Casey’s General Stores, Inc. — Q1 Fiscal 2016 Form 10-Q
Reporting period: Three months ended July 31, 2015, compared with the three months ended July 31, 2014. Financial amounts below are in thousands of dollars, except per-share data and where noted. Casey’s operated 1,887 stores in 14 states.
Financial performance
| Metric | Q1 FY2016 | Q1 FY2015 | Change |
|---|---|---|---|
| Total revenue | $2,048,592 | $2,291,186 | Down 10.6% |
| Gross profit | $411,242 | $370,914 | Up 10.9% |
| Gross margin | 20.1% | 16.2% | Up 3.9 percentage points |
| Operating expenses | $263,582 | $244,318 | Up 7.9% |
| Income before taxes | $98,177 | $79,841 | Up 23.0% |
| Net income | $61,806 | $50,097 | Up 23.4% |
| Diluted EPS | $1.57 | $1.28 | Up 22.7% |
| Net cash from operations | $101,796 | $116,357 | Down 12.5% |
Revenue fell primarily because the average retail fuel price per gallon declined 25.9%, reducing fuel revenue by $415,729; fuel gallons sold increased 8.0%. Same-store fuel gallons rose 3.4%. Same-store grocery and other merchandise sales grew 7.0%, and prepared food and fountain sales grew 10.3%. Gross profit increased despite lower revenue: fuel gross margin was 6.8% versus 5.5%, grocery and other merchandise margin was 32.6% versus 32.5%, and prepared food margin was 62.5% versus 59.9%. Management cited lower prepared-food input costs and stronger inside sales. The average fuel margin was 17.5 cents per gallon, down 1.4 cents from the prior-year quarter.
Operating expenses rose with 50 more stores in operation and expanded operating initiatives, partly offset by lower credit-card fees and transportation costs. Operating expenses were 12.9% of revenue versus 10.7%, with declining fuel prices affecting the revenue denominator. The effective tax rate was 37.0%, down from 37.3%.
Cash, debt and liquidity
- Cash and equivalents were $46,605 at July 31, 2015, down from $48,541 at April 30, 2015.
- Cash from operations of $101,796 was below the prior-year $116,357, primarily reflecting higher receivables and inventory; increased net income partly offset these uses.
- Property and equipment purchases were $100,141, compared with $88,789 in the prior-year cash-flow statement. Net cash used in investing was $98,853, versus $119,006, which included $30,774 for acquisitions.
- Total long-term debt, including current maturities, was approximately $853,545; the balance-sheet long-term portion was $838,153. The company had no borrowings on its $100,000 bank line of credit. Debt consisted primarily of senior notes bearing stated rates from 3.67% to 5.72%, plus capital leases.
- Current assets were $316,443 and current liabilities $388,901; the current ratio was 0.81 to 1. Management said cash, operating cash flow and the available credit line should be sufficient for working capital needs.
- Cash dividends paid were $7,726, compared with $6,914 in the prior-year quarter.
Outlook, risks and other notable matters
- The company’s stated fiscal 2016 annual goals were to build or acquire 75 to 113 stores, replace 10 locations and complete 100 major remodels. In the quarter it opened 8 new-construction stores, completed 7 replacements, acquired 1 store not yet open and opened 1 store from a prior-year acquisition.
- At the beginning of the fiscal year, management anticipated $436,000 to $528,000 of fiscal 2016 spending for store construction, acquisitions and remodeling, primarily funded by cash and operating cash flow. The filing does not provide a revised spending outlook or earnings guidance.
- Management attributed the quarter’s higher earnings and adjusted EBITDA to same-store inside-sales growth, 50 additional stores and improved cost containment, partly offset by lower fuel margin. Adjusted EBITDA, a non-GAAP measure, was $147,401 versus $126,838.
- Fuel-margin volatility, wholesale fuel supply and competition, tobacco demand and pricing, environmental compliance costs, weather and seasonality, and the sufficiency of future liquidity were identified as risks. Management stated a 100-basis-point interest-rate move would have no material effect on pretax earnings.
- The court approved the company’s settlement in the “hot fuel” litigation on August 21, 2015. It requires pump stickers and a monetary payment described as immaterial; the settlement was not yet final pending attorneys’ fees proceedings and expiration of appeal periods.
- A separate purported Fair Credit Reporting Act class action remained pending. The court had denied motions to dismiss, mediation was scheduled for September 8, 2015, and the company said it intended to defend the matter. The filing does not provide a clear estimate of potential exposure.
- Gross unrecognized tax benefits were $8,472 at July 31, 2015; management expected approximately $2,993 to decrease within the next 12 months, primarily through statute-of-limitations expirations. Illinois and IRS examinations were ongoing.
- A previously reported material weakness in internal control had been remediated by April 30, 2015; management expected further control enhancements during fiscal 2016. Disclosure controls were reported effective for this quarter.
Important facts for investors to verify
- Whether elevated fuel margins and inside-sales growth persist, given management’s warning about fuel-market volatility and the quarter’s year-over-year fuel-margin decline per gallon.
- Progress against the store-development, replacement and remodeling targets and the $436 million to $528 million spending plan.
- Future operating cash flow, working-capital needs and capital spending, alongside the company’s debt obligations and unused credit facility.
- Developments in the FCRA case, finalization of the hot-fuel settlement, and changes in unrecognized tax benefits or environmental remediation liabilities.