Casey’s General Stores, Inc. — Form 10-Q Summary
Business context and period. Casey’s operates convenience stores, principally in the Midwest. It reported 2,219 stores across 16 states at October 31, 2020. This is the second quarter of fiscal 2021; results cover the three and six months ended October 31, 2020 and are compared with the same periods in 2019. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $2,215.9, down 10.9% from $2,487.6 | $4,320.9, down 15.5% from $5,114.2 |
| Net income | $112.0, up 36.6% from $82.0 | $232.6, up 38.6% from $167.8 |
| Diluted EPS | $3.00, versus $2.21 | $6.24, versus $4.52 |
| Adjusted EBITDA (non-GAAP) | $223.2, up 21.1% | $461.0, up 24.3% |
| Operating cash flow | Not presented for the quarter | $552.0, versus $311.4 |
| Capital expenditures | Not presented for the quarter | $158.8, versus $242.2 of property and equipment purchases |
Sales and gross profit trends. Quarterly fuel revenue fell 21.2%, reflecting a 16.2% lower average retail price and 5.9% fewer gallons sold. Same-store fuel gallons declined 8.6%; fuel margin increased to 35.3 cents per gallon from 22.9 cents. Grocery and other merchandise same-store sales rose 6.6%, while prepared food and fountain same-store sales fell 3.6%. For the quarter, revenue less cost of goods sold, excluding depreciation and amortization, was $631.8 million, or 28.5% of revenue, versus $557.1 million, or 22.4%, a year earlier. Higher fuel contribution was the principal earnings driver.
For the six-month period, fuel revenue declined 27.5% and fuel gallons fell 8.6%; grocery and other merchandise revenue increased 7.5%, while prepared food and fountain revenue declined 5.7%. Total revenue less cost of goods sold, excluding depreciation and amortization, was $1,255.3 million, or 29.1% of revenue, versus $1,122.8 million, or 22.0%.
Expenses and margins. Quarterly operating expenses rose 9.9% to $410.3 million, including $5 million in COVID-related costs and more than $9 million in incremental incentive compensation. Six-month operating expenses rose 5.7% to $796.4 million, including $20 million in COVID-related expenses and over $12 million in incremental incentive compensation. Quarterly net interest expense declined 16.2% to $10.6 million; the six-month decline was 8.9% to $24.0 million, primarily reflecting refinancing at lower rates. The effective tax rate was 23.6% for the quarter and 23.7% for six months.
Financial position, debt, and liquidity
At October 31, 2020, cash and cash equivalents were $404.7 million, compared with $78.3 million at April 30, 2020. Current assets were $728.8 million and current liabilities $562.0 million, a 1.30 current ratio versus 0.36 at April 30. Long-term debt and finance lease obligations, net of current maturities, were $1,361.9 million. The $300 million revolving credit facility and $25 million bank line had no amounts outstanding.
Six-month operating cash flow increased 77.2% to $552.0 million, reflecting higher net income and increases in accounts payable and accrued expenses. Investing cash outflow was $156.1 million, versus $245.4 million. Financing cash outflow was $69.4 million; cash increased by $326.4 million to $404.7 million.
Casey’s issued $650 million of senior notes in August 2020: $325 million of 2.85% notes due 2030 and $325 million of 2.96% notes due 2032. A portion of the proceeds repaid $569 million of 5.22% notes that matured in August. Management stated that cash, operating cash flows, and available credit facilities should be sufficient for working capital needs.
Outlook, risks, contingencies, and unusual items
- COVID-19: The company reported continued pressure on traffic and demand from the pandemic, restrictions, and customer behavior, and said effects could persist or worsen. Management could not estimate the future impact on operating results.
- Capital spending: Management provided no fiscal 2021 capital expenditure guidance because of COVID-related uncertainty and said it would reassess as conditions warrant.
- Subsequent acquisition: On November 8, 2020, Casey’s agreed to acquire Buchanan Energy for $580 million in cash, subject to customary adjustments, closing conditions, and regulatory approval. The business includes 94 retail stores and 79 dealer locations. The transaction was anticipated to close by December 31, 2020 and was to be financed with cash, revolver capacity, and bank financing. Casey’s also obtained a commitment for up to $100 million under a proposed 364-day bridge facility, subject to definitive documentation and other conditions.
- Contingencies and tax matters: Management said pending or threatened legal matters were not expected to materially adversely affect consolidated financial position or results. Gross unrecognized tax benefits were $10.5 million at October 31; management estimated a possible $1.8 million decrease over the next 12 months, mainly from statute expirations.
- Other notable items: The company sold 6.1 million renewable fuel credits for $3.8 million during the quarter, compared with 18.7 million credits for the same proceeds a year earlier. No shares were repurchased during the quarter. Management reported no material changes to previously disclosed risk factors and stated disclosure controls were effective.
Most important facts for investors to verify
- Whether the improvement in fuel margin and earnings persists as fuel prices, demand, and pandemic-related restrictions change.
- How comparable-store sales, traffic, and prepared food performance evolve, particularly given the reported COVID-19 impacts.
- The closing, financing, integration, and resulting debt and liquidity effects of the Buchanan Energy acquisition.
- Capital expenditure plans and store-growth spending once management resumes providing guidance.
- The sustainability of operating cash flow and the effect of working-capital movements on cash generation.
- Non-GAAP EBITDA definitions and reconciliation, and the extent to which incentives and other unusual or period-specific costs affect comparisons.