Prepared remarks
Good day, and welcome to the Star Group Fiscal 2025 Second Quarter Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Adviser. Please go ahead.
Thank you, and good morning. With me on the call today are Jeff Woosnam, President and Chief Executive Officer; and Rich Ambury, Chief Financial Officer. I would now like to provide a brief safe harbor statement. This conference call may include forward-looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements. All statements other than statements of historical facts included in this conference call are forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call, the company's annual report on Form 10-K for the fiscal year ended September 30, 2024, and the company's other filings with the SEC.
All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this conference call. I'd now like to turn the call over to Jeff Woosnam. Jeff?
Thanks, Chris, and good morning, everyone. Thank you for joining us to discuss our second quarter and fiscal year-to-date results. Our performance this quarter was positively impacted by recent acquisitions and weather that, while 4.5% warmer than normal, was almost 13% colder than in fiscal 2024. This led to a nearly 23% increase in home heating oil and propane volume and a $32 million improvement in adjusted EBITDA versus the prior year period. We've been rather busy on the acquisition front this year. As a matter of fact, since February 1, 2024, we've completed $126.5 million of transactions, some of which were acquired during our current heating season and therefore, are not fully reflected in our results. Our pipeline of opportunities remains active and we closed on 2 businesses during the quarter as well as a very small transaction in April. All of these companies are within our existing operating footprint and serve to further strengthen our presence in these respective markets.
Along with strategically using capital to grow the business, we recently raised our annual dividend by $0.05 to $0.74 per unit, increasing value for our shareholders. All of this is consistent with our goal of allocating capital in ways that maximize returns for our investors. Let me add that it was quite rewarding to see how our team responded to the added demand brought on by colder temperatures. Our frontline employees once again proved themselves working tirelessly to provide our customers with the best service possible. I simply couldn't be more proud of their efforts. As we come to the end of the heating season, we continue to focus on operational execution and efficiency as well as the ongoing expansion and improvement of our HVAC business. We are pleased with our results year-to-date and look forward to the opportunities that summer brings to further invest in our people and advance various business development initiatives. With that, I'll turn the call over to Rich to provide additional comments on the quarter's results.
Thank you, Jeff, and good morning, everyone. In the second quarter, our home heating oil and propane volume increased by 27 million gallons or 23% to 144 million gallons, driven by additional volume from acquisitions and colder weather, which offset customer attrition and other factors. The temperatures during the second quarter of fiscal 2025 were 13% colder than last year, yet still 4.5% warmer than average. Our product gross profit rose by $52 million or 25% to $258 million, thanks to higher home heating oil and propane volumes sold, improved margins, and increased gross profit from other petroleum products. We made progress in our service and installation business, contributing an additional $1.6 million to adjusted EBITDA. Delivery, branch, and G&A expenses increased by $22 million year-over-year, with $9.6 million attributed to our weather hedging program. In the second quarter of fiscal 2025, we recorded an expense of $3.1 million under our contract due to the colder weather compared to a $6.5 million benefit recorded last year, reflecting warmer temperatures in the prior period.
Recent acquisitions contributed to a $7 million rise in expenses while expenses in the base business increased by $5 million or 4.5%, largely due to a corresponding 12% volume increase in the base business. Our net income for the second quarter of fiscal 2025 was $86 million, an $18 million increase from the prior year, reflecting a $32 million rise in adjusted EBITDA and a noncash unfavorable change in the fair value of derivative instruments amounting to $6 million, outweighing a higher income tax expense. Adjusted EBITDA increased by $32 million to $128 million, driven by higher volumes sold in the base business, positive contributions from acquisitions, and improved margins. Now, looking at the results for the first half of fiscal 2025, our home heating oil and propane volume grew by 29 million gallons or 14.7% to 226 million gallons, again reflecting colder temperatures and additional volume from acquisitions that offset customer attrition and other factors.
