STAR GAS PARTNERS, L.P. REPORTS THIRD QUARTER OPERATING RESULTS AND COMMON UNIT DISTRIBUTION
STAMFORD, CT (July 29, 2004) -- Star Gas Partners, L.P. (the "Partnership" or "Star") (NYSE: SGU, SGH), a diversified home energy distributor and services provider specializing in heating oil and propane, today reported results for the fiscal 2004 third quarter and nine months ended June 30, 2004. For the three months ended June 30, 2004, Star's volume increased approximately 2% despite temperatures that were 28% warmer than in the comparative period in the prior year. This increase was primarily attributable to the effect of Star's acquisition of 14 companies since April 1, 2003, representing approximately 119 million gallons of annual volume, which more than offset the negative impact of weather and customer losses, primarily a result of high energy prices.
Star's fiscal third quarter is predominantly a non-heating period and its operating loss rose approximately $4 million, from $26 million to $30 million due to a) warmer temperatures in the early part of the quarter impacting results by approximately $9 million; b) gross profit margins that were lower than the unusually high levels experienced in the third quarter of fiscal 2003; and c) an increase in Depreciation and Amortization expense. These items were partially offset by a) lower equity related compensation expense; b) some operating improvements associated with the Heating Oil Division's Business Process Improvement Program; as well as c) a change in heating oil delivery patterns.
Star's third quarter seasonal net loss increased approximately $5 million to $43 million due to the aforementioned operating loss increase and higher net interest expense associated with the Partnership's acquisition program. Diluted net loss per limited partner unit rose to $1.18 per unit in the third quarter of fiscal 2004, from $1.15 per unit in the third quarter of fiscal 2003.
EBITDA for the three months ended June 30, 2004 was a loss of $15.8 million, versus a loss of $12.6 million in the fiscal 2003 third quarter. This decrease in EBITDA was primarily due to the warmer weather referred to above.
For the nine months ended June 30, 2004, sales increased approximately 5% to $1.3 billion, compared to $1.2 billion in the same period in fiscal 2003, due both to volume expansion and higher energy prices. Volume for the first nine months of FY 2004 increased 2% to 686 million gallons from 673 million gallons in the same period in the prior year. This was due to Star's acquisition program which more than offset 8% warmer temperatures and net customer loss in the first three quarters of fiscal 2004 versus 2003. Operating income for the nine months ended June 30, 2004 decreased approximately $4 million to $95 million due to a) the estimated $22 million impact of warmer temperatures; b) the effect of an approximate 4% net customer loss resulting from both high energy prices and diminished service levels at Petro associated with the initial stages of its Business Process Improvement Program; and c) increased Depreciation and Amortization expense. This was offset by a) the estimated $16 million impact from the Company's acquisition program; b) a 1.6 cent per-gallon expansion in gross profit margin in the base operations; and c) certain improvements in operating results primarily associated with the Heating Oil Division Business Process Improvement Program.
Net income for the nine months ended June 30, 2004 declined approximately $4 million to $57 million, from $61 million in the comparable period in fiscal 2003. This decrease was primarily attributable to the operating income decline, as well as to higher interest expense and debt issuance costs, offset by lower income tax expense, lower income from discontinued operations and the adoption of SFAS No. 142 for discontinued operations in fiscal 2003, which resulted in a charge of $3.9 million. Diluted net income per limited partner unit for the nine months ended June 30, 2004 declined to $1.62 per unit from $1.87 per unit during the same period in fiscal 2003.
EBITDA for the nine months ended June 30, 2004 rose approximately $1 million to $138 million from $137 million in the same period last year due to acquisitions and gross profit margin improvements.
Star also announced that during the period from April 1, 2004 to date, the Partnership acquired four heating oil and propane companies consisting of approximately 7,700 customers. The four companies were Fuels by Keith of Brandon, VT; B&C Fuel Oil of Pinebush, NY; Shiavoni Propane of Southampton, NY; and Mabob of Kissimmee, FL.
In commenting on these results, Chairman Irik Sevin stated: "We are very pleased with certain aspects of this year's performance, most notably that our aggressive, yet disciplined acquisition program largely offset the impact of temperatures that were considerably warmer than last year's. However, there were two aspects of the business that were particularly challenging. The first was the implementation of the Heating Oil Division's Business Process Improvement Program. Since this entailed a complete change in the way Petro conducts it business, it is understandable that the first heating season under the new model could require certain adjustments. As a result of the actions taken throughout this past year, we are beginning to see many of the operational and customer satisfaction benefits originally anticipated. Having made many of the adjustments required, we believe the new platform could provide Petro with a distinct operating and marketing competitive advantage going forward.
"The second challenge faced, especially this past quarter, was the unprecedented rise in energy costs. The movement in petroleum prices generally created a significantly heightened level of customer concern over propane and heating oil prices and resulted in base company customer loss.
"While these two factors had a negative impact on first nine months results, they now appear to offer Star certain longer-term opportunities. First the Propane Division has already taken advantage of greater consumer awareness to launch a marketing campaign, which, while early, has achieved certain positive results. Second, the Heating Oil Division is utilizing its new centralized platform, marketing expertise and consumer research to offer consumers new ways to address their potentially high energy bills. It is anticipated that this new product will be launched in late August/September, when consumers are most sensitive to selecting a fuel oil provider for the upcoming heating season."
Distribution Information
In regard to quarterly distributions, Star declared today its $0.575 per unit Minimum Quarterly Distribution on its common units for the quarter ended June 30, 2004, payable on August 13, 2004 to unitholders of record as of August 9, 2004. Based on the discussion above, and especially a) the current turbulent and high priced energy market; b) the Petro division having not yet realized the full financial benefit of its Redesign Program despite some positive results; and c) the funds that might be used to take advantage of Star's new marketing programs, Star believes it is prudent to preserve its capital and not declare a distribution on its Senior Subordinated, Junior Subordinated and General Partner Units.
Star Gas Partners, L.P., is a leading distributor of home heating oil and propane. The Partnership is the nation's largest retail distributor of home heating oil and the nation's seventh largest retail propane distributor. Additional information is available at www.star-gas.com.
This news announcement contains certain forward-looking information that is subject to certain risks and uncertainties as indicated from time to time in the Partnership's 10-K, 10-Q, 8-K and other filings with the Securities and Exchange Commission. Included risks and uncertainties are the effects of the weather on the Partnership's financial results, competitive and propane and heating oil pricing pressures and other factors impacting the propane and home heating oil distribution industries.
