Casey’s General Stores, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended April 30, 2019; the filing also reports fourth-quarter results. Casey’s operated 2,146 stores in 16 Midwestern states at year-end, up from 2,073 a year earlier. Fiscal 2019 included 56 new-store openings, 24 acquired stores, and 10 closures.
Financial results and key metrics
Annual results (USD): Revenue rose 11.5% to $9.353 billion. Net income was $203.9 million, versus $317.9 million in FY2018; diluted EPS was $5.51 versus $8.34. FY2018 included an approximately $173 million one-time benefit from the Tax Cuts and Jobs Act. Management cited FY2019 diluted EPS of $3.81 for FY2018 excluding that benefit.
Fourth quarter: Revenue was $2.178 billion, compared with $2.089 billion a year earlier. Net income increased to $25.2 million from $19.3 million, and diluted EPS rose to $0.68 from $0.51. Same-store fuel gallons fell 2.8%; grocery and other merchandise same-store sales increased 5.7%, and prepared food and fountain sales increased 2.0%.
- Sales mix and gross profit: Fuel represented 62.5% of FY2019 revenue, grocery and other merchandise 25.3%, and prepared food and fountain 11.5%. Revenue less cost of goods sold, excluding depreciation and amortization, increased to $1.955 billion from $1.769 billion; as a share of revenue it eased to 20.9% from 21.1%. Category margins were 8.0% for fuel, 32.1% for grocery and other merchandise, and 62.2% for prepared food and fountain.
- Fuel: Retail fuel sales increased 13.7% to $5.849 billion; gallons sold rose 4.4% to 2.296 billion. Average fuel margin increased to 20.3 cents per gallon from 18.5 cents, while same-store gallons declined 1.7% after increasing 2.3% in FY2018.
- Cash flow and investment: Operating cash flow was $530.6 million, up from $419.8 million. Investing activities used $457.8 million, including $394.7 million for property and equipment and $68.2 million for acquisitions. Financing activities used $63.2 million. Capital expenditures disclosed in MD&A were $462.9 million, versus $614.6 million in FY2018.
- Liquidity and debt: Cash and equivalents were $63.3 million. Current assets of $410.6 million were below current liabilities of $590.9 million; the current ratio was 0.69, down from 0.78. Long-term debt, net of current maturities, was $1.283 billion, and $75 million was drawn on the new revolving facility. The company reported compliance with debt covenants.
- Other metrics: Operating expenses increased 8.4% to $1.391 billion; depreciation and amortization increased 10.6% to $244.4 million; net interest expense was $55.7 million. The effective tax rate was 22.6%, compared with a benefit rate of 48.3% in FY2018. Dividends declared were $1.16 per share, up from $1.04.
Changes versus the prior comparable period
Revenue growth reflected higher fuel prices and volumes, more stores, and increased inside sales. Management attributed improved gross profit dollars to stronger margins across categories, especially fuel, alongside better product mix and promotion optimization. The more proactive fuel-pricing approach lifted average margin but contributed to lower same-store gallons, with softer Midwest demand also weighing on volumes. FY2019 net income declined principally because FY2018 contained the large one-time tax benefit, rather than because of a deterioration in reported revenue or gross profit dollars.
Renewable fuel credit (RIN) proceeds fell to $15.1 million on 73.1 million credits sold, from $47.5 million on 65.9 million credits in FY2018. This reduced a source of fuel-related gross profit. Reported operating cash flow improved, while cash used for investment decreased as acquisition and new-store construction spending was lower than the prior year.
Outlook, commentary, risks, and unusual items
- Management anticipated FY2020 capital expenditures of approximately $516 million, primarily for store construction and acquisitions, funded by cash, operating cash flow, and debt proceeds. The filing provides no specific earnings or revenue guidance.
- The company entered a new $300 million unsecured revolving credit facility in January 2019, maturing January 2024; $75 million was outstanding at year-end. Its prior unsecured bank line was reduced to $25 million.
- Management’s value-creation initiatives include fleet cards, digital engagement, and price optimization. The company was also implementing a new ERP system; its first phase was completed in November 2018. Delays, cost overruns, or operating and reporting disruptions remain identified risks.
- Key business risks include fuel-margin and wholesale-price volatility, intense competition, lower fuel demand, tobacco regulation and taxes, food-safety incidents, adverse weather, labor and commodity costs, cybersecurity and IT disruptions, environmental remediation, and acquisition and integration challenges. RIN prices are also volatile.
- Environmental remediation accruals were approximately $381,000. Management stated that pending or threatened legal matters were not expected to have a material adverse effect, while noting litigation outcomes are uncertain. Self-insurance reserves were $44.3 million.
- CEO Terry W. Handley retired June 23, 2019; Darren M. Rebelez became CEO effective June 24, 2019. The company adopted revenue-recognition guidance in FY2019, with disclosed transition adjustments; it expected adoption of the new lease standard in May 2019 to have no material financial-statement impact.
Important facts for investors to verify
- Whether higher fuel margins can be sustained without further weakening same-store fuel volume and customer traffic.
- How much of FY2019 fuel profitability depended on RIN credits, and the effect of continued low or volatile RIN prices.
- The sustainability of inside-sales growth and prepared-food margins amid competitive promotions, food-safety exposure, and commodity-cost changes.
- Funding capacity for planned FY2020 capital expenditures, debt maturities, and the company’s relatively low current ratio.
- Execution and cost of the value-creation plan and ERP rollout, including any effects on operations or financial reporting.
- The effects of the FY2018 tax benefit on reported year-over-year comparisons; FY2019 net income and EPS should be assessed separately from the prior-year one-time benefit.