Casey’s General Stores, Inc. — Q1 FY2018 10-Q
Reporting period: Three months ended July 31, 2017; unaudited. Casey’s operated 1,980 stores in 15 states and reported one operating segment.
Financial results
| Metric | Q1 FY2018 | Q1 FY2017 | Change |
|---|---|---|---|
| Revenue | $2,093.7 million | $1,970.1 million | +6.3% |
| Income before taxes | $91.7 million | $101.3 million | Lower |
| Net income | $56.8 million | $67.4 million | −15.8% |
| Diluted EPS | $1.46 | $1.70 | Lower |
| Operating cash flow | $117.1 million | $161.3 million | −27.4% |
| Capital expenditures | $91.5 million | $82.3 million | Higher |
| Adjusted EBITDA | $155.6 million | $157.4 million | −1.1% |
Figures are rounded; financial statement amounts are in thousands unless stated otherwise. Revenue less cost of goods sold, excluding depreciation and amortization, was 22.8% of revenue in both periods. Fuel margin was 19.3 cents per gallon versus 19.5 cents; grocery and other merchandise margin was 31.9% versus 31.6%; prepared food and fountain margin was 62.5% versus 62.8%.
At July 31, cash and cash equivalents were $159.1 million, current assets $439.3 million, and current liabilities $441.9 million; the current ratio was 0.99. Long-term debt, net of current maturities and debt issuance costs, was $1,057.2 million, with $15.4 million of current maturities. The $100 million bank line had no balance outstanding. The company received $150 million of long-term debt proceeds during the quarter. Dividends declared were $0.26 per share, and the company repurchased 718,369 shares for approximately $77.9 million.
Performance and material changes
- Same-store fuel gallons increased 1.7%; same-store grocery and other merchandise sales rose 3.1%, and prepared food and fountain sales rose 3.7%.
- Total fuel gallons sold increased 5.4%; reported fuel revenue rose 6.4%, reflecting higher average retail prices and volume. Fuel margin pressure and lower renewable fuel credit proceeds weighed on results: credit sales were $10.5 million versus $14.7 million.
- Operating expenses increased 10.0%, including higher costs from 47 additional stores, expanded operating programs, wage increases, and $7.3 million of accelerated recognition of long-term incentive compensation expense. Depreciation and amortization rose 14.2%, primarily due to recent capital spending.
- The effective tax rate increased to 38.1% from 33.5%. Management attributed the increase partly to an Illinois tax-rate change, including an approximately 200-basis-point one-time deferred-tax adjustment, and lower excess tax benefits from share-based awards.
Outlook, risks, and unusual items
- Management expected fiscal 2018 spending of $500–$600 million for store construction, acquisitions, and remodeling, funded primarily by cash, operating cash flow, and senior notes. It stated that cash, future operating cash flow, and the bank line were expected to meet working-capital needs.
- After quarter-end, on August 22, 2017, the company issued $250 million of 3.77% senior notes due August 22, 2028.
- Growth plans included 47 new stores, 27 replacement stores, and 16 major remodels under construction, plus 18 acquisition stores under agreement and 132 sites under agreement for future builds.
- Key disclosed risks include intense competition; volatile fuel supply, prices, and margins; tobacco demand and regulation; environmental compliance and remediation costs; weather and seasonality; and increased indebtedness related to the share repurchase program. Management reported no material change in risk factors from its FY2017 Form 10-K.
- The hot-fuel settlement was affirmed by the Tenth Circuit on August 23, 2017, but the filing said it would not be final until all appeal periods expired. The company considered the required payment immaterial.
- Gross unrecognized tax benefits were $6.0 million at July 31; management said the amount could change significantly and expected a decrease of approximately $1.2 million within 12 months. Federal and state tax examinations were ongoing.
Important facts for investors to verify
- Whether same-store sales and fuel volume trends persist and offset the lower fuel margin per gallon.
- Whether operating costs, incentive compensation expense, and the higher effective tax rate normalize or continue to pressure earnings.
- Progress and funding for the planned $500–$600 million fiscal 2018 capital program, including returns from new stores, remodels, and acquisitions.
- Debt and liquidity after the subsequent $250 million note issuance, alongside continued share repurchases and dividends.
- Final resolution of the hot-fuel settlement and outcomes of tax examinations and environmental obligations.