Casey’s General Stores, Inc. — Form 10-Q
Reporting period: Fiscal second quarter and six months ended October 31, 2014. Casey’s operated 1,856 stores in 14 states. Unless noted, financial amounts below are in millions of dollars.
Financial performance
| Metric | Three months ended Oct. 31, 2014 | Six months ended Oct. 31, 2014 |
|---|---|---|
| Revenue | $2,150.2; up 6.7% | $4,441.4; up 7.5% |
| Gross profit / margin | $371.3 / 17.3% (prior: 15.8%) | $742.2 / 16.7% (prior: 16.0%) |
| Operating expenses | $244.8; up 13.0% | $489.1; up 13.1% |
| Operating expenses as % of revenue | 11.4% (prior: 10.7%) | 11.0% (prior: 10.5%) |
| Net income | $49.9; up 26.5% | $100.0; up 7.2% |
| Diluted EPS | $1.28 (prior: $1.01) | $2.56 (prior: $2.40) |
Quarterly results benefited from stronger fuel margins and same-store sales. Same-store fuel gallons rose 2.3%, while same-store grocery and other merchandise sales rose 6.6% and prepared food and fountain sales rose 11.1%. Fuel gross margin was 19.46 cents per gallon for the quarter, versus 16.00 cents a year earlier. Prepared-food margin fell to 59.3% from 61.8%, primarily due to higher cheese, meat, and supply costs. For the six months, fuel margin was 19.19 cents per gallon versus 18.70 cents.
Cash flow, liquidity, and debt
Six-month operating cash flow was $183.4 million, slightly below $185.3 million a year earlier. Investing used $228.2 million, including $195.7 million for property and equipment and $34.3 million for acquisitions, partly offset by asset-sale proceeds. Financing used $5.3 million. Cash declined $50.1 million to $71.6 million.
At October 31, 2014, total debt was approximately $853.8 million, including $7.9 million of current maturities; long-term debt net of current maturities was $845.9 million. The company had no borrowings against its $100 million bank line. Current assets were $324.3 million and current liabilities $400.2 million, a current ratio of 0.81, compared with 1.00 at April 30, 2014. Management said cash, operating cash flow, and the credit line were expected to meet working-capital needs.
Changes, outlook, and notable matters
- Revenue and earnings increased year over year, but operating expenses and depreciation also rose, reflecting store growth, initiatives at existing stores, and recent capital investment. Operating 86 more stores than a year earlier contributed to higher sales and expenses.
- In the first six months, Casey’s completed 21 new-store constructions, opened 13 replacement stores, acquired 29 stores, opened one store from a prior-year acquisition, and closed three. Its annual target was to build or acquire 72–108 stores and replace 25 locations.
- Fiscal 2015 spending of $360–$410 million was anticipated for construction, acquisitions, and remodeling. The company had spent $229.97 million on these activities in the first six months.
- Management identified a material weakness in internal control over financial reporting related to review and approval of federal excise tax returns and recognition of related liabilities and expenses. The company reported immaterial excise-tax errors and described remediation steps, including Tax Department oversight, qualified management review, and improved systems. Management concluded disclosure controls were not effective as of April 30, 2014; the filing does not state that the weakness had been fully remediated.
- The company noted an immaterial correction of prior-period errors in separate amended filings. A hot-fuel lawsuit settlement had received preliminary court approval; it included pump disclosures and a monetary payment described as not material.
- Key risks include fuel-price and margin volatility, competition, tobacco demand and regulation, environmental compliance and remediation, seasonality and weather, and the adequacy of liquidity. Management reported $440,000 accrued for estimated environmental corrective-action and remediation costs; actual future costs could differ.
Important facts for investors to verify
- Whether the federal excise-tax control weakness has been fully remediated and whether subsequent testing found further errors.
- Whether fuel margins remain favorable and same-store sales growth offsets higher operating costs and pressure on prepared-food margins.
- Progress against store-growth and replacement targets, and whether planned capital spending is funded within available cash and credit resources.
- Whether environmental remediation estimates and unrecognized tax benefits change materially; gross unrecognized tax benefits were $10.2 million at October 31, 2014.
- How the immaterial prior-period corrections affect comparisons; the filing notes revised prior-year fuel gross-profit and margin figures.