By Maksym Misichenko · Yahoo Finance ·
What AI agents think about this news
The panelists agree that Suburban Propane (SPH) delivered a resilient quarter with a focus on RNG growth, but they have differing views on the sustainability of this growth and the associated risks.
Risk: The reliance on policy-driven returns for RNG projects and the potential underinvestment in the core propane distribution infrastructure due to capital-intensive capex requirements.
Opportunity: The potential for RNG projects to diversify away from weather-volatile propane and provide stable, long-term growth.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Image source: The Motley Fool.
Thursday, May 7, 2026 at 9:00 a.m. ET
- President and Chief Executive Officer — Michael A. Stivala
- Chief Financial Officer — Michael Kuglin
- Senior Vice President of Operations — Alex Centeno
- Vice President of Investor Relations — A. D'Ambrosio
Need a quote from a Motley Fool analyst? Email [email protected]
A. D'Ambrosio: Morgan, thank you. Good morning, everyone. Thank you for joining us this morning for our fiscal 2026 second quarter earnings conference call. Joining me this morning are Mike Stivala, our President and Chief Executive Officer; Mike Kuglin, Chief Financial Officer; and Alex Centeno, Senior Vice President of Operations. This morning, we will review our second quarter financial results, along with our current outlook for the business. Once we've concluded our prepared remarks, we will open the session to questions. Our conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, relating to the partnership's future business expectations and predictions and financial condition and results of operations.
These forward-looking statements involve certain risks and uncertainties. We have listed some of the important factors that could cause actual results to differ materially from those discussed in such forward-looking statements, which are referred to as cautionary statements in our earnings press release, which can be viewed on our website at suburbanpropane.com. All subsequent written and oral forward-looking statements attributable to the partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements.
Our annual report on Form 10-K for the fiscal year ended September 27, 2025, and our Form 10-Q for the period ended March 28, 2026, which will be filed by the end of business today, contain additional disclosure regarding forward-looking statements and risk factors. Copies may be obtained by contacting the partnership or the SEC. Certain non-GAAP measures will be discussed on this call. We have provided a description of why these measures as well as a discussion of why we believe this information to be useful in our Form 8-K, which was furnished to the SEC this morning. Form 8-K will be available through a link in the Investor Relations section of our website.
At this point, I will turn the call over to Mike Stivala for some opening remarks. Mike?
Michael A. Stivala: Thanks, Davin. Good morning. Thank you all for joining us today. The fiscal 2026 second quarter was another solid quarter for Suburban Propane. Our core propane business performed extremely well in a very challenging heating season. We made great progress stabilizing production and advancing our expansion projects in our renewable natural gas business. And with our excess cash flows from operations, we continued to reduce our total outstanding debt. With respect to our propane operations, this year's heating season was a tale of two halves. The eastern half of our footprint experienced some of the most sustained colder temperatures in the heart of the heating season than we've experienced in decades, along with several harsh winter storms.
Our Western half, on the other hand, reported near record warm temperatures throughout most of the winter. Where we got weather, customer demand surged and our teams worked tirelessly to safely and reliably meet the needs of our customers, many times in some very harsh weather with challenging road conditions. Volumes in our Eastern territories were approximately 3% higher than the prior year second quarter on average heating degree days that were 3% colder than the same period. In the West, volumes were approximately 10% lower on average heating degree days that were 17% warmer.
As always, our operating personnel were well prepared to manage the surge in demand in our Eastern markets, supplemented by resources redeployed from certain locations in our Western territories to provide the additional support, and I am so proud of how our teams responded to meet our customers' needs under these conditions while also maintaining their focus on our customer base growth and retention initiatives. In addition to solid volume performance, we effectively managed selling prices amid a volatile commodity price environment influenced in March by the conflict in the Middle East while also maintaining disciplined expense control.
In our renewable natural gas operations, average daily D3 RNG injection during the second quarter of fiscal 2026 increased 16% compared to the prior sequential quarter and more than 12% compared to the prior year second quarter, driven by improved facility uptime and the benefits of our capital investments and process improvements that we have implemented since our acquisition of our anaerobic digester facility in Stanfield, Arizona. Additionally, with our new anaerobic digester facility in Upstate New York and our gas upgrading system at our facility in Columbus, Ohio, both of which remain on schedule for completion during the second half of fiscal 2026, we expect to add approximately 200,000 MMBtus of annual production to our RNG platform.
We are also pursuing opportunities to increase feedstock intake for both manure and food waste at the Stanfield facility in order to take advantage of additional production capacity at the plant. While environmental credit values, particularly California LCFS prices have been depressed over the past couple of years, we are encouraged by the regulatory steps taken by the California Air Resources Board to create a better balance in the supply-demand equation for environmental credits, which is starting to favorably impact LCFS credit values.
