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Casey’s (CASY) Q4 Earnings Miss Estimates, Declines Y/Y


Casey's General Stores, Inc. CASY continued with its negative earnings surprise streak for the third straight quarter, when it reported fourth-quarter fiscal 2018 results. The top line also lagged the consensus mark, after surpassing the same in the preceding two quarters. Management highlighted that lower fuel margin and unfavorable weather condition adversely impacted the results. We note that sales improved but earnings per share declined year over year.

The company reported quarterly earnings of 51 cents a share that missed the Zacks Consensus Estimate of 68 cents and declined roughly 33% from the year-ago period. Even higher sales and share repurchase activity failed to stem the rot. Total revenue of $2,089 million surged 13.1% but fell short of the consensus estimate of $2,132 million. The top line increased principally due to a jump of 12% in the average retail price of fuel from the prior-year period.

Quite apparent, rise in cost of goods sold (up 16.3%), and higher operating (up 7.9%) and interest expenses (up 26.6%) hurt the company’s bottom-line. Casey's now expects operating expenses (including expenses from value creation plan) to increase in the range of 8.5-10.5% during fiscal 2019.

During the quarter, gross margin increased 1.7% year over year to $405.1 million, while gross margin shriveled 220 basis points to 19.4%.

We note that shares of this Zacks Rank #4 (Sell) company have plunged 13.4% compared with the industry’s decline of 13.8% in the past three months.

Nevertheless, the company remains on track with its strategic initiatives announced earlier to improve sales and profitability. This includes new fleet card program, price and product optimization, digital engagements comprising mobile app and online ordering capabilities, cost containment efforts as well as capital reallocation plan. Further, the company had also lowered the number of 24-hour stores and pizza delivery locations. Although these impacted same-store sales, it aided in lowering store level operating expenses.

Caseys General Stores, Inc. Price, Consensus and EPS Surprise

Caseys General Stores, Inc. Price, Consensus and EPS Surprise | Caseys General Stores, Inc. Quote

Sales by Categories

By category we note that fuel sales increased 20.2% to $1,321.4 million. Fuel gallons same-store sales increased 2% compared with 0.5% decline witnessed in the year-ago period. However, fuel margin of 16.3 cents per gallon, declined 5.2% year over year. Management hinted fuel margin was lowest since fiscal 2014 due to rising wholesale fuel costs.

Management now envisions fiscal 2019 fuel gallons same-store sales in the band of 1.5-3% and fuel margin in the range of 18.5-20.5 cents per gallon.

Grocery and other merchandise sales rose 2.4% to $511.8 million, while same-store sales fell 0.4% compared with 1.5% growth registered in the prior-year quarter. Same-store sales also decelerated sharply from 2.5% increase reported in the preceding quarter. Grocery and other merchandise margin improved 10 basis points to 31.2%.

The company forecasts grocery and other merchandise same-store sales in the band of 1.5-3% with margin expected to be between 31.5% and 32.5% during fiscal 2019.

Prepared food and fountain sales jumped 3.4% to $241.2 million, while same-store sales were down 1.3% compared with 3.2% growth recorded in the year-ago quarter. Same-store sales also fell sharply from 1.7% rise experienced in the preceding quarter. Prepared food and fountain margin contracted 200 basis points to of 59.7% on account of increased input costs and promotional activity.

Management now projects prepared food and fountain same-store sales in the band of 1.5-3.5% with margin expected to be between 60% and 62% for fiscal 2019.

Store Update

During fiscal 2018, the company opened 85 new outlets, acquired 26 stores, completed 30 replacements, and remodeled 74 stores. The company informed that as of Apr 30, 2018, there were 31 new stores, four replacement stores, and three major remodel stores under construction. In fiscal 2019, the company plans to construct 60 stores and acquire more than 20 outlets. The company plans to replace only 10 outlets and remodel five stores this fiscal year.

Other Financial Aspects

Casey's ended the quarter with cash and cash equivalents of $53.7 million, long-term debt (excluding current portion) of $1,291.7 million and shareholders’ equity of $1,271.1 million. During fiscal 2018, the company generated cash flow from operations of $418 million and incurred capital expenditures of $615 million. The company plans to incur capital expenditures of $466 million during fiscal 2019.

Since the inception of share repurchase program on Mar 9, 2017 and through the end of the fourth quarter of fiscal 2018, Casey's had bought back 2,441,600 shares for approximately $264.8 million. As of Apr 30, 2018, the company had a total remaining amount of $35.2 million under its initial $300 million authorization, which was concluded in May 2018. In March 2018, the company’s Board of Directors announced a new $300 million share buyback program through fiscal year 2020. The company also raised dividend payout by 12% to 29 cents a share.

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