and safety regulations, the ability to attract and retain employees, customer credit worthiness, counterparty credit worthiness, marketing plans, cyber-attacks, global supply chain issues, labor shortages and new technology, including alternative methods for heating and cooli

B USINESS

ITEM 1. B USINESS Structure Star Group, L.P. ("Star" the "Company," "we," "us," or "our") is a home heating oil and propane distributor and services provider with one reportable operating segment that principally provides heating related services to residential and commercial customers. Our unitholders voted in favor of proposals to have the Company elect to be treated as a corporation, instead of a partnership, for federal income tax purposes (commonly referred to as a "check-the-box election"), along with amendments to our partnership agreement to effect such changes in income tax classification, in each case effective November 1, 2017. In addition, the Company changed its name, effective October 25, 2017, from "Star Gas Partners, L.P." to "Star Group, L.P." to more closely align our name with the scope of our product and service offerings. Unitholders will receive a Form 1099-DIV and will not receive a Schedule K-1 as in tax years prior to December 31, 2017. Our legal structure has remained a Delaware limited partnership and the distribution provisions under our limited partnership agreement, including the incentive distribution structure has remained unchanged. As of November 30, 2025, we had outstanding 33.0 million common partner units (NYSE: "SGU") representing a 99.0% limited partner interest in Star, and 0.3 million general partner units, representing a 1.0% general partner interest in Star. 3 The following chart depicts the ownership of Star as of November 30, 2025: Star Group, L.P. Limited Partners Common Units 99.0% General Partner (Kestrel Heat) General Partner Units 1.0% Public Unitholders - Common Units 87.7% Officers and Directors - Common Units 12.3% Star is organized as follows: Our general partner is Kestrel Heat, LLC, a Delaware limited liability company ("Kestrel Heat" or the "general partner"). The Board of Directors of Kestrel Heat (the "Board") is appointed by its sole member, Kestrel Energy Partners, LLC, a Delaware

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