Suburban Propane Partners, L.P. (SPH Quick QuoteSPH - Free Report) had a challenging fiscal third quarter of 2026, but the headline earnings miss may obscure some encouraging developments. The partnership reported a loss of 26 cents per unit, wider than the year-ago loss of 23 cents and the Zacks Consensus Estimate of a loss of 16 cents. Higher operating costs and unusually warm weather, which reduced heating-related propane demand, weighed on results.

Still, revenues edged up 0.5% to $261.4 million and surpassed the consensus estimate of $260 million. More importantly, SPH continues to expand its renewable natural gas (“RNG”) platform, strengthen its balance sheet and maintain healthy distribution coverage, providing three compelling reasons to look beyond the quarterly earnings disappointment.

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SPH’s Core Propane Business Shows Resilience Despite Weather

SPH’s third-quarter weakness was driven substantially by weather rather than a broad deterioration in its business. Temperatures across the partnership’s service territories were 17% warmer than normal and 3% warmer than a year ago. April was particularly unfavorable, with temperatures 24% warmer than normal, making it the second-warmest April on record. Consequently, retail propane gallons declined 1.8% year over year.

Yet, Suburban Propane benefited from continued growth in counter-seasonal customers, including agricultural, industrial and national accounts, which helped offset weaker heating demand. Volumes in May and June exceeded the prior-year levels. Propane unit margins also remained steady despite volatile commodity prices.

Weather was an industrywide challenge. UGI Corporation’s (UGI Quick QuoteUGI - Free Report) AmeriGas propane gallons declined 10%, partly because April temperatures were 16% warmer year over year. By comparison, SPH’s 1.8% volume decline looks relatively manageable. Global Partners LP (GLP Quick QuoteGLP - Free Report) , with its broader liquid-energy platform, benefited from a different business mix and stronger market conditions.

RNG Expansion Provides a Meaningful Growth Catalyst

Suburban Propane’s RNG business could become an important source of long-term growth. RNG production was mostly steady during the quarter, but higher prices for environmental credits helped support revenues. California LCFS credit prices rose 31% from a year ago, while D3 RIN prices increased 8%.

SPH is also bringing more RNG production capacity online. Its new facility in Upstate New York began operations after the quarter and is expected to contribute about 100,000 MMBtu of annual D3 RNG production. The upgraded Columbus, OH, facility is expected to start producing pipeline-quality RNG in the fourth quarter and add nearly 200,000 MMBtu of annual D5 production. With these projects coming online, SPH expects all three of its RNG facilities to be operational in fiscal 2027, with annual RNG production of 750,000-800,000 MMBtu.

Another positive is that much of the spending on these projects is nearly complete. Suburban Propane now expects full-year capital spending on its existing RNG projects to be about $35 million, at the low end of its earlier $35-$40 million estimate. Lower investment needs could give the partnership more flexibility to use cash for debt reduction or other growth opportunities. Like UGI, SPH is increasing its exposure to renewable energy, while Global Partners continues to benefit from its broad energy infrastructure portfolio. For SPH, the expected increase in RNG production could become an important driver of future growth.

Balance Sheet, Valuation, Estimates Strengthen Case for SPH

Suburban Propane is also taking steps to improve its financial position. During the third quarter, SPH repaid $36.2 million of borrowings under its revolving credit facility, using cash generated from operations along with $6.6 million raised through its at-the-market equity program. Its trailing 12-month leverage ratio was 4.35X. The partnership also maintained strong distribution coverage of 2.07X. Its quarterly distribution of 32.5 cents per unit equals $1.30 per unit on an annualized basis. SPH’s valuation is another positive. The units trade at a trailing 12-month EV/EBITDA multiple of 8.76X, below the subindustry average of 12.52X.

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SPH has declined 4.5% year to date, compared with a 6.3% drop for UGI and a 21.3% gain for GLP. This lower valuation could leave room for upside if Suburban Propane’s investments in renewable natural gas begin to support stronger earnings and cash flow. While Global Partners has performed much better this year, SPH has still held up better than UGI.

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Investors should continue to watch the earnings outlook following the third-quarter miss. However, the third quarter is usually a weaker period for SPH because propane demand is highly seasonal, and the partnership typically reports a loss during this quarter. For that reason, it may be more useful to focus on the longer-term drivers of the business, including higher RNG production, a return to more normal propane demand and lower spending needs as its current RNG projects are completed.

Conclusion

SPH’s fiscal third-quarter miss highlights risks from weather and rising operating costs, but several underlying trends remain encouraging. Its propane business showed relative resilience despite exceptionally warm conditions, while the expanding RNG platform offers a meaningful avenue for future growth. Debt reduction, strong distribution coverage and a discounted valuation provide additional support to the investment case. With all three RNG facilities expected to be operational entering fiscal 2027 and major related capital investments nearing completion, the partnership appears positioned for improving financial flexibility and longer-term growth. Suburban Propane currently carries a Zacks Rank #2 (Buy), making the units worth considering despite the fiscal Q3 earnings miss.

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