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A month has gone by since the last earnings report for Casey's General Stores (CASY). Shares have lost about 2% 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 Q2 Earnings Beat Estimates, Revenues Down Y/Y
Casey's General Stores, Inc. reported better-than-expected second-quarter fiscal 2021 results. Notably, this was the second straight quarter of positive earnings surprise. Management highlighted that ongoing strong fuel profitability and inside sales volume contributed to the quarterly results. While the bottom-line increased year over year, top line declined from the year-ago period.
A Closer Look at Results
Casey's reported quarterly earnings of $3.00 per share that beat the Zacks Consensus Estimate of $2.66 and improved significantly from $2.21 in the year-ago period.
Total revenues were $2,215.9 million, which declined 10.9% year over year but beat the Zacks Consensus Estimate of $2,197 million. We note that the company had missed the consensus mark for revenues in the preceding quarter. Revenue declines across Fuel and Prepared Food & Fountain categories, were partly offset by increase in Grocery & Other Merchandise category. Markedly, digital sales soared 127% compared with year-ago quarter.
In spite of the decline in the top line, gross profit increased 13.4% year over year to $631.8 million due to fall in cost of goods sold. Further, gross margin expanded to 28.5% from 22.4% in the year-ago period. The company witnessed a decline of 17.9% in cost of goods sold during the reported quarter.
We note that Casey's registered an increase of 9.9% in operating expenses of $410.3 million on account of operating 38 more stores compared with the same period last year, $5 million expenses associated with the ongoing pandemic, and more than $9 million in incremental short and long-term incentive compensation costs. The company also incurred $1 million in expenses related to the Buchanan Energy acquisition. Same store operating expenses, excluding credit card fees, were up 5.4% for the quarter under review.
Performance by Categories
We note that Fuel sales decreased 21.2% to $1,193.5 million on account of decline in average retail price per gallon and the number of gallons sold. We note that average retail price per gallon decreased 16.2% to $2.07, while total gallons sold fell 5.9% to 577.6 million. Fuel gallons same-store sales fell 8.6% compared with decline of 1.8% in the year-ago quarter hurt by lower guest traffic due to the ongoing pandemic. However, volumes improved on a sequential basis. Impressively, gross profit increased 45% to $204.2 million driven by higher fuel margin. Notably, fuel margin surged to 35.3 cents per gallon from 22.9 cents per gallon in the prior-year period driven in part by the company's centralized retail pricing capability and procurement improvements.
Grocery & Other Merchandise sales rose 8.7% to $718.2 million. Same-store sales rose 6.6% compared with 3.2% in the year-ago quarter, primarily owing to robust sales of alcohol, packaged beverage and tobacco. Notably, Grocery & Other Merchandise margin remained flat 33.3%. Again, gross profit jumped 8.6% to $239 million during the quarter.
Prepared Food & Fountain sales declined 3% to $288.8 million. Same-store sales decreased 3.6% against 1.9% growth witnessed in the year-ago quarter. The metric declined due to pressure in the dispensed beverage and bakery categories, though these categories witnessed improvements in volume on a sequential basis. Further, Prepared Food & Fountain margin shrunk 80 basis points to 60.1%. Increased promotional activity adversely impacted the margin. Gross profit fell 4.3% year over year to $173.7 million.
During first-six month of fiscal 2021, the company constructed 14 new stores and closed three. As of Oct 31, the company operated 2,219 stores in 16 Midwest states. The company had four acquisition stores under agreement to purchase and a new store pipeline of 77 sites, including 23 under construction, as of Oct 31, 2020.
The company remains on track to conclude the previously announced acquisition of 94 Bucky’s Convenience Stores by the end of the calendar year. The buyout is a strong strategic fit and is expected to be accretive to EBITDA in the fourth quarter of fiscal 2021 and earnings in fiscal 2022. Additionally, the company anticipates to complete the construction of about 40 new stores this fiscal year.
Other Financial Aspects
Casey's ended the reported quarter with cash and cash equivalents of $404.7 million, Long-term debt and finance lease obligations (net of current maturities) of $1,361.9 million and shareholders’ equity of $1,859.9 million. The company has full undrawn capacity of $325 million in lines of credit. The leverage ratio stood at approximately 1.9 times. Management notified that it has no maturities of significance due until 2025.
During the quarter, the company did not make any share repurchases and still has $300 million under authorization. Notably, the company’s board of directors raised the quarterly dividend by 6% to 34 cents a share.
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 -15.4% due to these changes.
At this time, Casey's has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile 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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