Casey’s General Stores, Inc. — Form 10-Q Summary
Business context and reporting period. The filing covers the fiscal quarter and nine months ended January 31, 2016 (fiscal 2016 Q3). Casey’s operated 1,911 convenience stores in 14 states, primarily in the Midwest. The company reports as one operating segment. Unless stated otherwise, financial amounts below are in millions of dollars.
Financial performance and condition
| Metric | Three months ended Jan. 31, 2016 | Three months ended Jan. 31, 2015 | Nine months ended Jan. 31, 2016 | Nine months ended Jan. 31, 2015 |
|---|---|---|---|---|
| Revenue | $1,565.9 | $1,672.0 | $5,539.1 | $6,113.4 |
| Gross profit | $371.2 | $351.0 | $1,225.4 | $1,093.2 |
| Gross margin | 23.7% | 21.0% | 22.1% | 17.9% |
| Operating expenses | $259.6 | $238.8 | $791.2 | $727.9 |
| Income before taxes | $57.6 | $61.6 | $279.0 | $220.3 |
| Net income | $38.1 | $39.3 | $178.9 | $139.3 |
| Diluted EPS | $0.97 | $1.01 | $4.54 | $3.57 |
- Quarterly trends: Revenue fell 6.3%, mainly because lower retail fuel prices reduced fuel sales, while fuel gallons sold rose 5.7%. Same-store fuel gallons increased 1.6%; same-store grocery and other merchandise sales rose 7.1%, and prepared food and fountain sales rose 6.0%. Fuel gross margin was 18.1 cents per gallon versus 22 cents a year earlier. Prepared-food margin improved to 62.0% from 58.7%, primarily on lower input costs. Net income declined 3.1%.
- Nine-month trends: Revenue declined 9.4%, as lower fuel prices more than offset 7.1% growth in fuel gallons. Gross margin improved to 22.1%, including fuel margin of 20.1 cents per gallon, flat year over year, and stronger prepared-food margins. Net income increased 28.5%. Management attributed the increase mainly to higher fuel volume, same-store sales growth, improved prepared-food margins, and cost containment.
- Cash flow: Nine-month operating cash flow was $342.1, up from $239.9. Investing cash outflow was $313.3, including $312.6 of property and equipment purchases and $4.3 of net business acquisitions. Financing cash outflow was $23.8. Cash increased $5.0 to $53.6.
- Balance sheet and liquidity: At January 31, cash was $53.6 and current assets were $304.7 versus current liabilities of $359.8; the current ratio was 0.85. Long-term debt, net of current maturities, was $830.5; current maturities were $15.4 and bank-line borrowings were $2.8. The company had a $100.0 aggregate bank line of credit. Total assets were $2,670.5 and shareholders’ equity was $1,043.1.
- Other metrics: Operating expenses were 16.6% of quarterly revenue versus 14.3% a year earlier, reflecting lower fuel-price-driven revenue and more stores and operating programs. The quarterly effective tax rate fell to 33.8% from 36.2%; the nine-month rate was 35.9% versus 36.8%. Dividends declared were $0.22 per share for the quarter and $0.66 for nine months.
Material changes, outlook, and risks
- During the first nine months, Casey’s opened 31 new stores, completed 11 replacement stores and 60 major remodels, acquired three stores, closed two, and opened one store from a prior-year acquisition. It had 22 new stores under construction and 59 sites under contract.
- The company’s stated fiscal 2016 annual goals were to build or acquire 75–113 stores, replace 10 locations, and complete 100 major remodels. It had initially expected fiscal-year spending of $436–$528 million for store construction, acquisitions, and remodeling; nine-month spending for these purposes was $316.8 million. No specific earnings guidance was provided.
- Management said cash from operations, existing cash, and the bank line should be sufficient for working capital needs. Future growth and capital requirements may also be financed through additional long-term debt or other securities.
- Key risks include fuel-margin and fuel-supply volatility, intense competition, tobacco demand and taxation, environmental compliance and remediation costs, weather and seasonality, and the possibility that cash generation may not meet future liquidity or capital needs.
- Environmental remediation spending was approximately $1.4 million for the nine months; the accrued liability for estimated corrective-action costs was approximately $311,000. Management said pending or threatened legal matters were not expected to have a material adverse effect. The hot-fuel settlement had court approval but was not yet final pending expiration of appeal periods; a consumer-report class action was tentatively resolved for an amount management considered immaterial.
- Gross unrecognized tax benefits were $9.1 million at January 31, 2016. Management expected them to decrease by approximately $2.9 million within twelve months, while noting that outcomes and timing remain uncertain. Illinois and IRS tax examinations were ongoing.
Important facts for investors to verify
- Whether fuel margins and fuel volumes remain favorable: quarterly per-gallon margin declined year over year despite higher gallons sold.
- Whether merchandise and prepared-food sales and margins can offset fuel-price and fuel-margin volatility, including the contribution from newer stores and expanded operating programs.
- Actual fiscal-year capital spending and store openings versus the stated spending range and construction, acquisition, replacement, and remodel goals.
- Debt, line-of-credit usage, and operating cash flow relative to the company’s growth investments and liquidity needs.
- Final resolution of the disclosed litigation and tax examinations, and the adequacy of environmental remediation accruals and reimbursements.