Casey’s Gasoline Sales Boosts Profits

Gasoline sales accounted for 58.2% of Casey’s total revenue in Q1 FY17

c1Convenience-store and gas-station operator Casey’s General Stores Inc. (NASDAQ: CASY) announced its Q1 FY17 on September 6th, 2016.

The Ankeny, Iowa-based Company operates convenience stores in 14 Midwestern states, mainly Iowa, Missouri, and Illinois. It offers a selection of short eats; beverage and tobacco products; health and beauty aids; automotive products; and other non-food items. Its stores also offer gasoline or diesel for sale on a self-service basis.

In addition, Casey’s operates a store primarily selling tobacco products. Casey’s operates its own distribution centers, delivering approximately 90% of in-store products as well as approximately 75% of the fuel sold at its stores. As of April 30th, 2016, Casey’s operated 1,931 stores in the U.S. Casey’s operates under three segments: Fuel, Grocery and Other Merchandise, and Prepared Food and Fountain. Read more about Casey’s financial results below.

Q1 FY17 financial highlights

During Q1 FY17, Casey’s revenue declined 3.9% to $1.97 billion compared to $2.05 billion in the year-ago period. Despite the revenue decline, Casey’s has managed to buck the trend of a slump in the retail sector at large, where same-store sales declined either due to poor product mix or soft buying sentiment among consumers for certain categories of non-durable and food items. Supermarket chains in general witnessed low demand for their products owing to competition from online merchants despite store expansions and increase of product categories.

During Q1 FY17, Casey’s operating expenses increased to $292.1 million from $263.5 million in the year-ago period, mainly due to costs involved in operating more stores compared to the year-ago period as well as the continued rollout of the various growth programs. Store-level operating expenses for the reporting quarter were up 5.4% at stores not impacted by growth programs.

Despite higher expenses and a revenue decline, Casey’s profit grew 9% to $67.39 million for Q1 FY17 from $61.81 million a year earlier. During the reporting quarter, diluted earnings per share grew by a record 8.3% to $1.70 versus $1.57 for the same period last year.

Segmental highlights

c2Fuel: For Q1 FY17, same-store fuel gallons sold were up 3.1% with an average margin of 19.5 cents per gallon. Casey’s sold 17.9 million renewable fuel credits (RINs) for $14.7 million during the reporting quarter. Fuel margins exceeded forecasts due to elevated RIN values as well as a declining wholesale fuel cost environment experienced throughout the quarter. Same-store gallons sold continued to benefit from lower retail fuel prices and increased miles driven throughout the Company’s operating territory.

Total gallons sold for Q1 FY17 jumped 6.9% to 536 million gallons. Gasoline sales accounted for 58.2% of Casey’s total revenue in Q1 FY17. Casey’s gasoline sales have been under pressure for some time due to the volatility in fuel prices. Fuel sales have fallen by an average of 18.7% in the previous six quarters.

Grocery and Other Merchandise: For Q1 FY17, same-store sales for the grocery and other merchandise category fell below target due in part to a deceleration of cigarette sales. Total grocery and other merchandise sales were up 7.5% to $566.2 million, while total gross profit dollars grew 4.4% to $179.1 million during the reporting quarter.

Prepared Food and Fountain: Same-store sales for the reporting quarter grew 5.1% with an average margin of 62.8%. The increase was driven by strong sales from stores that recently implemented growth programs, and lower commodity costs driven by the favorable cheese price locked in through December 2016. Total sales jumped 9.1% to $243.7 million, and total gross profit dollars rose 9.6% to $153.1 million during Q1 FY17.

Other highlights

Store expansion: Casey’s annual goal for FY17 is to build or acquire 77 to 116 stores, replace 35 existing locations, and complete 100 major remodels. The Company currently has 39 new stores under construction, including its first store in the state of Ohio. Casey’s did not open any new stores during the reporting quarter, but acquired three stores.

In addition, the Company has 72 sites under contract for future new builds, and 8 acquisition stores under contract to purchase. The Company also has 22 replacement stores under construction, and completed 3 replacements during Q1 FY17. Finally, the Company has 15 major remodels under construction, and completed 6 major remodels during Q1 FY17.

Dividend: Casey’s Board of Directors declared a quarterly dividend of $0.24 per share. The dividend is payable on November 15th, 2016, to shareholders of record on November 1st, 2016.

Opening of second distribution center: In February 2016, Casey’s successfully opened its second distribution center in Terre Haute, Indiana, launched its mobile app, and rolled out online ordering across all its stores.

Guidance for FY17

During FY17, Casey’s expects to increase same-store fuel gallons sold by 2% with an average margin of 18.4 cents per gallon. Same-store grocery and other merchandise sales are projected to grow 6.2% with an average margin of 32%. Same-store prepared food and fountain sales are expected to grow 10.2% with an average margin of 62.5%.

Stock Performance

c3Casey’s stock ended the day at $120.12, gaining 0.27%, at the close on Tuesday, September 13th, 2016, having vacillated between an intraday high of $121.01 and a low of $119.26 during the session. The stock’s trading volume was at 572,050 for the day. The Company’s market cap was at $4.71 billion as of Tuesday’s close.

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