Casey’s General Stores, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended April 30, 2013. The filing also reports fourth-quarter results; figures below are in U.S. dollars, with financial-statement amounts converted from thousands to millions unless noted. This is not a standalone quarterly filing.
Business context
Casey’s operated 1,749 convenience stores in 14 Midwestern states, primarily in Iowa, Missouri and Illinois. Stores sell fuel and grocery, general merchandise and prepared food. Fuel generated 72.1% of FY2013 revenue; inside sales represented a disproportionately large share of gross profit. The business is seasonal, with stronger sales generally in the warmer first half of the fiscal year.
Financial and operating performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $7,250.8 million | $6,987.8 million |
| Gross profit | $1,082.4 million | $1,003.7 million |
| Gross margin | 14.9% | 14.4% |
| Operating expenses | $760.4 million | $688.4 million |
| Depreciation and amortization | $111.8 million | $96.6 million |
| Net income | $110.6 million | $116.8 million |
| Diluted EPS | $2.86 | $3.04 |
| Operating cash flow | $286.3 million | $294.9 million |
- Revenue rose 3.8%, mainly on higher fuel gallons and inside sales, partly offset by a 1.3% decline in average fuel prices. Fuel sales were $5,229.2 million, up 2.7%; gallons sold increased 4% to 1.535 billion.
- Inside sales increased 6.4% to $1,983.6 million. Annual same-store sales increased 0.1% for fuel gallons, 0.8% for grocery and other merchandise, and 8.6% for prepared food and fountain.
- Gross profit grew 7.8%; prepared-food margin rose to 61.8% from 60.7%, grocery and merchandise margin to 32.6% from 32.5%, and fuel margin to 4.5% from 4.4%. Fuel margin excludes credit-card fees.
- Operating expenses increased 10.4%, and the operating-expense ratio rose to 10.5% from 9.9%. Management cited remodels, 24-hour conversions, pizza delivery expansion and a larger store base. Net income fell 5.3%, primarily due to higher operating and depreciation expenses.
- FY2013 capital expenditures were $334.8 million, principally for construction, acquisitions and remodeling. Cash purchases of property and equipment were $305.3 million; acquisition payments were $29.5 million.
Liquidity, debt and capital
- At April 30, 2013, cash was $41.3 million, current assets $272.8 million and current liabilities $397.7 million; the current ratio was 0.69, down from 0.91 a year earlier.
- Long-term debt, net of current maturities, was $653.1 million. The balance sheet also showed $15.8 million of current maturities and $59.1 million drawn on the bank line. The revolving credit facility totaled $125 million at year-end; covenants were met.
- Operating cash flow declined 2.9% to $286.3 million. Investing cash use increased to $331.3 million, mainly reflecting higher property-and-equipment spending. Financing provided $30.3 million, including $59.1 million of net short-term borrowing. Cash ended the year at $41.3 million.
- Shareholders’ equity was $602.3 million, up from $506.0 million. FY2013 dividends declared were $0.66 per share, compared with $0.60 in FY2012.
Quarter, outlook and notable items
- Fourth-quarter diluted EPS was $0.60, unchanged year over year. Same-store fuel gallons rose 1%, with an average margin of about 17 cents per gallon. Grocery and other merchandise same-store sales declined 0.2%; prepared food and fountain increased 4.4%.
- Management attributed a fourth-quarter fuel-margin benefit to selling approximately 10.3 million renewable identification numbers (RINs) for $4.8 million. RIN prices had recently risen sharply; management cautioned that they are volatile and future proceeds are uncertain.
- Management anticipated FY2014 capital spending of $313 million to $374 million, funded primarily through cash, operating cash flow and additional long-term debt. No earnings or revenue guidance was provided in the supplied filing text.
- After year-end, the company issued $150 million of 3.67% senior notes due 2028 in June 2013 and disclosed plans to issue a further $50 million of 3.75% notes in December 2013. It also cancelled a $25 million credit-line note, reducing the facility to $100 million.
- FY2013 included 31 new-store constructions; 34 stores were acquired, of which 26 opened during the year, six were permanently closed and two were expected to open in FY2014. Seven stores were closed during the year overall.
- Environmental remediation accrual was approximately $0.4 million; the company spent about $0.9 million on assessments and remediation in FY2013, substantially all submitted for state reimbursement. The filing describes a preliminary settlement of “hot fuel” litigation involving pump information and a monetary payment deemed immaterial; final court approval was pending.
- Other key risks include intense retail and fuel competition, volatile wholesale fuel and commodity costs, credit-card fees (about $85 million in FY2013), weather and seasonality, food-safety or customer litigation, environmental obligations, labor and regulatory costs, and acquisition integration. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion.
Investor verification points
- Check whether higher operating costs and depreciation continue to outpace gross-profit growth, and how remodels, 24-hour stores and delivery affect returns.
- Assess fuel-margin sustainability separately from the volatile RIN benefit, including the impact of wholesale fuel prices, competition and payment-card fees.
- Review cash generation against the planned FY2014 capital program, the reduced credit facility and the additional long-term notes issued or planned after year-end.
- Monitor current-liability coverage, short-term borrowings, debt maturities and compliance with debt covenants.
- Confirm the final disposition of the hot-fuel settlement and any changes in environmental remediation costs or reimbursement eligibility.