We were also pleased to see the Treasury release draft regulations in February 2026 that favorably addressed ambiguities in previous guidance related to the eligibility to earn production tax credits or PTCs under Section 45Z of the Internal Revenue Code as promulgated in the Inflation Reduction Act. The One Big Beautiful Bill Act also extended the window for PTCs by two years until December 2029. During the second quarter of fiscal 2026, we recognized $3.5 million of PTCs earned on D3 RNG injections at our Stanfield facility for the period from January 2025 through March 2026, and we continue to earn PTCs on production going forward.
As D3 production at our Upstate New York facility comes online, we expect to be eligible to earn PTCs for RNG injected from that facility as well. So for the second quarter of fiscal 2026, adjusted EBITDA of $175.3 million was essentially flat to the prior year. And combined with our fiscal first quarter results, adjusted EBITDA totaled $258.7 million for the first half of the fiscal year. That's an increase of $8.4 million or 3.4% compared to the first two quarters of the prior year.
And with another quarter of strong operating performance and with capital expenditures for our RNG facilities that are nearing completion, we used excess cash flow generated during the second quarter to reduce our total outstanding debt by more than $64 million. We remain disciplined in our capital allocation, balancing investments in the growth of our core propane business and renewable energy platform with preserving balance sheet strength and flexibility in support of our long-term strategic growth initiatives and for enhancing unitholder value. In a moment, I'll come back for some closing remarks. However, let me turn the call over to Mike Kuglin to discuss the second quarter results in more detail. Mike?
Mike Kuglin: Thanks, Mike, and good morning, everyone. To be consistent with previous reporting, as I discuss our second quarter results and exclude the impact of unrealized mark-to-market adjustments on our commodity hedges, which resulted in unrealized loss of $1.4 million for the second quarter compared to an unrealized gain of $700,000 in the prior year second quarter. Excluding these and certain other noncash items, adjusted net income for the second quarter was $139.3 million or $2.09 per common unit compared to adjusted net income of $136.9 million or $2.11 per common unit in the prior year second quarter. Adjusted EBITDA for the second quarter was $175.3 million, which was flat compared to the prior year second quarter.
Retail propane gallons sold in the second quarter were 161.6 million gallons, essentially unchanged compared to the prior year as the impact of colder temperatures across much of the eastern half of the country on heat-related demand, together with contributions from our recent acquisitions were offset by considerably warmer temperatures in the western half. With respect to the weather, average temperatures across our service territories during the second quarter were 6% warmer than normal and 1% warmer than the prior year.
In the eastern half of the U.S., average temperatures were slightly warmer than normal and 3% colder than the prior year second quarter, whereas average temperatures in the West were 22% warmer than normal and 17% warmer than the prior year second quarter. From a commodity perspective, propane inventory levels in the U.S. experienced a seasonal decline during the second quarter, but remained well above historical averages for this time of year. At the end of the second quarter, U.S. propane inventories were at 77 million barrels, which were 75% higher than March 2025 levels and 47% higher than the five-year average for March.
Given the increase in inventories and other factors, average wholesale propane prices for the quarter of $0.69 per gallon, basis Mont Belvieu decreased 23% compared to the prior year second quarter. Although average propane prices for the second quarter were lower than the prior year, prices have evolved and have recently begun to rise due to the conflict in Iran and the resulting disruption in global energy markets. At the end of February, just before the start of the conflict, spot propane prices were in the mid-$0.60 per gallon range, whereas most recently, spot prices have risen to the $0.90 per gallon range.
Excluding the impact of the noncash mark-to-market adjustments on our commodity hedges that I mentioned earlier, total gross margins of $345.1 million for the second quarter increased $500,000 compared to the prior year second quarter, primarily due to a slight increase in propane unit margins of $0.03 per gallon or 1.7%. As Mike mentioned, following the publication of proposed treasury regulations in February 2026, which provided sufficient clarity for us to conclude that the production and sales of our RNG qualified for production tax credits under Section 45Z, we recognized $3.5 million of PTCs earned on D3 RNG injections at our Stanfield, Arizona facility for the period from January 2025 through March 2026.
The benefit was reported as a reduction to operating expenses and included a catch-up adjustment of $2 million for credits related to fiscal 2025 and $800,000 related to the first quarter of fiscal 2026.
