Casey’s General Stores, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended October 31, 2017, compared with the corresponding 2016 periods. Financial statement amounts are in thousands of dollars unless otherwise noted. Casey’s operated 2,003 stores in 15 states.
Financial performance
| Metric | Three months ended Oct. 31, 2017 | Year-over-year | Six months ended Oct. 31, 2017 | Year-over-year |
|---|---|---|---|---|
| Revenue | $2,153,745 | +12.2% | $4,247,484 | +9.2% |
| Income before taxes | $77,575 | Down from $89,479 | $169,281 | Down from $190,751 |
| Net income | $48,918 | -14.4% | $105,676 | -15.2% |
| Diluted earnings per share | $1.28 | Down from $1.44 | $2.75 | Down from $3.14 |
| Adjusted EBITDA, a non-GAAP measure | $145,659 | -2.1% | $301,249 | -1.6% |
Revenue less cost of goods sold, excluding depreciation and amortization, was 21.7% of revenue for the quarter and 22.2% for the six months, versus 23.1% and 23.0%, respectively, a year earlier. Quarterly same-store sales increased 1.9% in fuel gallons, 2.5% in grocery and other merchandise, and 2.1% in prepared food and fountain. Fuel margin was 19.7 cents per gallon in the quarter versus 18.6 cents a year earlier. Prepared-food gross margin declined, primarily due to higher stales and input costs.
Cash flow, balance sheet and capital
- Six-month operating cash flow was $241,563, compared with $240,084 in 2016. Investing cash outflow was $269,281, including $248,797 for property and equipment and $22,781 for acquisitions. Financing cash inflow was $236,186, including $400,000 of long-term debt proceeds and $132,613 of share repurchases.
- Cash and equivalents were $285,185 at October 31, 2017, up from $76,717 at April 30, 2017. The current ratio was 1.23, versus 0.79 at fiscal year-end.
- Long-term debt, net of current maturities and debt issuance costs, was $1,299,626; current maturities were $15,434. The company issued $150 million of 3.51% notes due 2025 and $250 million of 3.77% notes due 2028. Its $100 million bank line had no borrowings outstanding.
- Shareholders’ equity declined to $1,154,332 from $1,190,620 at April 30, principally reflecting repurchases. The company repurchased approximately 1.23 million shares during the six months; 510,193 were repurchased in the quarter at an average $108.41 per share. The remaining authorization was approximately $117.4 million. Dividends declared were $0.26 per share for the quarter.
Material changes and management commentary
- Quarterly revenue growth was driven largely by higher fuel prices and volumes, with additional contributions from stores opened or acquired since April 2016 and expanded operating programs. Fuel revenue increased 17.3% in the quarter, while average retail fuel price per gallon rose 11.0% and gallons sold rose 5.7%.
- Net income fell in both reported periods. Management attributed the declines to higher operating expenses and depreciation, and higher effective tax rates, partly offset by improved fuel margin and gallons sold. Operating expenses rose 9.4% in the quarter and 9.7% for the six months, reflecting additional stores, growth programs and wage increases.
- The effective tax rate was 36.9% for the quarter and 37.6% for the six months, compared with 36.1% and 34.7%, respectively, in 2016. The six-month increase reflected Illinois tax-rate changes, including a one-time deferred-tax adjustment, and lower excess tax benefits from share-based awards.
- The company opened new and replacement stores, completed remodels, and acquired 14 stores in the first six months. At period-end, 66 new stores, 18 replacement stores and 14 major remodels were under construction; 16 acquisition stores and 134 future-build sites were under agreement.
Outlook, risks and contingencies
- Management expected fiscal 2018 spending of $500 million to $600 million for store construction, acquisitions and remodeling, funded primarily from existing cash, operating cash flow and the recently issued notes. Management stated that cash, future operating cash flow and the credit line were expected to meet working-capital needs.
- Key disclosed risks include intense competition; fuel-price, supply and margin volatility; tobacco demand and tax changes; environmental compliance and remediation costs; weather and seasonality; and the company’s increased indebtedness, including debt associated with its share-repurchase activity.
- The “hot fuel” settlement was affirmed by the Tenth Circuit in August 2017 but was not yet final because the time for all appeals had not expired. The company said the required payment was not material and also agreed to provide specified pump information.
- Management reported $270 of accrued environmental remediation costs and noted uncertainty that accruals would cover all future costs. Gross unrecognized tax benefits were $6,464; management expected these to decrease by approximately $1,242 within twelve months, while noting ongoing IRS and Kansas examinations.
- No material changes to previously disclosed risk factors were reported. Management stated that a 100-basis-point interest-rate move would not materially affect pretax earnings.
Important facts for investors to verify
- Whether fuel margins and same-store sales can offset continued expense, depreciation and tax pressure.
- How the planned $500–$600 million fiscal 2018 investment program affects cash generation, leverage and store returns.
- The pace and financing of share repurchases, and the impact of debt-funded capital allocation on per-share results and liquidity.
- Final resolution of the hot-fuel settlement and outcomes of tax examinations and environmental obligations.