Casey’s General Stores, Inc. — Fiscal 2012 Third-Quarter Form 10-Q
Reporting period: Fiscal quarter and nine months ended January 31, 2012. The company operated 1,686 convenience stores in 11 Midwestern states. Unless otherwise noted, dollar amounts below are in millions; financial statement amounts were reported in thousands.
Financial performance
| Metric | Three months ended Jan. 31, 2012 | Year-over-year change | Nine months ended Jan. 31, 2012 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $1,578.950 | +14.9% | $5,235.300 | +28.1% |
| Gross profit | $228.750 | +$26.219 | $758.450 | +$94.571 |
| Operating expenses | $169.231 | +11.7% | $512.479 | +12.1% |
| Depreciation and amortization | $24.616 | +18.5% | $70.943 | +17.5% |
| Net interest expense | $8.730 | Down from $8.908 | $26.441 | +34.7% |
| Net earnings | $16.699 | +29.7% | $93.722 | +30.4% |
| Diluted EPS | $0.43 | Up from $0.34 | $2.44 | Up from $1.63 |
- Gross margin was 14.5% in both periods of fiscal 2012, versus 14.7% for the third quarter and 16.2% for the first nine months of fiscal 2011. Third-quarter gasoline margin was 4.3% (13.63 cents per gallon), grocery and other merchandise 31.8%, and prepared food and fountain 61.2%.
- For the quarter, gasoline revenue rose 15.1%, grocery and other merchandise 12.7%, and prepared food and fountain 18.5%. Total gasoline gallons sold rose 4% year over year, while same-store gasoline gallons fell 2.4%; the average retail gasoline price increased 10.8%.
- For the nine months, gasoline revenue increased 33.3%, grocery and other merchandise 14.6%, and prepared food and fountain 19.9%. Total gasoline gallons rose 5.4%, while the average retail price per gallon increased 26.5%.
- Operating expenses as a share of revenue declined to 10.7% for the quarter and 9.8% for the nine months, largely because higher gasoline prices increased reported revenue. Management cited additional stores and 24-hour conversions, higher card fees, and transportation costs as expense drivers.
- The effective tax rate was 36.2% for the quarter and 36.9% for the nine months, down from 39.7% and 37.7%, respectively, primarily due to higher federal tax credits.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $224.230, up from $182.412 in the prior-year period. Investing used $221.035, including $184.603 for property and equipment and $37.726 for store acquisitions. Financing used $16.429. Cash declined $13.234 to $46.338.
- At January 31, 2012, current assets were $259.715 and current liabilities $281.503; the current ratio was 0.92, compared with 1.03 at January 31, 2011. Management said cash from operations and its $100 million bank line, with no amount drawn, should meet working-capital needs.
- Long-term debt, net of current maturities, was $673.113; the company also reported $5.733 of current maturities. Long-term debt included $569 million of 5.22% Senior Notes, $95 million of 5.72% Senior Notes, and $9.113 of capital lease obligations.
- Capital spending for construction, acquisitions, and remodeling totaled $222.329 in the first nine months, versus $256.393 a year earlier. Management expected $40–$60 million of such spending in fiscal fourth quarter; its fiscal-year estimate was $204–$267 million.
Changes, outlook and risks
- Net earnings improved as gross profit dollars rose across gasoline, grocery and merchandise, and prepared food. In the prior-year nine-month comparison, results included a $16.038 million pretax charge for evaluating Couche-Tard and 7-Eleven proposals and an $11.350 million loss on early debt retirement. The prior-year quarter included $1.725 million of related legal and advisory costs; excluding those costs, prior-year quarterly basic EPS would have been approximately $0.37 rather than $0.34.
- The company acquired 33 stores in the first nine months for $37.726 million, net of cash acquired; purchase-price allocation remained preliminary. It completed 10 new-store constructions, opened five replacement stores, and closed one store during the quarter. Its stated annual goal was to increase store count by 4%–6%.
- Management cited higher gasoline prices as weighing on customers’ disposable income and demand, and commodity inflation as pressuring prepared-food margins. It noted a responsive gasoline-pricing environment. No earnings or revenue forecast was provided.
- Four “hot fuel” lawsuits name the company. A Kansas court certified certain claims as a class action and scheduled trial for May 7, 2012. Claimed amounts were not quantified; management said it could not estimate possible loss and intended to contest the cases. Management did not expect other pending or threatened legal matters, individually or together, to materially adversely affect financial condition or results.
- Unrecognized tax benefits were $8.080 million at January 31, 2012; management expected them to decrease by approximately $1.411 million within 12 months, while noting that the amount could change. Environmental remediation accruals were approximately $0.346 million. Management cautioned that future remediation costs could exceed accruals.
- Key risks include intense retail and gasoline competition, volatile fuel supply and margins, tobacco regulation and demand, environmental compliance costs, seasonality and weather, and the effect of indebtedness. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether same-store gasoline volume and gasoline margins recover, given the quarter’s same-store gallon decline and the lower reported gasoline margin.
- Whether higher commodity costs continue to pressure prepared-food margins and whether store growth and 24-hour operations sustain sales growth without disproportionate expense increases.
- Actual fourth-quarter and full-year capital spending versus management’s stated ranges, and the resulting impact on cash, liquidity, and debt.
- Developments in the Kansas hot-fuel litigation, including trial timing, class scope, and any estimate of potential exposure.
- Resolution of uncertain tax positions and environmental remediation obligations, including whether the disclosed expected tax-benefit reduction occurs.