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Casey's (CASY) Up 0.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Walmart (WMT) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

A month has gone by since the last earnings report for Casey's General Stores (CASY). Shares have added about 0.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Casey's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Casey's Q2 Earnings & Sales Beat Estimate

Casey's General Stores, Inc. continued its positive earnings and sales surprises for the second straight quarter, when it reported second-quarter fiscal 2019 results. Notably, both the top and bottom line improved year over year. However, investors remained concerned about trimmed fuel gallons same-store sales projection. Nevertheless, the company is on track with its Value Creation Plan. This combined with fleet card program and efforts to strengthen store base have been yielding positive results.

A Closer Look at Q2 Results

The company reported quarterly earnings of $1.80 per share that surpassed the Zacks Consensus Estimate of $1.55 and improved 40.6% year over year. The bottom-line performance in the reported quarter can be attributed to several strategic initiatives including recent investments in stores, strategic pricing, cost containment efforts and favorable impacts from tax reforms. Total revenues of $2,538 million surged 17.8% and also surpassed the consensus mark of $2,512 million. The top line benefited from improved revenues across the company’s segments. Higher retail fuel prices and rise in the number of stores buoyed the top line.

Gross profit during the quarter came in at $510.3 million, rising almost 9.1% year on year. However, gross margin contracted 160 basis points (bps) to 20.1%. Further, Casey's witnessed higher cost of goods sold (up 20.3%) and operating expenses (up 6.6%) during the reported quarter. Operating expenses expanded primarily due to increase of 94 stores in the reported quarter compared with the prior-year quarter’s tally. Additionally, higher credit card fees and fleet fuel costs increased operating expenses burden. The company continues to anticipate operating expenses to increase in the range of 8.5-10.5% during fiscal 2019.

Performance by Categories

We note that Fuel sales increased 24.2% to $1,621.9 million. Fuel gallons same-store sales decreased 1.1% against 1.9% growth witnessed in the year-ago quarter. Fuel margin of 20 cents per gallon, increased 1.5% year over year. Management now envisions fiscal 2019 fuel gallons same-store sales in the band of down 1% to up 0.5% compared with earlier forecast of 1.5-3% growth. It projects fuel margin in the range of 19-21 cents per gallon compared with prior view of 18.5-20.5 cents per gallon.
 
Grocery and Other Merchandise sales rose 8.1% to $618.3 million, while same-store sales rose 2.7% compared with 2.5% growth registered in the prior-year quarter. Grocery and other merchandise margin improved 40 bps to 32.4%. The segment’s performance in the quarter benefited from packaged beverage and other tobacco subcategories. Casey's continues to expect grocery and other merchandise same-store sales in the band of 1.5-3% with margin expected between 31.5% and 32.5% for fiscal 2019.

Prepared Food and Fountain sales jumped 8% to $283.1 million, while same-store sales increased 2.2% compared with growth of 2.1% recorded in the year-ago quarter. During the quarter, the segment gained from strong performance in breakfast daypart. Further, Prepared Food and Fountain margin expanded 110 basis points to of 62.4% on account of price increase. Management continues to project prepared food and fountain same-store sales in the band of 1.5-3.5% with margin between 60% and 62% for fiscal 2019.

Store Update

During the first six months of fiscal 2019, the company constructed 25 new stores and acquired three. Further, the company closed six stores. As of Oct 31, 2018, the company operated 2,097 stores. In fiscal 2019, the company plans to construct 60 stores and acquire at least 20 outlets.

Other Financial Aspects

Casey's ended the reported quarter with cash and cash equivalents of $51.9 million, long-term debt (excluding current portion) of $1,284 million and shareholders’ equity of $1,357.1 million. During the quarter, the company did not make any share repurchases and still has $300 million under authorization. During first six months of fiscal 2019, the company generated cash flow from operations of $304.3 million and incurred capital expenditures of $201 million. The company plans to incur capital expenditures of $466 million during fiscal 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 10.71% due to these changes.

VGM Scores

At this time, Casey's has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Casey's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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