Casey’s General Stores, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended October 31, 2023. Casey’s operated 2,592 convenience stores in 16 states at quarter-end; it entered Texas after quarter-end through an acquisition. The company reports one operating and reportable segment. Financial statements are unaudited.
Financial performance
| Metric | Three months ended October 31, 2023 | Six months ended October 31, 2023 |
|---|---|---|
| Revenue | $4.064 billion, up 2.2% year over year | $7.934 billion, down 5.9% |
| Net income | $158.8 million, up 15.4% | $328.0 million, up 12.9% |
| Diluted EPS | $4.24, versus $3.67 | $8.76, versus $7.75 |
| Operating cash flow | Not provided for the quarter | $481.8 million, versus $486.1 million |
| Cash used in investing activities | Not provided for the quarter | $307.0 million, versus $170.0 million |
| Cash used in financing activities | Not provided for the quarter | $143.7 million, versus $60.2 million |
Quarterly revenue less cost of goods sold, excluding depreciation and amortization, was $885.6 million, or 21.8% of revenue, compared with $810.9 million, or 20.4%, a year earlier. Six-month equivalent was $1.763 billion, or 22.2%, versus $1.647 billion, or 19.5%. This measure is not operating margin or gross profit under GAAP.
- Quarterly same-store trends: Fuel gallons were flat; grocery and general merchandise sales rose 1.7%; prepared food and dispensed beverage sales rose 6.1%.
- Quarterly category margins: Revenue less cost of goods sold, excluding depreciation and amortization, was 59.0% for prepared food and dispensed beverages, 34.0% for grocery and general merchandise, and 11.7% for fuel. Fuel margin per gallon was 42.3 cents, versus 40.5 cents.
- Cost trends: Quarterly operating expenses rose 7.5% to $579.7 million, and depreciation and amortization rose 9.6% to $85.6 million. Management cited store growth, labor and incentive compensation, repairs, maintenance, and insurance. Net interest expense fell 8.9% to $12.3 million, mainly due to higher interest income, partly offset by higher variable-rate debt expense.
Liquidity, debt, and capital allocation
At October 31, 2023, cash and cash equivalents were $409.9 million, current assets were $1.011 billion, and current liabilities were $949.8 million; the current ratio was 1.06. Long-term debt and finance lease obligations totaled $1.650 billion, including $53.2 million of current maturities. The company had no borrowings under its $850 million revolving facility or $50 million bank line; $432,000 of the bank line was encumbered by letters of credit. Management said cash, expected operating cash flow, and available credit would be sufficient for working capital needs.
For the six months, capital expenditures were $176.0 million and net acquisition payments were $139.4 million. The company paid $31.0 million in cash dividends and repurchased $59.5 million of stock. The declared dividend was $0.43 per share in each quarter, up from $0.38 in the comparable quarters. $339.8 million remained available under the $400 million repurchase authorization at quarter-end.
EBITDA, a company-defined non-GAAP measure, was $305.9 million for the quarter and $622.8 million for the six months, increases of 12.6% and 10.3%, respectively. Adjusted EBITDA was $307.1 million and $622.5 million, increases of 11.1% and 9.3%. The filing cautions these measures are not substitutes for GAAP results and may not be comparable across companies.
Material changes and management commentary
- Quarterly fuel sales increased 0.4% as gallons sold rose 4.0%, partly offset by a 3.5% decline in average retail price per gallon. For the six months, fuel sales declined 11.5%, primarily because average retail prices fell 14.7%, despite 3.8% more gallons sold.
- Higher in-store profitability and fuel margins drove net income growth, partly offset by operating expense and depreciation increases. Grocery margins benefited from private-label sales; prepared-food margins benefited from softer ingredient costs.
- The company acquired 60 stores during the six months. Acquisition spending contributed to the increase in investing cash use. Purchase price allocations remain provisional. A subsequent acquisition brought the company into its 17th state, Texas.
- Management expects comparatively high fuel prices to persist further into fiscal 2024 and believes fuel margins may remain above historical levels for the foreseeable future, while warning that both measures can be volatile and may be affected by commodity, interest-rate, and macroeconomic changes. No specific earnings or revenue guidance is provided.
- Casey’s had installed 162 EV charging stations at 33 stores in 11 states. Management said regional EV demand remained comparatively lower than on the coasts and described expansion as selective.
Risks, contingencies, and unusual items
- Fuel-price and fuel-margin volatility, inflation in food and other costs, rising interest rates, economic conditions, and changes in consumer fuel demand may affect results. A 100-basis-point interest-rate move would change annualized interest expense by approximately $2.4 million based on the term loan balance at quarter-end.
- The company faces a wage-classification lawsuit alleging store managers were misclassified under the Fair Labor Standards Act. Approximately 1,400 current or former managers had opted in. Casey’s intends to defend the case and stated that accrued and reasonably possible additional losses that can be estimated are not material.
- Fuel supply agreements contain volume commitments; cheese forward-purchase commitments were approximately $38.3 million through April 2024. Management reported no history of material penalties under the fuel commitments.
- Gross unrecognized tax benefits were $12.9 million. The company estimated these could decrease by $2.5 million over the next 12 months, primarily due to statutes of limitations expiring.
- Management noted store traffic had not fully returned to pre-pandemic levels and attributed this partly to continuing work-from-home trends. The filing also identifies cybersecurity, food safety, labor availability, regulation, competition, and acquisition integration among risks; it reported no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether improved in-store and fuel margins continue, particularly as fuel prices and cents-per-gallon margins fluctuate.
- How same-store sales, gallons sold, and operating costs trend after the reported quarter, and how much growth reflects acquisitions and new stores.
- Whether acquisitions integrate as expected and provisional purchase price valuations change materially.
- Cash generation and capital allocation relative to acquisition spending, capital expenditures, debt service, dividends, and repurchases.
- Developments in the store-manager wage lawsuit and uncertain tax positions.
- Exposure to variable interest rates, including the term loan’s sensitivity disclosed by management.