Weather has a big impact on Suburban Propane Partners SPH.
Shares of the company have traded down over 30% in 2020 after a warmer winter hurt financials. The U.S. has had three of the warmest winters on record over the last 10 years, with record winters seen in 2015-16 and 2016-17, Suburban Propane CEO Michael Stivala told Benzinga in an interview this week.
A warmer winter means one to two fewer deliveries per customer on average, the CEO said.
The Pandemic's Impact On Propane: Suburban Propane's business is 50% residential and 50% everything else — commercial, industrial, agricultural and government.
The company cut its quarterly distribution from 60 cents to 30 cents per share in July.
The company is “adjusting to a new normal as it relates to weather demand,” Stivala said.
Suburban Propane studied scenarios on how bad winter weather and COVID-19 would affect volume, the CEO said. At the peak of the coronavirus impact, the company saw 20%-25% lower volume in the non-residential business.
Suburban Propane's Strong Q3: The third quarter saw weakness in commercial, but due to the strength of the residential business, turned out better than it could have been, Stivala said.
Commercial and industrial volume was down 9% year-over-year, but residential volume increased by 21%. Adjusted EBITDA was up 61% year-over-year and was the highest third-quarter figure in company history.
“Overall, we were up year-over-year because of residential volume,” the CEO said.
Suburban Propane was pleasantly surprised by the demand from the residential sector in the third quarter, he said.
Stivala On Propane Pricing: One area of concern in the third quarter was lower propane prices, Stivala said.
Wholesale propane ranged from 27 cents to 46 cents in the third quarter and were down 26% year-over-year.
Propane prices were “pretty stable in mid-40s to 50-cent range” in the fourth quarter, the CEO said.
Restaurants, Outdoor Events And Propane Demand: Some investors have been circling propane as a potential growth area due to the growth in outdoor seating areas for restaurants.
As winter nears, it's expected that more propane will be needed to heat these areas if restaurants want to maintain seating capacity. Google Trends shows that searches for outdoor patios and fire pits have seen huge spikes.
Propane is indeed a possible winner with the shift to outdoor events, Stivala said.
“It’s not just restaurants,” the CEO said, adding that other businesses, schools and weddings are leading to increased demand for propane.
Suburban Propane is providing fuel to outdoor tents in some areas due to demand for COVID-19 testing stations and food pantries, he said.
The company is “proud of being called upon” to help in that area, Stivala said.
Oberon Stake: Earlier this month, Suburban Propane announced it was acquiring a 39% stake in Oberon Fuels.
The move is part of the company’s “go green with Suburban Propane” initiative, and Stivala said it will lead to exciting growth for the company.
Oberon is a startup working on dimethyl ether — DME — that the CEO said can serve as a diesel replacement.
The growth could come from mixing DME with propane, he said, adding the mixture can bring engines “closer to zero emissions.”
Oberon Fuels is still a startup, and Stivala said there are still some investments to be made and testing to validate. The company is targeting production in mid-2021.
The propane industry is lacking innovation, and Oberon's technology is exciting and new, Stivala said.
DME is widely used in Asia and tested in Europe, but has not caught on in the U.S., the CEO said, adding that Oberon Fuels has a patented process for DME production.
What’s Next For Suburban Propane: Suburban Propane is nearing the end of its fourth quarter. Demand is coming back, but some businesses have shut down completely, Stivala said.
"We're still pleasantly surprised with the residential demand we are seeing."
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