Business context and reporting period
Casey’s General Stores, Inc. operates convenience stores in 15 Midwestern states, with fuel and in-store merchandise as its main businesses. This 10-K covers the fiscal year ended April 30, 2017; fiscal Q4 is the three months ended that date. The company operated 1,978 stores at year-end.
Financial and operating performance
Amounts below are in millions, except per-share data, percentages, and gallons.
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $7,506.6 | $7,122.1 |
| Gross profit | $1,681.2 | $1,613.6 |
| Net income | $177.5 | $226.0 |
| Diluted EPS | $4.48 | $5.73 |
| Net cash from operating activities | $459.3 | $472.4 |
| Capital expenditures | $458.9 | $400.1 |
- Revenue increased 5.4%, reflecting higher fuel gallons sold and increased inside sales. Gross profit rose 4.2%, while gross margin eased to 22.4% from 22.7%.
- Net income fell 21.5%. Operating expenses increased 11.2% to $1,172.3 million, and depreciation and amortization rose 15.6% to $197.6 million. Management cited weaker agricultural conditions, less wholesale-fuel-price volatility, and wage increases as pressures.
- Fuel represented 58.8% of revenue. Fuel sales rose 4.7% to $4,414.1 million as gallons sold increased 5.6% to 2.062 billion. Average fuel margin was 18.4 cents per gallon, versus 19.6 cents in FY2016; reported fuel gross margin declined to 8.6% from 9.1%.
- Inside sales grew 6.5% to $3,040.8 million. Prepared food and fountain gross margin was 62.3%; grocery and other merchandise margin was 31.5%.
- Operating cash flow decreased 2.8%. Investing cash use was $454.7 million, mainly for property and equipment and acquisitions. Cash and cash equivalents were $76.7 million at year-end.
- Current assets were $350.7 million and current liabilities $446.5 million; the current ratio was 0.79. Long-term debt, net of current maturities, was $907.4 million; total debt and capital-lease carrying amounts were approximately $922.8 million. The company had a $100 million revolving credit line, with $0.9 million drawn, and reported compliance with debt covenants.
Material changes and notable items
- FY2017 diluted EPS was $4.48 versus $5.73 in FY2016. In Q4, net income was $30.1 million and diluted EPS $0.76, compared with $47.0 million and $1.19 a year earlier.
- Q4 same-store fuel gallons declined 0.5%; same-store grocery and other merchandise sales rose 1.5%, and prepared food and fountain sales rose 3.2%. For the full year, same-store fuel gallons increased 2.1%, grocery and other merchandise sales 2.9%, and prepared food and fountain sales 4.8%.
- Renewable fuel credit sales were $52.2 million in FY2017 versus $31.0 million in FY2016; management said these credits helped fuel margins. The credits’ market value and regulatory treatment are variable.
- The company acquired 22 stores, completed 48 new-store constructions, 103 major remodels, and 21 replacements, and closed 20 stores. It repurchased 443,800 shares for approximately $49.4 million under a newly authorized $300 million program; $250.6 million remained authorized at year-end. FY2017 dividends declared were $0.96 per share.
Outlook, risks, and contingencies
- Management anticipated FY2018 capital expenditures of $500 million to $600 million, primarily for construction, acquisitions, and remodeling. It provided no specific earnings or revenue guidance, and said operating cash flow, cash, its credit line, and additional long-term debt were expected to fund needs.
- After year-end, the company issued $150 million of 3.51% senior notes due 2025 and expected to issue a further $250 million of 3.77% notes due 2028.
- Key risks include intense retail and fuel competition; volatile wholesale fuel costs and fuel margins; changes in fuel demand and consumer preferences; agricultural and broader economic weakness; wage and other operating-cost increases; RIN price and regulatory uncertainty; weather and seasonality; tobacco regulation; food safety; cybersecurity; and environmental, regulatory, and litigation exposure.
- Environmental remediation accruals were approximately $0.3 million. The filing describes a previously reported “hot fuel” settlement, including pump disclosures and a payment deemed immaterial; the settlement remained subject to resolution of an appeal concerning fee awards. Management said pending or threatened matters were not expected to materially adversely affect consolidated financial position or results.
- Management and the auditor concluded internal control over financial reporting was effective as of April 30, 2017. Adoption of a stock-compensation accounting update benefited FY2017 tax expense; the company expected the upcoming revenue-recognition standard to have an immaterial financial-statement impact.
Important facts for investors to verify
- Whether fuel margins, same-store traffic, and customer demand recover, and how much earnings remain exposed to fuel-price volatility.
- Whether wage and other operating-cost growth moderates relative to gross-profit growth.
- How planned FY2018 capital spending and subsequent debt issuance affect leverage, interest costs, and liquidity.
- Whether RIN-market prices or renewable-fuel regulations materially change fuel profitability.
- Developments in environmental remediation, the hot-fuel litigation, and tax examinations or unrecognized tax benefits.
- Execution and returns from store construction, acquisitions, remodels, and the share-repurchase program.