Star Gas posts FY 2008 loss of $13.4M

Susan A. Baird

12/11/2008

STAMFORD, Conn. – For the fiscal year ended Sept. 30, home heating-oil giant Star Gas Partners L.P. (NYSE: SGU) posted a loss of $13.4 million, compared with a year-ago profit of $38.2 million, despite total revenue that rose 21.8 percent to $1.5 billion.

Full-year operating income fell to $3.3 million, a 94-percent decline from the year-ago $55.1 million. The company cited a one-time non-cash charge of $41.2 million, due to a decline in the market value of certain derivatives; and a $10.6 million increase in operating expenses, which included a $6.2 million increase in “doubtful” accounts, new expenses associated with standalone acquisitions “and the absence of a weather-insurance benefit.”
The company’s third-quarter improvement – to a profit of $11.85 million from a year-ago net loss of $8.27 million (READ MORE) – was more than offset by the second and fourth quarter’s declines.
“Last quarter, we discussed the challenges of operating our business in the face of tremendous recent heating oil price volatility – mostly to the upside, with wholesale prices increasing approximately $2 per gallon over a 12-month time-frame,” said CEO Daniel P. Donovan. “Since then, ironically, we have had the challenges of the opposite effect – extreme volatility to the downside, with prices falling approximately 60 percent since mid-summer.”
The selling price of home heating oil this year was higher than in fiscal 2007, despite the recent retreat from this summer’s highs. But that increase “was partially offset by a decline in home heating-oil volume,” the company said. Home heating-oil sales fell to 351.1 million gallons in the year ended Sept. 30 – a year-over-year decline of 25.5 million gallons , or 6.8 percent – “as the additional volume provided by acquisitions was more than offset by the effects of net customer attrition, conservation, slightly warmer temperatures and other factors,” including the elimination of low-margin and unprofitable commercial accounts, Star Gas said.
For the fiscal fourth quarter, the company saw its net loss widen to $91.9 million, a 77.6-percent increase from the year-ago period’s $33.1 million loss, “due largely to the increase in the non-cash change in the fair value of derivatives,” Star Gas said.
Total revenue increased 20.5 percent year-over-year to $165.8 million. Higher profits on services and “an increase in home heating-oil selling prices [were] partially offset by a decline in home heating-oil volume,” which fell 10.6 percent to 22.7 million gallons sold in the quarter ended Sept. 30, the company said.
On the bright said, Donovan said, “Looking back at fiscal 2008, we once again achieved a reduction in Star’s net customer-attrition level, lowering it to 4.4 percent [from] 5.0 percent in fiscal 2007.” Meanwhile, he said, “To help offset the loss of customers, we have continued to focus on making selective, opportunistic acquisitions that meet management’s strict criteria. Accordingly, over the past 12 months we acquired eight home heating-oil dealers, plus a home-security business, adding an approximate 9,500 additional customers.”
Star Gas Partners L.P. (NYSE: SGU), the nation’s largest retail distributor of home heating oil, delivers oil and related services to customers in Rhode Island, Connecticut, Maryland, Massachusetts, New York, Pennsylvania, Virginia and Washington, D.C. Additional information is available at www.star-gas.com.