Casey’s General Stores, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended October 31, 2012 (fiscal 2013 Q2); comparisons are with the corresponding 2011 periods. Financial amounts below are in USD millions unless otherwise noted. Casey’s operated 1,704 stores in 12 states.
Financial performance
| Metric | Three months ended Oct. 31 | Six months ended Oct. 31 |
|---|---|---|
| Revenue | $1,911.6; +7.2% year over year | $3,779.9; +3.4% |
| Gross profit | $279.3 vs. $262.9; gross margin 14.6% vs. 14.7% | $566.3 vs. $529.7; gross margin 15.0% vs. 14.5% |
| Operating expenses | $190.0; +10.6% | $379.4; +10.5% |
| Depreciation and amortization | $27.1 vs. $23.4 | $53.7 vs. $46.3 |
| Net income | $32.9 vs. $37.6; -12.7% | $71.9 vs. $77.0; -6.7% |
| Diluted EPS | $0.85 vs. $0.98 | $1.86 vs. $2.01 |
| Operating cash flow | Not presented by quarter | $158.6 vs. $188.9 |
| Capital spending and acquisitions | Not presented by quarter | $163.4 per MD&A; cash-flow statement reports $160.1 of property/equipment purchases and $3.3 for store acquisitions |
Margins and sales mix: Q2 gasoline gross margin was 4.1% (14.92 cents per gallon), down from 4.9% (16.68 cents); grocery and other merchandise margin improved to 33.4% from 32.5%, and prepared-food margin rose to 62.5% from 59.5%. For the six months, gasoline margin was 4.3% versus 4.8%, grocery and other merchandise 33.4% versus 32.5%, and prepared food 62.9% versus 60.4%. Q2 same-store gasoline gallons decreased 0.4%; same-store grocery and other merchandise sales fell 0.7%, while prepared-food and fountain sales increased 10.1%.
Balance sheet, debt and liquidity
- At October 31, cash was $39.3 million, total current assets $259.8 million, and current liabilities $314.7 million; the current ratio was 0.83, compared with 0.91 at April 30, 2012.
- Long-term debt, including current maturities, totaled approximately $673.3 million, versus $678.7 million at April 30. The company reported $569.0 million of 5.22% Senior Notes, $82.5 million of 5.72% Senior Notes, and $8.6 million of capital leases in long-term debt net of current maturities.
- A $100 million bank line of credit had no outstanding balance. Management said operating cash flow and the line were expected to meet working-capital needs.
- Six-month investing cash outflow was $162.4 million; financing cash outflow was $12.8 million. Cash declined by $16.6 million to $39.3 million.
Changes, outlook and notable items
- Revenue growth was led by gasoline and prepared food. Q2 gasoline revenue rose 8.1%, while the average retail gasoline price increased 5.2%; prepared-food revenue increased 13.7%. Six-month prepared-food revenue rose 14.5%.
- Profit declined despite higher revenue. Management attributed the decrease primarily to lower gasoline gross margin, higher operating expenses, and increased depreciation; improved grocery and prepared-food margins partly offset those pressures. Operating-expense growth reflected more stores, expanded 24-hour operations, pizza delivery, remodels and replacement stores.
- During Q2, Casey’s completed seven new-store constructions, opened 11 replacement stores, acquired three stores and closed four. Its annual goal was to increase store count by 4%–6%.
- Fiscal 2013 capital spending for store construction, acquisitions and remodeling was expected to be $276–$338 million. The company had spent $163.4 million in the first six months.
- Six-month grocery and merchandise gross profit included a one-time $3.5 million benefit from a change in the Illinois cigarette tax.
- The court preliminarily approved a settlement of the “hot fuel” litigation on November 20, 2012. It includes pump disclosures and a payment described as immaterial; final court approval and notice to the class remained outstanding.
- Gross unrecognized tax benefits were $9.3 million at October 31; management expected a decrease of approximately $1.6 million within 12 months, while noting amounts could change with audits or other developments. One state tax examination was in progress.
Risks and contingencies
Key disclosed risks include intense competition; volatile gasoline supply, wholesale costs and retail margins; tobacco demand and tax changes; environmental and underground-tank compliance costs; seasonality and weather; and whether cash generation will meet future capital and liquidity needs. The company reported $0.3 million accrued for estimated environmental corrective-action costs and noted that future remediation costs or regulatory requirements could exceed estimates. Management stated that pending or threatened legal matters were not expected to have a material adverse effect, based on its assessment and available insurance or other sources. No material risk-factor changes from the 2012 Form 10-K were reported.
Important facts for investors to verify
- Whether gasoline margins and gallons sold stabilize, given gasoline’s importance to earnings and lower year-over-year per-gallon margins.
- Whether prepared-food growth and higher category margins can offset operating-cost increases and weaker gasoline profitability.
- Actual fiscal 2013 capital expenditures and store growth compared with the stated $276–$338 million spending range and 4%–6% store-count goal.
- Cash flow, current liquidity and debt levels as the company funds its expansion and remodeling program.
- Final approval and implementation of the hot-fuel settlement, and developments in tax examinations, unrecognized tax benefits and environmental obligations.