Overall temperatures in our operational areas during the fiscal year-to-date were 9.4% colder than last year but still 6.8% warmer than normal. Our product gross profit increased by $58 million or 17% to $409 million, attributed to more home heating oil and propane sold, improved margins, and higher gross profit from other petroleum products. As mentioned, our service and installation business continued to show profitability improvement, contributing $4.1 million to adjusted EBITDA over the last six months. Delivery, branch, and G&A expenses rose by $27 million year-over-year, with $10.6 million related to our weather hedging program. In fiscal 2025, we recorded an expense of $3.1 million under our weather hedge compared to a $7.5 million benefit in fiscal 2024, reflecting differing weather conditions in both periods. Recent acquisitions accounted for a $13 million increase in expenses while base business expenses increased by $3.7 million, or 1.7%, mainly due to a 5% volume increase in the base business.
Our net income for the first six months of fiscal 2025 reached $119 million, which is $37 million more than the prior year, mainly due to a $34.6 million rise in adjusted EBITDA and a $19 million favorable after-tax impact from noncash changes in derivative valuations. Adjusted EBITDA rose by $34.6 million to $180 million, due to increases in home heating oil and propane sold in the base business, enhanced adjusted EBITDA from acquisitions, higher margins, and improved service and installation profitability. Looking ahead to fiscal 2026, we have established $15 million of weather hedges under similar terms as in 2025. Additionally, while we benefited from winter profits from recent acquisitions, we anticipate losses in the nonheating season which may balance these profits. Now, I would like to hand the call back to Jeff.
Thanks, Rich. At this time, we're pleased to address any questions you may have. Operator, please open the phone lines for questions.
Questions and answers
The first question comes from Tim Mullen from Laurelton Management.
First, I was just curious, given the lack of buybacks that have occurred in the past couple of months. I was curious if there's any changes to that program and if the recent acquisitions, given their size had any impact on that program?
There's really been no change to the program. It's still operating as we have it in place at the strike price that we have in place with JPMorgan. I mean it's not on automatic pilot. We don't enter the market every day and say, buy, sell or buy, buy, buy. We're out of it; it's not on automatic pilot.
Understood. And then switching gears, in terms of the acquisition pipeline, are you looking at any that are kind of in the HVAC installation servicing business? Or is this really just more on the distribution side?
It's more on the distribution side, primarily heating oil and propane businesses. We are undertaking an initiative on a limited basis to try to build out our own HVAC business internally, organically.
Okay. Great. And if I could just ask one last one. In terms of just the consumer, it didn't seem like there was much in terms of changes to various allowances for credit losses. But I was just curious just qualitatively, if you've seen any difference in terms of customers' ability to pay, their timeliness that kind of thing?
Historically, and I've been here for 42 years, our bad debt rate has been consistent with sales or pretty close to that on an annual basis. Now it has been cold and people need home heating oil to heat their homes. So they will pay that bill during the winter. So we'll have to see how all that kind of settles up at the end of the summer when they don't really need it, so to speak, because there won't be any deliveries. But historically, that's been our bad debt rate for almost ever.
The next question comes from Michael Prouting from 10K Capital.
Congratulations to the entire team, excellent execution. Just a couple of questions. One is, do you anticipate any impact from tariffs on heating oil prices in your markets? And then secondly, on the acquisition front, I'm just wondering, is there anything that's happened tax-wise or otherwise, do you think increased the availability of acquisitions? And do you feel like you have sufficient firepower right now to execute on the opportunities in front of you?
So Michael, regarding tariffs, obviously, it's a fluid situation, as I think everybody can understand. We have experienced some price increases, particularly on the HVAC side of our business with parts and equipment. That ranges anywhere from 3% to 15%, roughly, is what we've seen so far. Fortunately, our vendors have provided us enough notice in order to adjust and adjust our pricing. So that's kind of what we're experiencing right now. On the acquisition front, I don't know that we've seen any difference related to taxes or anything like that. I would say that we had some pent-up demand going into the heating season, and we had obviously a busier season overall. We had heard from various sources that there were going to be additional opportunities hitting the market after the season concluded, and it's pretty much what we're seeing right now.
Keep up the good work. Congratulations.
At this point, there are no further questions in the queue. I would like to turn the call back over to Mr. Woosnam for closing remarks.
Okay. Thank you for taking the time to join us today and your ongoing interest in Star Group. We look forward to sharing our 2025 fiscal third quarter results in August. Have a great summer.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.