Casey’s General Stores, Inc. — FY2015 Form 10-K
Business context and reporting period
The filing covers the fiscal year ended April 30, 2015. Casey’s operated 1,878 convenience stores in 14 Midwestern states, primarily in smaller communities. Fuel accounted for about 66% of revenue; grocery and other merchandise and prepared food and fountain sales generated a larger share of gross profit. The filing also reports fourth-quarter results; “Q4” below refers to the quarter ended April 30, 2015, not calendar Q4 2014.
Financial results and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $7,767.2 million | $7,840.3 million |
| Gross profit | $1,439.8 million | $1,222.0 million |
| Gross margin | 18.5% | 15.6% |
| Net income | $180.6 million | $126.8 million |
| Diluted EPS | $4.62 | $3.26 |
| Cash from operating activities | $341.7 million | $314.2 million |
- Revenue declined 0.9%, while net income rose 42.4%. Fuel sales fell 7.4% to $5,144.4 million as average retail price per gallon dropped 15%; gallons sold increased 9.1% to 1.8 billion.
- Fuel gross margin increased to 6.8% from 4.8%. Grocery and other merchandise margin was flat at 32.1%; prepared food and fountain margin declined to 59.7% from 61.1%.
- Operating expenses rose 12.0% to $960.4 million and depreciation and amortization rose 19.0% to $156.1 million. The effective tax rate was 36.0%, up from 34.5%.
- Cash used in investing activities was $399.1 million, including $360.7 million for property and equipment and $41.2 million for acquisitions. Cash declined to $48.5 million from $121.6 million.
- At year-end, current assets were $305.3 million and current liabilities $364.9 million (current ratio 0.84). Long-term debt, net of current maturities, was $838.2 million; total debt including current maturities was $853.6 million. The $100 million revolving credit line had no outstanding balance.
- Adjusted EBITDA, a company-defined non-GAAP measure, was $481.7 million, up 31.1%.
Material changes and fourth-quarter performance
- Fourth-quarter revenue was $1,653.9 million, versus $1,919.6 million a year earlier; net income was $41.3 million versus $20.9 million, and diluted EPS was $1.05 versus $0.54.
- Fourth-quarter same-store fuel gallons increased 3.5%, with an average fuel margin of about 16.9 cents per gallon. Same-store grocery and other merchandise sales rose 9.7%; prepared food and fountain sales rose 13.5%.
- Management attributed full-year earnings growth mainly to higher fuel gallons and fuel margins, store growth, and increased inside sales. Lower fuel prices reduced reported revenue; higher operating costs and weaker prepared-food margins partly offset gross-profit gains.
- The company acquired 36 stores, opened 32 acquired stores, completed 45 new store constructions, replaced 27 stores, and closed nine during the year.
Outlook, risks, contingencies, and unusual items
- Management anticipated fiscal 2016 capital expenditures of $436–$528 million, primarily for store construction, acquisitions, and remodeling. A second distribution center in Terre Haute, Indiana, was planned to begin operations in February 2016. No earnings or revenue guidance was provided.
- Key risks include volatile wholesale fuel costs and fuel margins, intense competition, changing fuel demand, tobacco regulation and taxes, weather and seasonality, food safety, cybersecurity, labor and healthcare costs, and environmental obligations related to underground storage tanks.
- The company reported an immaterial understatement of federal excise tax liability for fiscal 2012–2014 and first-quarter fiscal 2015, and revised prior-period financial results. A related control deficiency was deemed a material weakness as of April 30, 2014; management reported remediation complete and internal control over financial reporting effective as of April 30, 2015. The independent auditor also opined that controls were effective at year-end.
- A proposed settlement in the “hot fuel” litigation was awaiting the court’s fairness decision after a June 9, 2015 hearing; the company described the payment as immaterial. A separate Fair Credit Reporting Act class action was pending, which Casey’s intended to contest.
- Environmental remediation accrual was approximately $0.4 million. The company spent about $1.4 million on assessments and remediation during FY2015, with substantially all submitted for state trust-fund reimbursement. Illinois and IRS tax examinations were ongoing; management estimated unrecognized tax benefits could decrease by $2.9 million within 12 months.
Important facts for investors to verify
- Whether fuel margins and RIN-related benefits are sustainable; FY2015 fuel margin was 19.3 cents per gallon, and Q4 included a $9.7 million sale of renewable fuel credits.
- Progress and costs of the fiscal 2016 capital program and Terre Haute distribution center, and the funding mix for that investment.
- Resolution of the FCRA class action, hot-fuel settlement, and tax examinations, plus any material change in environmental remediation exposure.
- Evidence that excise-tax control remediation remains effective following the prior-period correction and material weakness.
- Liquidity and debt-service capacity: year-end cash was $48.5 million, the current ratio was 0.84, and scheduled contractual obligations totaled $1,133.8 million, including interest and other disclosed obligations.