Casey’s General Stores, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended January 31, 2018; comparisons are with the corresponding periods ended January 31, 2017. Unless noted otherwise, dollar amounts below are in millions. Casey’s operated 2,020 stores in 15 states and reported one operating segment.
Financial performance and liquidity
| Metric | Three months ended Jan. 31 | Nine months ended Jan. 31 |
|---|---|---|
| Revenue, 2018 | $2,054.6; up 16.1% | $6,302.1; up 11.3% |
| Income before taxes, 2018 | $26.4, versus $35.6 | $195.7, versus $226.3 |
| Net income, 2018 | $193.0, versus $22.8 | $298.6, versus $147.4 |
| Diluted earnings per share, 2018 | $5.08, versus $0.58 | $7.80, versus $3.72 |
| Adjusted EBITDA, 2018 | $97.8, essentially flat | $399.1, down 1.2% |
The net-income increases chiefly reflect a provisional, one-time $167 million tax benefit from remeasuring deferred tax balances under the Tax Reform Act, plus an $8 million reduction in tax expense from applying the lower blended rate to earlier fiscal-year earnings. The reported effective tax rates were unusually negative: 631.7% for the quarter and 52.6% for the nine months. Operating performance was weaker than the headline earnings comparison suggests: income before taxes declined in both periods, and adjusted EBITDA was flat for the quarter and lower for the nine months.
For the quarter, same-store fuel gallons rose 3.8%, grocery and other merchandise sales rose 2.5%, and prepared food and fountain sales rose 1.7%. Fuel margin was 18.6 cents per gallon versus 17.9 cents. Revenue less cost of goods sold as a share of revenue was 20.4% versus 22.0%; nine-month results were 21.6% versus 22.7%. Prepared-food margin rates declined, which management attributed primarily to promotions, stales, and input costs.
Nine-month operating cash flow was $296.0, down from $316.0. Investing cash outflow was $448.7, including $426.4 for property and equipment and $26.2 for acquisitions. Financing provided $214.8, including $400.0 of senior-note proceeds and $144.1 of share repurchases. Cash ended at $138.7, up from $76.7 at April 30, 2017.
At January 31, 2018, long-term debt net of current maturities and issuance costs was $1,299.3; current maturities were $15.4. The company had no borrowings on its $100 million credit line. Its current ratio was 1.03. Management said cash, operating cash flow, and the credit line should meet working-capital needs.
Material changes, outlook, and risks
- Revenue growth reflected higher fuel prices and volumes, store additions, and growth programs. Quarter fuel revenue rose 23.1%; average retail fuel price per gallon increased 13.6% and gallons sold increased 8.3%. Operating expenses rose 10.5% for the quarter and 9.9% for the nine months, in part from added stores, growth programs, credit-card and fuel costs, health insurance, and consulting fees. Store-level expenses at established stores outside recent operating programs rose 2.9% for the quarter and about 3.1% year to date.
- The company issued $150 million of 3.51% senior notes due 2025 and $250 million of 3.77% senior notes due 2028. It repurchased $144.1 million of common stock during the nine months. The $300 million repurchase authorization remained in effect, with about $106.5 million available at quarter-end.
- Fiscal 2018 capital spending for construction, acquisitions, and remodeling was forecast at $500–$600 million. The company had opened new and replacement stores, completed major remodels, and acquired stores during the period; additional stores and remodels were under construction and sites were under agreement. Management expects funding from cash, operations, and the recent note issuance, with debt or other securities available as needed.
- Management identified competition, fuel-price and supply volatility, tobacco regulation and demand, weather and seasonality, and environmental compliance as risks. The company reported 4,584 underground storage tanks and a $0.253 million accrued liability for estimated remediation costs; management cautioned that future costs could exceed accruals.
- A new risk factor concerns phased implementation of an enterprise resource planning system: delays, added costs, or system deficiencies could disrupt operations. The hot-fuel settlement was affirmed by the appeals court, but a petition for Supreme Court review was filed; the settlement was not yet final while appeals remained unresolved. Management did not expect pending or threatened matters to materially harm consolidated results or financial position.
- The company planned to adopt the new revenue-recognition standard in fiscal 2019 and expected no material overall impact, but minor timing changes for gift-card breakage and coupon-box-top redemptions.
Important facts for investors to verify
- How much of reported earnings growth is attributable to the provisional tax benefit, and whether later measurement-period adjustments change it.
- Whether operating margins and adjusted EBITDA stabilize as store growth and operating costs continue; reported net income alone is distorted by the tax item.
- Whether planned capital spending and acquisitions generate sufficient returns, and how debt, interest expense, and share repurchases affect liquidity.
- Whether fuel margins, same-store sales, and prepared-food profitability remain resilient amid competitive and cost pressures.
- Whether the hot-fuel settlement becomes final, and whether ERP implementation or environmental matters produce material costs or disruption.