Casey’s General Stores, Inc. — Q3 Fiscal 2013 Form 10-Q
Reporting period: Fiscal quarter and nine months ended January 31, 2013. The company operated 1,731 convenience stores in 14 Midwestern states. Financial statement amounts below are in thousands of dollars, except per-share data and where otherwise noted.
Financial performance
| Metric | Three months ended Jan. 31, 2013 | Prior-year quarter | Nine months ended Jan. 31, 2013 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $1,662,365 | $1,578,950 | $5,442,311 | $5,235,300 |
| Gross profit | $249,686 | $228,750 | $815,973 | $758,450 |
| Gross margin | 15.0% | 14.5% | 15.0% | 14.5% |
| Operating expenses | $189,872 | $169,231 | $569,311 | $512,479 |
| Operating expenses as % of revenue | 11.4% | 10.7% | 10.5% | 9.8% |
| Depreciation and amortization | $28,229 | $24,616 | $81,913 | $70,943 |
| Net income | $15,463 | $16,699 | $87,353 | $93,722 |
| Diluted EPS | $0.40 | $0.43 | $2.26 | $2.44 |
- Quarterly revenue rose 5.3%, while net income declined 7.4%. Nine-month revenue rose 4.0%, while net income declined 6.8%.
- Third-quarter same-store sales increased 0.6% for gasoline gallons, 3.2% for grocery and other merchandise, and 11.6% for prepared food and fountain. Average gasoline gross margin was approximately 13.8 cents per gallon.
- For the quarter, gasoline gross margin was 4.4% versus 4.3% a year earlier; prepared-food margin eased to 60.6% from 61.2%. For the nine months, gasoline margin fell to 4.3% from 4.7%, while grocery and prepared-food margins improved.
- Cash provided by operations for nine months was $194,539, down from $224,230. Investing used $263,903, including $241,126 for property and equipment and $25,198 for store acquisitions. Financing provided $39,966, including $58,600 of net short-term borrowings. Cash declined to $26,521 from $55,919 at April 30, 2012.
Balance sheet, debt and liquidity
At January 31, 2013, total assets were $1,934,460 and total liabilities were $1,350,974. Long-term debt, net of current maturities, was $660,779; current maturities were $13,307, and bank notes payable were $58,600. The bank line of credit had a $125,000 aggregate limit, increased by $25,000 during the quarter, and bore a 0.95% weighted-average interest rate on the outstanding balance. The current ratio was 0.71, compared with 0.91 at April 30, 2012. Management said operating cash flow and the credit line should meet working-capital needs.
Nine-month capital expenditures for construction, acquisitions and remodeling totaled $266,324, versus $222,329 in the prior-year period. The company had initially anticipated fiscal 2013 spending of $276,000–$338,000 for these purposes.
Material changes, outlook and risks
- Management attributed weaker earnings mainly to higher operating expenses and depreciation, and, for the nine-month period, lower gasoline margins. Quarterly operating expenses increased 12.2%; the company cited 45 more stores operating, replacement-store activity, 24-hour operations, pizza delivery and remodels. Depreciation rose with prior-year capital spending.
- During the quarter, Casey’s completed ten new-store constructions, opened eight replacement stores, acquired 24 stores and closed seven. Its stated annual goal was to increase the store count by 4%–6%. It acquired 27 stores during the first nine months overall.
- The company recorded a $3,495 one-time grocery-margin benefit during the nine months from a change in Illinois cigarette tax. The quarter’s effective tax rate fell to 32.2% from 36.2%, mainly due to work opportunity tax credits restored by legislation retroactive to the fiscal-year start; the nine-month rate was 36.9% in both years.
- Impairment charges were $2,792 for the nine months, mostly related to replacement-store and acquisition activity, versus $157 a year earlier. Acquisition purchase-price allocations remained preliminary; $10,276 was assigned to goodwill and other intangibles.
- The court preliminarily approved a settlement of Casey’s “hot fuel” litigation, subject to final approval and notice to the class. It includes pump information commitments and a monetary payment described as not material. Management said other pending or threatened matters were not expected to have a material adverse effect.
- Environmental matters include approximately $386 accrued for estimated corrective-action and remediation costs. The company reported 4,124 underground storage tanks, including 847 steel tanks, and cautioned that future remediation costs or regulatory requirements could exceed estimates.
- Gross unrecognized tax benefits were $9,536 at January 31, 2013; management expected a decrease of approximately $1,580 within 12 months, primarily from statute-of-limitations expirations. One state tax examination was ongoing.
- Key disclosed risks include intense competition, volatile gasoline costs and margins or supply, tobacco taxes and demand, environmental compliance, seasonality and weather, and the sufficiency of cash flow and financing. Management reported no material change in risk factors from the 2012 Form 10-K. No specific earnings or sales guidance is provided.
Important facts for investors to verify
- Whether store growth and capital spending remain within stated plans, and how new and replacement stores affect operating costs and returns.
- Whether gasoline margins and volume, and prepared-food and grocery margins, sustain the trends reported in the quarter and nine-month period.
- How the company funds investment spending and manages bank-line usage, debt maturities and reduced cash balances.
- Final approval and implementation of the hot-fuel settlement, and the adequacy of environmental and self-insurance accruals.
- Resolution of uncertain tax positions and the timing or effect of the anticipated tax-benefit changes.