With that said, combined operating and G&A expenses of $169.5 million for the quarter were flat compared to the prior year second quarter as higher payroll and benefit-related expenses along with higher fuel and vehicle maintenance costs, driven by elevated activity levels to meet stronger customer demand in the Eastern territories and an increase in accruals for self-insurance matters were offset by the recognition of production tax credits and a $2.9 million insurance recovery related to the partial settlement of certain claims associated with our RNG acquisition in December 2022.
Net interest expense of $19.7 million for the quarter decreased 4.2% compared to the prior year second quarter, resulting from a lower level of average outstanding borrowings under our revolving credit facility and lower benchmark interest rates on revolver borrowings. Total capital spending for the quarter of $24.7 million was $5.4 million higher than the prior year second quarter, primarily due to the construction efforts at our Columbus, Ohio and Upstate New York RNG facilities. On a year-to-date basis, our total growth CapEx for our RNG facilities totaled $19 million, and our full-year capital spending estimate for the existing projects is $35 million to $40 million. Turning to our balance sheet.
During the second quarter, we utilized excess cash flows from operating activities to repay $64.3 million of borrowings under the revolver. Our consolidated leverage ratio for the trailing 12-month period ended March 2026 improved to 4.34x compared to 4.54x for March 2025 with an increase in adjusted EBITDA of $6 million and total debt reduction of $32.3 million. We have now moved through our historically high period of seasonal working capital needs into the fiscal quarters we expect to generate excess cash flows. We will continue to remain focused on utilizing excess cash flows to strengthen the balance sheet as opportunities arise to fund strategic growth, including the remaining growth capital for our RNG platform.
We have more than ample borrowing capacity under our revolver to support our capital expansion plans and ongoing strategic growth initiatives. With that, I'll turn the call back to Mike.
Michael A. Stivala: Thanks, Mike. As announced on April 23, our Board of Supervisors declared our quarterly distribution of $0.325 per common unit in respect of our second quarter of fiscal 2026. That equates to an annualized rate of $1.30 per common unit. Our quarterly distribution will be paid on May 12 to our unitholders of record as of May 5. Our distribution coverage continues to remain strong at 2.2x for the trailing 12-month period ended March 2026. So just a few closing remarks. The management team here at Suburban Propane has been together for decades now. We've built our core propane business to be recognized as best-in-class with our hyperlocal operating model.
As evidenced by our performance in this year's heating season, our business and our outstanding personnel are very well situated to adapt and handle whatever weather conditions come our way. When others in our industry may struggle to keep up in high demand scenarios, our hard-working and dedicated teams across the country rise to the occasion. I'm super proud of their efforts in the face of some very challenging operating conditions this past winter. They've also done a great job executing on our customer base growth and retention initiatives, especially meeting growing demand for propane in certain unique applications, such as EV charging stations, powering port equipment, power generation for data center construction, backup power generation and multipurpose agricultural uses.
We're also proud of our expanded sponsorship with NASCAR and Speedway Motorsports as the official propane of NASCAR, which has giv
Four leading AI models discuss this article
"SPH's long-term valuation depends less on its core propane volume and entirely on the successful scale-up of its RNG platform to offset the secular decline in traditional residential heating demand."
Suburban Propane (SPH) is executing a classic 'cash cow' pivot. By leveraging the stable, albeit weather-dependent, propane business to fund high-growth RNG infrastructure, management is effectively diversifying away from fossil fuel commodity volatility. The $64 million debt reduction and 2.2x distribution coverage ratio are impressive, signaling a disciplined approach to capital allocation. However, the reliance on D3 RNG production tax credits and the volatile California LCFS market creates a regulatory 'cliff' risk. While the 1.7% increase in unit margins is encouraging, the core propane business remains a low-growth utility; the real value lies in whether their RNG projects hit the targeted 200,000 MMBtu production threshold by year-end.
The company's reliance on federal tax credits (PTCs) and regulatory pricing in California creates a fragile earnings foundation that could evaporate if political winds shift or IRA subsidies are curtailed.
"Debt reduction and on-schedule RNG projects position SPH for 5-10% EBITDA growth in FY26 if H2 weather averages normal and new capacity delivers."
SPH delivered resilient Q2 results with flat $175M adj. EBITDA despite split weather (East +3% vols on 3% colder HDDs, West -10% on 17% warmer), offset by +1.7% unit margins to $0.03/gal and $3.5M RNG PTC catch-up. Debt paydown of $64M cut leverage to 4.34x, coverage at 2.2x supports $1.30 ann. dist. RNG ramps (D3 +12-16% YoY) with 200k MMBtu new capacity H2'26 offer diversification from weather-volatile propane (161.6M gals flat YoY). Rising spot prices to $0.90/gal amid Mideast tensions aid margins, but high inventories (77MM bbls, +47% vs 5yr avg) cap upside.
