Casey’s General Stores, Inc. — Form 10-Q
Reporting period: Third quarter and first nine months of fiscal 2022, ended January 31, 2022. The filing is for FY2022 Q3, notwithstanding the request metadata’s “2021 Q3” label. Unless stated otherwise, financial amounts below are in millions of dollars.
Financial results
| Metric | Three months ended Jan. 31 | Nine months ended Jan. 31 |
|---|---|---|
| Revenue | $3,048.7; up 51.8% | $9,493.7; up 50.0% |
| Net income | $64.0; up 65.7% | $280.0; up 3.2% |
| Diluted EPS | $1.71 vs. $1.04 | $7.50 vs. $7.28 |
| Operating cash flow | Not separately reported for the quarter | $536.5 vs. $663.1 |
| Capital expenditures | Not separately reported for the quarter | $228.2 vs. $263.1 |
Revenue less cost of goods sold, excluding depreciation and amortization, was $664.5 million in the quarter, or 21.8% of revenue, compared with 26.9% a year earlier. For the nine months, it was $2,106.0 million, or 22.2%, versus 28.4%. Fuel revenue grew substantially with higher retail prices and volumes, but fuel contribution as a percentage of fuel revenue fell. Food and merchandise margins faced inflationary pressures; prepared-food contribution margin declined year over year.
At January 31, cash was $186.9 million, current assets were $660.8 million, and current liabilities were $783.7 million; the current ratio was 0.84. Debt and finance lease obligations, net of issuance costs, totaled approximately $1,857.7 million, including $91.7 million current. Long-term debt and finance lease obligations were $1,766.0 million. The company had no borrowings under its $450 million revolving facility or $25 million bank line. Management said cash, credit facilities, and operating cash flow should meet working-capital needs.
Changes and operating drivers
- Results include store acquisitions and a larger footprint: Casey’s operated 2,431 stores in 17 states at period end, 188 more than at April 30, 2021. Acquisitions included Buchanan Energy, 48 Circle K stores, and 40 Pilot stores.
- Quarterly fuel revenue rose 77.3%, reflecting a 47.8% increase in average retail fuel price and 19.9% more gallons sold. Same-store fuel gallons increased 5.7%; fuel margin was 38.3 cents per gallon versus 32.9 cents a year earlier.
- Quarterly same-store grocery and general merchandise sales rose 7.7%, and prepared food and dispensed beverage sales rose 7.4%. Management cited packaged beverages and snacks, pizza slices, and the breakfast menu relaunch.
- Quarterly operating expenses increased 18.5%, reflecting the additional stores, higher same-store employee costs, credit-card fees, and incentive compensation. Nine-month interest expense rose 17.4%, primarily due to acquisition-related borrowing.
- Nine-month operating cash flow declined 19.1%, in part because of changes in accounts payable. Investing cash outflow was $1,065.1 million, including $863.4 million for acquisitions. Financing cash inflow was $378.9 million, including $450 million of term-loan proceeds.
Outlook, risks, and unusual items
- The filing provides no quantified earnings or revenue guidance. Management expressed confidence in the business model and liquidity, while noting acquisition integration and growth plans.
- Management cited continuing uncertainty from COVID-19, staffing and wage pressures, inflation, fuel-price volatility, credit-card costs, supply-chain disruption, and competitive and regulatory conditions.
- The Buchanan Energy acquisition generated provisional purchase-accounting amounts, including goodwill; the Pilot valuation was also still in process. The company reported acquisition-related costs of approximately $8.6 million for Buchanan Energy, including $6.7 million during the nine-month period.
- A proposed sale of four Texas stores and a property for $41 million was expected to close in the fourth quarter, subject to customary conditions; management did not expect a material gain or loss.
- The company is defending a wage-classification lawsuit involving Store Managers; 1,953 current or former managers had opted in. Casey’s said it believes its classification is proper, has made provisions for probable losses, and does not expect the matter to materially affect its financial position, results, or cash flows.
- Unrecognized tax benefits were $11.6 million at January 31, 2022; management estimated a possible $2.0 million decrease over the next twelve months, primarily from statute expirations. A March 3, 2022 board action, subsequent to quarter-end, expanded the share repurchase authorization from $300 million to $400 million; no shares had been repurchased under the prior program.
Important facts for investors to verify
- Whether acquired stores deliver expected synergies and whether provisional goodwill and asset valuations change.
- Whether fuel, food, and merchandise margins withstand fuel-price volatility, inflation, labor costs, and credit-card fees.
- Debt repayment plans, variable-rate exposure, upcoming maturities, and the effect of acquisition spending on liquidity.
- Developments in the Store Manager litigation, tax uncertainties, and use of the expanded repurchase authorization.