Casey’s General Stores, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended July 31, 2011, compared with the three months ended July 31, 2010. Dollar amounts are in thousands unless otherwise noted. Casey’s operated 1,665 convenience stores in 11 Midwestern states at quarter-end.
Financial performance
| Metric | Q1 FY2012 | Q1 FY2011 | Change |
|---|---|---|---|
| Total revenue | $1,873,832 | $1,362,027 | +37.6% |
| Gross profit | $266,782 | $233,971 | +14.0% |
| Gross margin | 14.2% | 17.2% | Down 3.0 percentage points |
| Operating expenses | $171,416 | $152,386 | +12.5% |
| Interest expense, net | $8,934 | $2,527 | +$6,407 |
| Net earnings | $39,391 | $37,286 | +5.6% |
| Basic / diluted EPS | $1.04 / $1.03 | $0.73 / $0.73 | Basic +42.5% |
| Cash from operations | $162,859 | $103,697 | +57.1% |
- Revenue growth primarily reflected higher average gasoline prices and more stores. Gasoline revenue rose 47.1%; grocery and other merchandise revenue rose 15.1%; prepared food and fountain revenue rose 21.0%.
- Overall gross margin fell as gasoline’s share of sales increased and margins declined in grocery and prepared foods. Gasoline gross margin was 4.7% of sales, versus 6.3%; margin per gallon improved to 17.19 cents from 16.43 cents. Prepared-food margin declined to 61.2% from 63.8%, primarily due to higher commodity costs.
- Same-store gasoline gallons declined 2.7%, although total gasoline gallons increased 6.0% to 380.1 million, reflecting store growth. Same-store grocery and other merchandise sales rose 6.2%, and prepared-food and fountain sales rose 15.3%.
- Operating expenses increased 12.5%; excluding the prior-year $6,238 charge for legal and advisory costs associated with Couche-Tard’s unsolicited offer, they increased 17.3%. Higher credit-card fees, fuel-related transportation costs, and 132 additional stores were cited.
- Interest expense increased primarily because of $569,000 of 5.22% Senior Notes issued in August 2010. The effective tax rate rose to 38.0% from 37.3%.
Cash, liquidity, debt, and investment
- Cash and cash equivalents were $139,017 at July 31, up from $59,572 at April 30, 2011. Operating cash flow benefited from increases in accounts payable, accrued expenses, income taxes payable, and deferred taxes; cash paid for income taxes was negative $36,035.
- Investing activities used $78,307, including $47,514 for property and equipment and $31,115 for acquisitions. Financing activities used $5,107, including $5,707 of dividends. The filing does not report free cash flow as a defined measure.
- Current assets were $338,930 and current liabilities $344,464; the current ratio was 0.98 to 1. The company reported a $100,000 bank line of credit with no balance outstanding at July 31.
- Long-term debt, net of current maturities, was $678,653; current maturities were $1,002. Long-term debt included $569,000 of 5.22% Senior Notes and $100,000 of 5.72% Senior Notes, plus capital lease and mortgage obligations. Management said operating cash flow and the credit line should meet working-capital needs.
- Capital spending for construction, acquisitions, and remodeling was $78,629 in the quarter. Management expected fiscal 2012 spending of $204,000–$267,000 and annual store-count growth of 4%–6%. Casey’s acquired 27 stores and completed two new-store constructions; 15 stores were under construction and six were under purchase agreement at quarter-end.
Material changes, outlook, and risks
- Basic weighted-average shares fell to 38.0 million from 50.9 million. EPS growth therefore substantially exceeded the 5.6% increase in net earnings. The filing also notes increased indebtedness from the company’s self-tender offer.
- Prior-year earnings included $6,238 of pre-tax legal and advisory fees related to Couche-Tard’s unsolicited offer. Management stated that prior-year basic EPS would have been approximately $0.81 excluding those fees, versus $1.04 in the current quarter.
- Management described a favorable gasoline pricing environment, but noted that local competitive conditions drive retail price changes. It also said economic weakness and unemployment may lead customers to trade down to less expensive in-store products. No specific earnings or revenue guidance was provided.
- Four “hot fuel” lawsuits name Casey’s, including a Kansas class certified for certain liability and injunctive claims. A trial was scheduled to begin May 17, 2012. Management disputed liability and said it could not estimate possible loss or range of loss.
- Gross unrecognized tax benefits were $7,028 at July 31; management expected a decrease of approximately $1,423 within 12 months, principally from statute-of-limitations expirations. Federal and state tax examinations were ongoing.
- Environmental risks include underground storage tank compliance and possible remediation costs. The company reported $251 accrued for estimated corrective-action and remediation expenses and cautioned that actual future costs could exceed accruals. Other identified risks include gasoline supply and margin volatility, competition, tobacco demand, weather, seasonality, and liquidity needs.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. The filing reported no material changes to the risk factors in the prior annual report.
Key facts for investors to verify
- How much of the revenue increase reflects gasoline price inflation and acquisitions versus underlying same-store demand, and whether gasoline margins remain favorable.
- Whether operating cash flow is sustainable after the unusually large working-capital and income-tax contributions, and how planned capital spending affects cash and leverage.
- The effect of the self-tender and associated debt on future interest expense, share count, and per-share results.
- Developments in the hot-fuel litigation, tax examinations and uncertain tax positions, and environmental remediation exposure.
- Progress against the 4%–6% store-growth objective and the expected fiscal 2012 capital-spending range.