Casey’s General Stores, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended October 31, 2019; quarter-on-quarter comparisons are against the three and six months ended October 31, 2018. Amounts are in millions except per-share data and where otherwise noted. The company operated 2,181 stores in 16 Midwestern states.
Financial performance
| Metric | Three months ended Oct. 31, 2019 | Year-over-year | Six months ended Oct. 31, 2019 | Year-over-year |
|---|---|---|---|---|
| Revenue | $2,487.6 | Down 2.0% | $5,114.2 | Down 0.2% |
| Income before taxes | $108.1 | Up from $90.6 | $220.4 | Up from $179.7 |
| Net income | $82.0 | Up 23.1% | $167.8 | Up 22.6% |
| Diluted EPS | $2.21 | Up from $1.80 | $4.52 | Up from $3.70 |
| Operating cash flow | Not separately reported for the quarter | $311.4 | Up 2.3% |
- Revenue less cost of goods sold, excluding depreciation and amortization, was $557.1 million, or 22.4% of revenue, in the quarter, versus $510.3 million, or 20.1%, a year earlier. For the six months it was $1,122.8 million, or 22.0%, versus $1,032.1 million, or 20.1%.
- Quarterly fuel margin was 22.9 cents per gallon versus 20.0 cents; same-store fuel gallons sold declined 1.8%. Across all stores, fuel gallons increased 3.4% year over year in the quarter, reflecting store growth. Grocery and other merchandise same-store sales rose 3.2%, and prepared food and fountain same-store sales rose 1.9%.
- Operating expenses rose 8.5% in the quarter and 7.1% for the six months, primarily reflecting 84 more stores than in the comparable periods. Same-store operating expenses excluding credit-card fees increased 3.4% for the quarter and 3.0% for the six months.
- Quarterly effective tax rate was 24.2%, down from 26.5%; the six-month rate was 23.9% in both years. Diluted earnings improved alongside higher fuel gross profit dollars, additional stores, and operating efficiencies.
- Reported revenue includes excise taxes of $289.1 million for the quarter and $563.7 million for the six-month period in 2019.
Cash flow, capital spending, debt, and liquidity
- Six-month operating cash flow was $311.4 million. Investing cash outflow was $245.4 million, including $242.2 million for property and equipment and $6.2 million for acquisitions. Financing cash outflow was $85.3 million. Cash declined $19.3 million to $44.0 million.
- Capital expenditures and related expenditures were $248.4 million for the six months, compared with $201.0 million a year earlier. Management expected fiscal 2020 spending of approximately $516 million, primarily for store construction, acquisitions, and remodeling.
- At October 31, cash was $44.0 million; current assets were $395.3 million and current liabilities were $1,084.1 million. The current ratio was 0.36, down from 0.69 at April 30, primarily because $569 million of 5.22% senior notes due August 2020 was classified as current. Management said it intended to refinance the notes.
- Current maturities of long-term debt were $577.7 million; long-term debt and finance lease obligations, net of current maturities, were $715.1 million. The company had $25 million outstanding under its $300 million revolving credit facility, with $275 million of stated capacity remaining; its separate $25 million bank line had no balance outstanding.
- Management stated cash, operating cash flow, and available credit were expected to cover working-capital needs. Dividends declared were $0.32 per share in the quarter, versus $0.29 a year earlier. No shares were repurchased during the quarter.
Material changes, outlook, and risks
- Reported fuel revenue fell as average retail fuel prices declined, while fuel gross profit dollars increased on stronger per-gallon margins. Management said its evolving fuel price-optimization approach contributed to higher margins and lower same-store fuel volume; softer Midwest demand also weighed on same-store gallons.
- Grocery and merchandise margins improved in the quarter, partly from a favorable product mix. Prepared-food and fountain margins declined due primarily to higher commodity costs.
- The company had 36 new stores constructed and five acquisitions during the six months, with three previously acquired stores opened and nine stores closed. At quarter-end, 12 acquisition stores were under agreement and the new-store pipeline included 97 sites, 31 under construction.
- No earnings guidance was provided in the supplied filing text. Management’s stated fiscal 2020 capital-spending expectation was approximately $516 million.
- ASC 842 lease accounting was adopted on May 1, 2019 using a modified retrospective approach, without restating prior periods. At October 31, reported right-of-use assets included $20.6 million of operating lease assets and $14.9 million of finance lease assets.
- Management said pending or threatened legal matters were not expected to have a material adverse effect. Gross unrecognized tax benefits were $9.4 million; the IRS was examining tax years 2012, 2016, and 2017, and management estimated a possible $1.1 million decrease in unrecognized benefits over the next 12 months. Environmental remediation liabilities and potential future costs remain subject to uncertainty.
- Key disclosed risks include intense competition, fuel-price and supply volatility, tobacco and nicotine regulation and demand, environmental compliance and remediation costs, taxes, seasonality, and weather. The filing reported no material changes to previously disclosed risk factors.
Investor facts to verify
- Whether the company refinanced or otherwise repaid the $569 million senior notes due August 2020, and the resulting borrowing cost and liquidity position.
- Whether higher fuel margins can be sustained without further weakening same-store fuel volumes or customer traffic.
- Progress against the $516 million fiscal 2020 capital-spending plan, store pipeline, and expected returns from new and acquired locations.
- Trends in store operating costs and prepared-food margins, including labor-management savings and commodity-cost pressure.
- Developments in IRS examinations, unrecognized tax benefits, and environmental remediation obligations.