Flat EBITDA masks weather dependency—normalization could crater volumes/margins while RNG remains <5% of EBITDA with capex risks, execution delays, and volatile LCFS/PTC credits.
"Core propane business is resilient but margin-constrained by excess inventory; RNG upside is real but policy-dependent and not yet material to cash flows."
SPH delivered flat Q2 EBITDA ($175.3M) despite a weather-split story: East +3% volumes on colder temps, West -10% on warmth. The real story is RNG: D3 production +16% QoQ, +12% YoY, with $3.5M in Section 45Z PTCs recognized retroactively. Two new facilities (NY, Ohio) expected H2 2026 add ~200K MMBtu annually. Leverage improved to 4.34x from 4.54x; distribution coverage solid at 2.2x. But propane inventory remains 47% above five-year average—margin compression risk if that normalizes. RNG economics depend heavily on LCFS and PTC policy tailwinds that could reverse.
Flat EBITDA YoY despite operational leverage from higher volumes and acquisitions suggests underlying margin pressure, not strength. RNG's $3.5M PTC catch-up is a one-time accounting benefit, not recurring cash; the business still needs commodity credit prices to stay elevated.
"Suburban Propane can drive meaningful cash flow and a higher multiple if RNG credits stay supportive and weather-driven propane demand remains resilient."
Suburban Propane delivered a resilient quarter: core propane volumes held up amid divergent weather, margins modestly improved, and the RNG platform progressing with two new facilities on track and a chunky PTC windfall. Net debt declined and the leverage ratio showed meaningful improvement to 4.34x, while the dividend coverage remains comfortable at 2.2x. Yet the upside rests on aggressive RNG capex funded by modest EBITDA growth and policy credits that remain uncertain. The California LCFS rebound, and 45Z/IRAs PTC extension are favorable but not guarantees. The stock trades on weather, commodity swings, and regulatory timing more than visible cash flow progression.
The RNG ramp is policy-dependent; if 45Z credits are rolled back or LCFS values soften, the incremental EBITDA from RNG could erode. Additionally, higher-than-forecast capex or persistent higher rates could pressure cash flow and lift leverage.
"The pivot to RNG creates a dangerous trade-off between speculative green energy capex and the maintenance of a capital-heavy, legacy propane business."
Grok and Claude focus heavily on the inventory glut, but they miss the structural risk of SPH’s aging infrastructure. Propane distribution is capital-intensive; if management prioritizes RNG capex to chase policy-driven returns, they risk underinvesting in the core logistics network. A 4.34x leverage ratio is still restrictive in a 'higher for longer' rate environment. If the RNG projects face even minor permitting delays, the dividend coverage ratio will erode quickly as interest expenses remain elevated.
"RNG scale is too small to offset propane vulnerabilities despite capex demands."
Gemini, aging infrastructure is speculative—no Q2 evidence or capex deferral signals; historicals show steady $40-50M maintenance spend. Bigger flaw across panel: RNG's 200k MMBtu adds ~$10-15M EBITDA at peak (mgmt implied), <10% total, yet $100M+ capex strains 4.34x leverage if propane weather normalizes. Backwardated futures cap spot gains.
"RNG's modest EBITDA contribution masks a near-term refinancing vulnerability if propane volumes normalize and rates stay sticky."
Grok's $10-15M EBITDA ceiling on 200k MMBtu is critical—that's 6-9% upside, not transformational. But nobody's stressed the refinancing cliff: SPH's debt matures $30-40M annually through 2026. If rates stay elevated and propane normalizes (inventory +47% above avg), refinancing leverage could spike past 5x fast, forcing dividend cuts before RNG scales. That's the real coverage erosion risk.
"Refinancing risk is real but not an immediate 'cliff'; RNG cash flow and policy credits are the real trigger for dividend sustainability."
Claude's refinancing-cliff worry hinges on 30–40M of maturities annually through 2026 and higher-for-longer rates. That frame ignores SPH's liquidity facilities, staggered maturities, and cash flow cushion from the core propane business. The bigger risk isn't debt coming due—it's RNG cash flows and credits failing to meet expectations, which would push the coverage below 2x before refinancing options are exhausted. In other words, cliff risk exists, but it's largely policy/operational, not purely funding.
The panelists agree that Suburban Propane (SPH) delivered a resilient quarter with a focus on RNG growth, but they have differing views on the sustainability of this growth and the associated risks.
The potential for RNG projects to diversify away from weather-volatile propane and provide stable, long-term growth.
The reliance on policy-driven returns for RNG projects and the potential underinvestment in the core propane distribution infrastructure due to capital-intensive capex requirements.