Casey’s General Stores, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter, three months ended July 31, 2012; comparative period is the three months ended July 31, 2011. Financial statements are unaudited. Casey’s operated 1,698 stores in 11 states at quarter-end.
Financial performance
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Total revenue | $1,868.3 million | $1,873.8 million | Down 0.3% |
| Gross profit | $287.0 million | $266.8 million | Up $20.2 million |
| Gross margin | 15.4% | 14.2% | Up 1.2 percentage points |
| Operating expenses | $189.4 million | $171.4 million | Up 10.5% |
| Depreciation and amortization | $26.5 million | $22.9 million | Up 15.9% |
| Income before taxes | $62.1 million | $63.5 million | Down 2.2% |
| Net income | $39.0 million | $39.4 million | Down 0.9% |
| Diluted EPS | $1.01 | $1.03 | Down $0.02 |
| Cash provided by operations | $106.5 million | $162.9 million | Down 34.6% |
Category trends: Gasoline revenue declined 3.4% as average retail prices fell 6.9%, while total gallons sold rose 3.7%; same-store gasoline gallons declined 0.2%. Gasoline margin was 14.92 cents per gallon versus 17.19 cents. Grocery and other merchandise sales rose 5.7%, with same-store sales up 2.6%; prepared food and fountain sales rose 15.2%, with same-store sales up 10.6%. Gross margins improved for grocery and prepared food, partly offsetting weaker gasoline margin.
Cash, liquidity and debt: Cash and equivalents were $89.6 million at July 31, 2012, versus $55.9 million at April 30, 2012. The current ratio was 0.92. The company had a $100 million bank line of credit with no balance drawn. Long-term debt, net of current maturities, was $667.7 million; current maturities were $10.7 million. Long-term debt fair value was estimated at approximately $737 million. Management said operating cash flow and the credit line should meet working-capital needs.
Investing activities used $71.3 million, including $71.8 million of property and equipment purchases; financing activities used $1.5 million. Cash increased $33.7 million during the quarter. Operating cash flow was lower year over year, principally reflecting smaller increases in accounts payable, a larger inventory increase, and changes in income taxes.
Material changes and management commentary
- Revenue was nearly flat, but gross profit increased as grocery and prepared-food margins and sales improved. Net income nevertheless declined slightly, primarily due to lower gasoline gross profit and higher operating expenses and depreciation.
- Operating expenses rose 10.5%, mainly due to 33 more stores in operation, more 24-hour stores, and additional pizza-delivery locations. Operating expenses were 10.1% of revenue versus 9.1%.
- Grocery and other merchandise gross profit included a one-time $3.5 million benefit from a change in the Illinois cigarette tax. Prepared-food margin gains were attributed in part to lower cheese and coffee costs.
- Management cited higher gasoline prices as pressure on Midwest consumer spending and said customers may be trading down to less expensive in-store items. Gasoline pricing is driven by local competition.
- The company completed one new-store construction, opened three replacement stores, and closed two stores in the quarter. Its annual goal was to increase store count by 4% to 6%.
Outlook, risks and contingencies
- Fiscal 2013 capital spending was expected to be $276 million to $338 million for store construction, acquisitions and remodeling. The company spent $71.8 million on property and equipment in the quarter.
- Management expected future capital needs to be funded through operating cash flow, the credit line, and potentially additional long-term debt or securities; it did not expect these needs to adversely affect liquidity.
- Key risks include intense competition; volatile wholesale gasoline prices, fuel availability and retail margins; tobacco regulation and taxes; environmental compliance and remediation costs; seasonality and weather; and the sufficiency of cash and financing.
- Four “hot fuel” lawsuits were disclosed. The company had reached a settlement agreement intended to resolve all claims against it in the multidistrict litigation; the amount was described as immaterial, but court approval was pending.
- Gross unrecognized tax benefits were $8.5 million at quarter-end. Management expected them to decrease by approximately $1.6 million within 12 months, primarily due to statute-of-limitations expirations; two state tax examinations were in progress.
- Environmental remediation liability accrued was approximately $0.3 million. Management stated that pending or threatened legal matters were not expected to have a material adverse effect, while noting outcomes and future environmental costs are uncertain.
- The company reported effective disclosure controls and no material changes in internal control over financial reporting. It said risk factors had not materially changed from its 2012 Form 10-K.
Important facts for investors to verify
- Whether gasoline margins and same-store gallon trends improved after the quarter, given their importance to earnings and customer traffic.
- Whether prepared-food and merchandise growth and margins persisted, including the impact of the nonrecurring Illinois cigarette-tax benefit.
- Whether operating-cost growth and capital spending translated into expected store growth, sales and returns.
- How cash flow, working capital, debt and unused credit capacity developed relative to the fiscal-year capital-spending plan.
- Whether the proposed hot-fuel settlement received court approval, and whether tax or environmental matters changed materially.