Casey’s General Stores, Inc. — Q3 FY2023 Form 10-Q
Reporting period: Quarter and nine months ended January 31, 2023. Dollar amounts below are in millions unless stated otherwise. Casey’s operated 2,472 stores in 16 states, primarily in the Midwest, and reported one operating segment.
Financial performance and liquidity
- Quarter: Revenue was $3,332.6, up 9.3% year over year; net income was $100.1, up 56.4%; diluted EPS was $2.67 versus $1.71. The quarter included a $15.3 one-time reduction in operating expenses from a legal matter, adding approximately $0.31 to diluted EPS.
- Nine months: Revenue was $11,765.8, up 23.9%; net income was $390.6, up 39.5%; diluted EPS was $10.42 versus $7.50. Revenue growth reflected higher fuel prices, strategic retail price changes, and 41 more stores than a year earlier.
- Q3 category trends: Same-store fuel gallons declined 0.5%; fuel gross profit per gallon was 40.7 cents versus 38.3 cents. Same-store grocery and general merchandise sales rose 5.8%, and prepared food and dispensed beverage sales rose 5.0%. Category gross profit margins, excluding depreciation and amortization, were 12.2% for fuel, 34.0% for grocery and general merchandise, and 57.3% for prepared food and dispensed beverage.
- Profitability: Q3 revenue less cost of goods sold, excluding depreciation and amortization, was 22.1% of revenue versus 21.8%. For the nine months, it was 20.3% versus 22.2%, reflecting lower fuel margin as a percentage of fuel revenue and weaker prepared-food margin. Nine-month EBITDA was $786.4, up 23.8%; adjusted EBITDA was $792.4, up 24.9% (both non-GAAP measures).
- Cash flow: Nine-month operating cash flow was $636.6 versus $536.5. Property and equipment purchases were $301.3; acquisition payments were $13.2. Cash increased $254.3 to $413.2.
- Debt and liquidity: Total debt and finance lease obligations, net of issuance costs, were approximately $1,672.2, including $37.7 current maturities. Cash was $413.2; the company had no borrowings under its revolving facility or bank line. Net availability was approximately $438.1 on the revolver and $24.6 on the bank line. The current ratio was 1.10, compared with 0.84 at January 31, 2022.
- Other: The effective tax rate was 24.1% for both Q3 and the nine-month period. Dividends declared were $0.38 per share in Q3 and $1.14 per share year to date. No shares were repurchased during the quarter; the $400 million repurchase authorization remained available.
Material changes and management commentary
- Q3 operating expenses rose 5.0%; excluding the one-time legal recovery, management said they increased approximately 8%. Higher store count, store operating costs, and credit-card fees contributed to expense growth.
- For the nine months, fuel revenue rose 32.2%, with average retail fuel price per gallon up 27.1% and gallons sold up 4.0%. Fuel gross profit margin as a percentage of fuel revenue declined to 10.8% from 11.8%.
- Management expected labor and supply-chain challenges to recur through the fiscal year and into FY2024, though some conditions had improved. It also noted store traffic had not fully returned to pre-pandemic levels, in part due to ongoing work-from-home trends.
- Management expected fuel prices to remain elevated through FY2023 and said fuel margins can fluctuate significantly. Risks cited include fuel-price volatility, inflation and ingredient costs, labor and supply availability, higher interest rates, credit-card costs, competition, weather, regulation, cybersecurity, and consumer shifts toward fuel alternatives. No specific earnings or revenue guidance is provided in the supplied filing text.
Contingencies and unusual items
- The company received a $15.3 one-time payment in Q3 from resolution of a legal matter, recorded as a reduction to operating expenses.
- In the McColley wage-and-hour lawsuit, approximately 1,500 current or former store managers had opted in. The company said it had accrued for probable losses and believed reasonably possible losses above accruals were not material; it intends to defend the case.
- Fuel supply contracts include varying volume commitments; a cheese-price forward commitment was approximately $14.5 through April 2023. The filing says these contracts qualify for the normal-purchases exclusion from derivative accounting.
- Unrecognized tax benefits were $12.6 at January 31, 2023. Management estimated a possible $2.1 decrease over the next 12 months, primarily from statute-of-limitations expirations.
Important facts for investors to verify
- How much reported earnings growth depends on fuel margins, higher retail fuel prices, and the one-time $15.3 legal recovery.
- Whether grocery and prepared-food sales and margins can sustain performance amid inflation and ingredient-cost pressure.
- How labor, supply-chain, credit-card, and store operating costs affect margins in coming periods.
- Debt and liquidity exposure, including variable-rate term debt; a 100-basis-point rate change was estimated to affect annual interest expense by approximately $2.7.
- Developments in the store-manager classification lawsuit and potential changes in unrecognized tax benefits.