Casey’s General Stores, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2022, the three months ended July 31, 2021, compared with the three months ended July 31, 2020. Casey’s operated 2,380 stores in 17 states at quarter-end.
Financial results
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $3,182.0 million | $2,105.0 million | +51.2% |
| Income before taxes | $155.3 million | $158.2 million | -1.8% |
| Net income | $119.2 million | $120.6 million | -1.2% |
| Diluted EPS | $3.19 | $3.24 | -1.5% |
| Operating cash flow | $241.6 million | $352.1 million | -31.4% |
| Capital expenditures | $45.0 million | $45.1 million | Approximately flat |
| Cash and cash equivalents | $198.9 million | $336.5 million at April 30, 2021 | Quarter-end balance down |
Revenue less cost of goods sold, excluding depreciation and amortization, was $723.9 million, or 22.7% of revenue, versus $623.5 million, or 29.6%, a year earlier. Fuel contribution margin was 11.9% of fuel revenue versus 19.3%; fuel margin per gallon was 35.1 cents versus 38.2 cents. Grocery and general merchandise margin was 33.0% versus 32.2%, while prepared food and dispensed beverage margin was 61.0% versus 59.7%.
Management reported same-store fuel gallons increased 9.0%, grocery and general merchandise same-store sales increased 7.0%, and prepared food and dispensed beverage same-store sales increased 10.8%. Adjusted EBITDA, a non-GAAP measure, was $243.2 million, up 2.3% from $237.8 million.
Material changes and drivers
- Revenue growth reflected a 49.1% increase in average retail fuel prices, higher fuel gallons sold, better merchandise sales, and newly acquired operations. Fuel revenue increased 81.1%; reported revenue also includes Buchanan Energy dealer-network wholesale activity presented gross.
- Net income declined slightly despite stronger guest traffic and merchandise contribution. Operating expenses rose 24.0%, primarily from restored store hours, 166 more stores than the prior-year quarter, a 39% increase in credit-card fees, and acquisition deal and integration costs. Depreciation and amortization rose 15.3% to $75.9 million.
- The effective tax rate fell to 23.3% from 23.8%, reflecting share-based award tax benefits and a one-time benefit from state tax law changes, partly offset by a one-time state deferred-tax expense related to the acquisitions.
- Casey’s acquired Buchanan Energy on May 13, 2021, including 89 operating retail stores and a dealer network of 81 stores, and acquired 48 Circle K stores in Oklahoma during June. The acquisitions added 139 stores in the quarter, net of store openings and closures. Buchanan Energy contributed approximately $223.6 million of revenue; its net income contribution was not material.
Cash, debt, and liquidity
Operating cash flow was $241.6 million. Investing cash outflow was $644.3 million, including $617.3 million of net cash paid for acquisitions. Financing cash inflow was $265.2 million, including $300.0 million borrowed under a new term loan. Cash ended the quarter at $198.9 million.
Total current assets were $671.3 million and current liabilities were $740.9 million; the current ratio was 0.91, versus 1.18 at April 30, 2021. Management attributed the decline mainly to acquisition payments, higher inventory and increased accounts payable. Long-term debt and finance lease obligations totaled $1,716.3 million before debt issuance costs and current maturities; the balance sheet reported $1,716.3 million across current and long-term debt and finance lease obligations. The company had no balance outstanding under its $450 million revolving facility or $25 million bank line at July 31. Management said cash, operating cash flow, and available credit were expected to meet working-capital needs.
Outlook, risks, and unusual items
- No specific earnings or revenue guidance was provided. Management cited expected acquisition synergies over time, including purchasing improvements, process efficiencies, kitchen installations, and expanded merchandise offerings.
- Management said reopening-related traffic and sales had improved, but warned that COVID-19 remained unpredictable and could cause temporary closures, labor challenges, additional expenses, reduced traffic, or renewed government restrictions.
- Acquisition purchase-price allocations remain provisional, including goodwill, leases, customer relationships, property and equipment, deferred taxes, and certain contingent liabilities and working-capital adjustments. The quarter included approximately $6.7 million of acquisition-related transaction costs.
- Key stated risks include acquisition integration and synergy execution, fuel price and demand volatility, competition, labor availability, supply-chain disruption, credit-card expenses, food safety, data security, regulation, and COVID-19 effects. The filing said there were no material changes to previously disclosed risk factors.
- Management stated pending or threatened legal matters were not expected to have a material adverse effect. Fuel purchase agreements include volume commitments; cheese forward purchase commitments were approximately $3.8 million through September 2021. Gross unrecognized tax benefits were $10.4 million, with a possible decrease of about $2.0 million over the next 12 months, management’s best estimate.
Important facts for investors to verify
- How much of reported revenue growth and store-level performance reflects higher fuel prices, acquired stores, and the newly consolidated dealer network, versus organic demand.
- Whether fuel margins and operating costs normalize, and whether improved same-store merchandise sales persist.
- Final acquisition valuations, integration costs, realized synergies, and the effect of acquired stores and leases on debt and cash needs.
- Liquidity and covenant headroom after acquisition spending, given the 0.91 current ratio, lower cash balance, and increased debt.
- COVID-19, labor, supply-chain, regulatory, tax, and fuel-market developments that could affect operations and cash generation.