Star Gas Loses Customers, but Profits Increase

By Timothy C. Barmann, The Providence Journal, R.I.

Feb. 7–Star Gas Partners LP, the parent company of Petro Oil, said yesterday it continued to lose customers in the first quarter, but its per-gallon profit margin grew.

Stamford, Conn.-based Star said it lost 7,200 accounts, or 1.6 percent of its home-heating oil customer base. By comparison, the company lost 2,000 accounts, or 0.4 percent of its customer base, in the first quarter of last year.

Petro is the largest home-heating oil delivery company in Rhode Island.

Star said its net income in the first quarter fell 83.2 percent to $12.5 million, compared with $74.4 million in first quarter of last year. (The company’s 2006 fiscal year began Sept. 1.)

The decline was due mainly to a gain of $153.6 million for the sale of its propane division in the first quarter of last year.

Income from continuing operations was $12.9 million in the quarter, compared with a loss of $74.6 million in the first quarter of last year.

The company said its financial performance was helped by an increase in the profit margin of 21.2 cents for each gallon of oil sold in the quarter. The company said it decided to “maintain reasonable profit margins” in the past two quarters, despite “‘pricing tactics” of its competitors.

Sales were $414.4 million, up 18.2 percent from $350.7 million in the first quarter of 2005. The company attributed the increase to a rise in the price of heating oil. The volume delivered declined by 7.7 percent, to 131.3 million gallons, because of a loss of customers.

The company is trying to recover from the financial troubles it had in the fall of 2004 when it announced it might have to seek bankruptcy protection because of cash-flow problems. Star attributed those problems to a loss of customers, and said that it had not passed on the full impact of soaring heating-oil prices. The news pushed down units of Star, which fell by 80 percent in one day. Units of Star Gas Partners are traded on the New York Stock Exchange under the ticker symbol SGU.

Star put new financing in place in December 2004 and in March 2005, the company’s chief executive officer, Irik P. Sevin, resigned under pressure from one of the company’s largest unit holders. Sevin’s mother, Audrey, also resigned as a director and company secretary. Joseph P. Cavanaugh was named CEO and Daniel P. Donovan was named president and chief operating officer.

Star said its profits in the most recent quarter were helped by a decline in the wholesale cost of heating oil. It did not decrease its own retail price as fast as the wholesale cost was declining, the company said.

Last month’s warm weather cut the volume of heating oil delivered by 32.4 percent, to about 59.9 million gallons, compared with 88.5 million gallons in January 2005. That decline is expected to reduce operating income for the month by about $14 million, Star Gas said.

That could be partially offset by a weather-insurance policy that covers unusually warm winter weather. The company estimates that it will receive about $5.5 million under that policy, based on the temperatures through last month.

But if the weather turns cold this month, that could lower or wipe out that anticipated payment, the company said.

Units of Star Gas (SGU:NYSE) fell 35 cents, or 12.7 percent, to close at $2.41 at the end of 4 p.m. trading.

—–

To see more of the The Providence Journal, or to subscribe to the newspaper, go to http://www.projo.com.

Copyright (c) 2006, The Providence Journal, R.I.

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

SGU,