Star Group (SGU) Q4 2025: Heating Oil Volume Up 12% as Acquisitions Offset Attrition
Disciplined acquisition strategy and colder weather drove a double-digit jump in heating oil and propane volumes for Star Group, even as new customer additions lagged on low real estate activity and attrition pressure. Margin gains and service profitability improvements supported EBITDA growth, but regulatory uncertainty and muted free cash flow dynamics remain watchpoints for 2026. Investors should monitor the acquisition pipeline and customer churn trends as the heating season unfolds.
Summary
- Acquisition-Driven Volume Surge: Recent deals fueled double-digit volume growth, offsetting tepid customer gains.
- Margin Discipline Amid Cost Inflation: Gross profit and service revenue rose, but per-gallon margins softened on mix.
- Regulatory Uncertainty Looms: New York fossil fuel policies and customer attrition trends create 2026 headwinds.
Performance Analysis
Star Group’s core business model—delivering heating oil and propane to residential and commercial customers— benefited from both colder weather and four completed acquisitions, resulting in a 12% year-over-year volume increase. These acquisitions, contributing nearly 12 million gallons annually, helped push total home heating oil and propane volume to 283 million gallons for the year. Service and installation, a complementary and higher-margin line, posted nearly 10% revenue growth, underscoring management’s focus on diversified profitability.
Gross profit rose in tandem with volume, but per-gallon margins slipped in the quarter due to acquisition mix and slightly higher operating costs. Adjusted EBITDA expanded by over 22% for the year, driven by both base business improvements and contributions from acquired operations. However, net customer attrition trended negatively, with new customer additions lagging due to low real estate activity and subdued prospect engagement.
- Acquisition Synergy Execution: Four deals in 2025 drove most of the volume and EBITDA gains, with integration costs largely contained.
- Expense Control: Operating costs in the base business increased less than 1%, highlighting ongoing cost discipline.
- Weather Hedging Volatility: The weather hedge program swung from a $7.5 million benefit in 2024 to a $3.1 million expense in 2025, reflecting less severe winter conditions.
Cash flow remained stable year-over-year, with no significant shifts in receivables, inventory, or capital purchases, according to management. Still, higher interest and acquisition financing costs slightly pressured distributable cash flow in Q4.
Executive Commentary
"The lower temperatures, coupled with recent acquisitions, resulted in a 29 million gallon or 12% year-over-year increase in heating oil and propane volumes. At the same time, we kept overhead expenses largely unchecked, maintained disciplined margin management, and continued to invest in installation and service as a complementary service offering, which posted revenue growth of nearly 10% over fiscal 2024."
Jeff Woosnam, President and Chief Executive Officer
"Our product gross profit increased by $2.5 million, or 6% to $45 million, as the positive impact from higher home heating oil and propane volume was only offset by slightly lower per gallon margins, driven in part by the mix of volume associated with recent acquisitions."
Rich Amberry, Chief Financial Officer
Strategic Positioning
1. Acquisition Program as Growth Engine
Acquisitions remain a central pillar of Star Group’s growth strategy, with four transactions in 2025 adding nearly 12 million gallons of annual volume. Management signaled a robust pipeline of smaller, “tuck-in” and standalone deals under review, but noted no large transactions are imminent. This roll-up approach, acquiring and integrating smaller operators, is designed to offset organic attrition and drive scale in a fragmented industry.
2. Customer Retention and Attrition Management
Net customer attrition ticked upward in Q4, with customer gains down and losses up versus prior periods. Management attributed this to subdued real estate activity and lower prospect engagement, but emphasized that loss rates as a percentage of the base are at historical lows. Internal satisfaction metrics are improving, but the challenge remains attracting new customers to offset churn.
3. Margin Management and Service Diversification
Margin discipline was evident despite cost headwinds, with product gross profit up and service/installation profitability improving by $3.8 million for the year. The company’s weather hedge program, designed to mitigate earnings volatility from mild winters, reversed from a benefit to an expense in 2025, highlighting the unpredictable impact of weather on earnings. Service and installation, which includes equipment sales and maintenance, continues to grow as a margin-expanding lever.
4. Capital Allocation and Shareholder Returns
Star Group deployed $81 million toward acquisitions, $16 million in unit repurchases, and $26 million in distributions, signaling a balanced approach to capital allocation. The focus remains on value-accretive deals and maintaining a steady return profile for unitholders.
Key Considerations
Star Group’s 2025 performance was shaped by colder weather, acquisition execution, and disciplined cost management, but forward risk is rising due to regulatory uncertainty and persistent customer churn.
Key Considerations:
- Acquisition Pipeline Depth: Management flagged an active deal pipeline, but no large transactions are imminent, keeping growth reliant on steady execution of smaller deals.
- Attrition Headwinds: Net customer attrition remains a stubborn challenge, with fewer new customer gains amid weak real estate turnover and limited disruptive weather events to drive prospects.
- Weather Dependency: Weather remains a swing factor, with the hedge program only partially offsetting mild winter impacts on volume and margin.
- Regulatory Overhang: Uncertainty around New York fossil fuel policies and broader decarbonization efforts could impact future demand and growth trajectory.
Risks
Regulatory risk is elevated, especially in New York, where pending fossil fuel bans and decarbonization policies could affect future demand for heating oil and propane. Customer attrition, if not offset by acquisitions or improved prospecting, threatens organic growth. Weather volatility, despite hedging, remains a material earnings driver. Rising acquisition multiples and integration costs could erode deal economics if not managed tightly.
Forward Outlook
For Q1 2026, Star Group did not provide explicit quantitative guidance, but management expects:
- Continued focus on acquisition integration and additional tuck-in deals
- Ongoing investment in service and installation profitability
For full-year 2026, management maintained its commitment to disciplined capital allocation and margin management, while flagging regulatory uncertainty as a key external variable. Investors should expect:
- Steady acquisition activity, primarily smaller deals
- Efforts to further reduce customer attrition and grow service revenue
Management highlighted that regulatory developments and customer churn trends will be closely monitored throughout the year.
Takeaways
Star Group’s 2025 results demonstrate the power of disciplined acquisitions and margin management in an industry vulnerable to weather and regulatory risk. The company’s ability to offset organic attrition with deal-making and service revenue growth will be tested as regulatory headwinds and customer churn persist.
- Deal Execution Remains Critical: Continued acquisition integration and pipeline development are essential for sustaining volume and EBITDA growth as organic gains lag.
- Attrition and Prospecting Need Attention: Lower real estate activity and tepid prospect engagement are weighing on new customer additions, requiring renewed sales and marketing focus.
- Regulatory and Weather Volatility Are Key Wildcards: Investors should closely track policy developments in New York and weather trends for early signals on 2026 performance.
Conclusion
Star Group delivered a year of solid volume and profit growth, underpinned by acquisitions and service expansion, but faces a more complex 2026 as regulatory and customer churn risks mount. Sustained discipline in deal execution and customer retention will be crucial to maintaining momentum.
Industry Read-Through
Star Group’s acquisition-led growth and margin management reflect broader industry trends in the fragmented home heating sector, where scale and service diversification are key to offsetting secular headwinds from decarbonization and electrification. Regulatory uncertainty in core Northeast markets is a warning sign for all fossil fuel distributors, signaling the need for increased agility and potential diversification into new energy solutions. Service and installation revenue growth points to a playbook for margin expansion that others in the sector may seek to emulate as core fuel delivery volumes face long-term decline.