Casey’s General Stores, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended April 30, 2018; the fourth quarter was the three months ended that date. Financial amounts below are in U.S. dollars; millions are used unless otherwise stated.
Business context
Casey’s operated 2,073 convenience stores across 16 Midwestern states, primarily in Iowa, Missouri, and Illinois. Fuel represented about 61% of revenue; grocery and other merchandise about 27%; and prepared food and fountain about 12%. The company opened 85 newly constructed stores, acquired 26 stores (20 reopened during the year), completed 74 major remodels, replaced 30 stores, and closed 16.
Financial performance and liquidity
- Revenue: $8.391 billion, up 11.8% from $7.507 billion. Fuel sales rose 16.6% to $5.146 billion, reflecting higher average prices and 6.6% more gallons sold. Inside sales increased 4.9% to $3.190 billion.
- Profit and margins: Gross profit was $1.769 billion, up from $1.681 billion, while gross margin declined to 21.1% from 22.4%. Operating income was approximately $264.4 million, versus $311.2 million in FY2017. Pretax income fell to $214.4 million from $269.7 million.
- Net income and EPS: Net income was $317.9 million ($8.34 diluted EPS), compared with $177.5 million ($4.48) in FY2017. FY2018 included a one-time $173 million tax benefit from remeasurement of deferred taxes under the Tax Cuts and Jobs Act. Excluding that benefit, reported net income growth would have been substantially lower.
- Cash flow: Operating cash flow was $419.8 million, down 8.6%. Investing cash outflow was $609.3 million, primarily reflecting store construction and acquisitions. Financing cash inflow was $166.5 million; cash ended the year at $53.7 million, down from $76.7 million.
- Capital spending: The company reported $614.6 million of capital expenditures in its liquidity discussion (cash-flow statement property and equipment purchases were $577.4 million). FY2019 capital expenditures were expected to be about $466 million.
- Debt and liquidity: Long-term debt, net of current maturities, was $1.292 billion; the balance sheet also showed $39.6 million drawn on a $150 million demand line of credit and $15.4 million of current maturities. Current assets were $396.8 million and current liabilities $507.9 million; management reported a 0.78 current ratio and said cash, operating cash flow, and the credit line should meet working-capital needs. Debt covenants were met at year-end.
- Shareholder returns: FY2018 dividends declared were $1.04 per share, versus $0.96 in FY2017. The company repurchased about 2.0 million shares during FY2018, spending approximately $214.7 million in cash.
Changes versus the prior year
- Same-store fuel gallons increased 2.3%, with an average margin of 18.5 cents per gallon, versus 2.1% growth and 18.4 cents in FY2017. Fuel gross margin as a percentage of sales nevertheless declined to 7.9% from 8.6%, partly because higher fuel prices reduce the percentage margin measure.
- FY2018 same-store grocery and other merchandise sales grew 1.9%, versus 2.9%; prepared food and fountain sales grew 1.7%, versus 4.8%. In Q4, same-store grocery sales fell 0.4% and prepared food and fountain sales fell 1.3%.
- Prepared food and fountain gross margin declined to 61.0% from 62.3%, attributed mainly to increased stales and promotional activity. Grocery margin edged up to 31.8% from 31.5%.
- Adjusted EBITDA declined 4.4% to $488.6 million. Q4 diluted EPS fell to $0.51 from $0.76, and Q4 adjusted EBITDA declined 16.4%.
Outlook, commentary, and risks
Management cited a weaker agricultural economy, slower customer traffic, unusual weather, competitor promotions, higher operating expenses, and lower prepared-food margins as pressures on results. The business is seasonal, typically stronger in the warmer first and second fiscal quarters. Management’s stated FY2019 capital-spending estimate was approximately $466 million; the filing does not provide a specific earnings or revenue forecast.
Key risks include intense retail and fuel competition; volatile wholesale fuel costs and fuel margins; declining motor-fuel demand from efficiency improvements or alternative vehicles; food-safety incidents; weather; tobacco regulation and demand; commodity and renewable fuel credit (RIN) price volatility; labor and regulatory costs; environmental remediation and underground storage tank obligations; data-security and IT disruptions; and execution of the ERP and value-creation initiatives. Environmental remediation accruals were about $260,000; management said pending or threatened legal matters were not expected to have a material adverse effect.
The $173 million Tax Reform Act benefit was provisional and could change with updated interpretations or guidance. The company adopted the new revenue standard on May 1, 2018, expecting an immaterial impact; it was still evaluating the forthcoming lease-accounting standard. The auditor and management concluded internal control over financial reporting was effective as of April 30, 2018.
Important facts for investors to verify
- How much of FY2018’s net income and EPS increase reflects the one-time tax benefit, and what is the resulting sustainable tax rate?
- Whether same-store inside-sales trends and prepared-food margins improve, particularly given Q4 declines and agricultural-economy pressures.
- Fuel gross profit per gallon, RIN revenue and prices, and the impact of fuel-price changes on credit-card costs and customer traffic.
- Returns on the elevated store construction, acquisition, and remodeling program, alongside the FY2019 capital-spending plan and associated financing needs.
- Debt maturities and refinancing exposure, including the $569 million senior-note maturity in FY2021 and the demand nature of the bank line.
- The audited balance sheet reports current assets of $396.8 million and current liabilities of $507.9 million; some selected-data figures in the supplied filing text differ. Verify figures against the audited statements and XBRL filing.