A month has gone by since the last earnings report for Casey's General Stores (CASY). Shares have lost about 2.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Casey's due for a breakout? 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 Q3 Earnings Beat, Revenues Miss Estimates
Casey's General Stores, Inc. continued with its positive earnings surprise streak for the third straight quarter. Notably, the bottom line improved yet again on a year-over-year basis in third-quarter fiscal 2019. However, the top line fell short of the consensus mark after surpassing the same in the preceding two quarters. Also, total revenues marginally declined year over year. We note that management trimmed fuel gallons same-store sales projection again.
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. The company commenced the integration of e-commerce and mobile commerce system and also piloted food and grocery price optimization software.
A Closer Look at Q3 Results
The company reported quarterly earnings of $1.13 per share that surpassed the Zacks Consensus Estimate of 90 cents and improved significantly from 48 cents posted in the year-ago period. The bottom-line performance in the reported quarter can be attributed to strategic pricing, cost containment efforts and favorable fuel margin environment.
Total revenues came in at $2,048.1 million, down 0.3% year over year and below the Zacks Consensus Estimate of $2,134 million. The fall in retail fuel prices was offset by an increase in the number of stores in operation. The revenue decline at the fuel category was to an extent offset by growth witnessed across Grocery and Other Merchandise and Prepared Food and Fountain categories.
Gross profit during the quarter came in at $470.3 million, up almost 12% year on year, while gross margin expanded 260 basis points (bps) to 23%.
Further, Casey's witnessed decline in cost of goods sold (down 3.5%) but an increase in operating expenses (up 5.7%) during the reported quarter. Operating expenses expanded primarily due to 103 more stores from the prior-year period. The company now anticipates operating expenses to increase in the band of 7.5-9.5% during fiscal 2019, partly down from the range of 8.5-10.5% forecasted earlier.
Performance by Categories
We note that Fuel sales decreased 4.9% to $1,233.6 million. Fuel gallons same-store sales decreased 3.4% against 3.8% growth witnessed in the year-ago quarter. Fuel margin of 22.1 cents per gallon increased 18.8% year over year. Management now envisions fiscal 2019 fuel gallons same-store sales to decline in the band of 0.5-2%, compared with the earlier forecast of down 1% to up 0.5%. It continues to project fuel margin in the range of 19-21 cents per gallon.
Grocery and Other Merchandise sales rose 8.2% to $543.8 million while same-store sales rose 3.4% compared with 2.5% growth registered in the prior-year quarter. Grocery and other merchandise margin remained flat at 31.9%. Casey's continues to expect grocery and other merchandise same-store sales to increase 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 6.5% to $256.1 million. Same-store sales increased 1.5% compared with growth of 1.7% in the year-ago quarter. Further, Prepared Food and Fountain margin expanded 180 basis points to 62.3% on account of price increase. Management continues to project prepared food and fountain same-store sales to increase in the band of 1.5-3.5% with margin between 60.5% and 62.5% for fiscal 2019, up from 60-62% envisioned earlier.
During the first nine months of fiscal 2019, the company constructed 41 new stores, acquired 13 and have 17 additional stores under agreement to purchase. The company closed eight stores. As of Jan 31, 2019, the company operated 2,123 stores. The company plans to construct 55-60 stores compared with 60 stores anticipated earlier and acquire more than 20 stores in fiscal 2019.
Other Financial Aspects
Casey's ended the reported quarter with cash and cash equivalents of $34.2 million, long-term debt (excluding current portion) of $1,289 million and shareholders’ equity of $1,390.9 million. During the quarter, the company did not make any share repurchases and still has $300 million under authorization. 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 a downward trend in fresh estimates. The consensus estimate has shifted -20.25% due to these changes.
At this time, Casey's has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Casey's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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