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Star Group, L.P. serves households and businesses that use oil or propane for heating, principally in the northeastern and mid-Atlantic United States. Heating oil and propane provide most of its revenue. It also charges for installing, maintaining and repairing heating and air-conditioning equipment, and sells diesel and gasoline.
The company buys fuel in bulk through supply contracts and spot purchases, then delivers it to customers; most full-service heating customers receive automatic deliveries based on weather conditions. It generally adds a per-gallon margin to wholesale cost. Customers can choose market-based prices or plans with a fixed price or price ceiling, so earnings depend partly on how successfully Star Group passes changes in fuel costs through to customers.
Most heating-oil and propane customers are in New York, New Jersey and Connecticut. Demand centers on the winter heating season, and warmer weather reduces fuel consumption. Better insulation, more efficient equipment and switching to electric heat pumps also reduce demand. Local rules constrain fossil-fuel heating: New York City is phasing it out in new buildings, while New York, Connecticut and Rhode Island require biodiesel blends in heating oil, affecting the fuel Star Group can sell and its purchasing costs.
The risk section is the longest, dullest part of the filing. This keeps only what can really hurt you: where it hits, how hard, when it plays out.
Every company claims an edge. Each one is checked against hard numbers like margins and returns: which hold, and which line gives way first.
Star Group’s results hinge on Northeast winter temperatures, customer retention and passing fuel costs through to customers, with Motiva, Global Companies and Shell supplying important petroleum needs.
Suburban Propane Partners L P shares Star Group’s exposure to winter temperatures, heating-fuel demand and wholesale fuel costs: both sell and deliver propane and heating oil to households and businesses and install and service heating equipment. Watch Suburban’s retail propane volumes for a read on heating-fuel demand, while remembering its network spans 42 states rather than Star Group’s mainly Northeast and Mid-Atlantic footprint.
EIA Crude Oil Stocks Change (Oct/16)
For Star Group, which delivers heating oil and propane and resells diesel, gasoline and other petroleum products, US crude-oil and fuel stocks indicate how tight fuel supply is and can affect its wholesale costs and the per-gallon margins it earns when selling to customers.
A stock draw points to tighter supply and possible upward pressure on wholesale fuel costs, which could squeeze Star Group’s margins if it cannot pass increases through promptly or fully. A stock build points to looser supply and possible cost relief; the effect depends on how selling prices adjust.
Fed Interest Rate Decision
For Star Group, which delivers heating oil and propane and sells other fuels, interest-rate decisions matter because changes in rates can raise or lower the cost of borrowing to fund its seasonal working-capital needs and $189.0 million term loan.
Expected4.0%Last release4.0%
If it comes in above expectations
Higher rates can increase interest expense on debt whose rates reset and make new seasonal borrowing more costly, leaving less cash for operations and other needs.
If it comes in below expectations
Lower rates can reduce interest expense on debt whose rates reset and make new seasonal borrowing cheaper, easing the cash cost of funding operations.
Suburban Propane Partners L P earningsSPH
Suburban Propane’s report will show whether its retail propane volumes are holding up, offering Star Group a read on household and business demand for heating fuel, though their service regions differ.
Watch Suburban Propane’s retail propane volumes. Stable or rising volumes would indicate that households and businesses in its markets are still buying heating fuel, supporting the case for demand for Star Group’s oil and propane; falling volumes would point to weaker demand. But Suburban operates in 42 states, while Star Group is concentrated in the Northeast and Mid-Atlantic, so weather and demand can differ—Suburban’s results are a clue, not a direct measure of Star Group’s sales.
