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Casey's (CASY) Provides Third Quarter-to-Date Business Update

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Zacks Equity Research
·4 min read
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Casey's General Stores, Inc. CASY came out with details regarding its third quarter-to-date (QTD) fiscal 2021 performance, up until Jan 8, before its participation in the ICR conference. Results were in line with the previously disclosed information during the company’s second-quarter earnings call. The company’s performance in the reported period reflects continued weakness in same-store fuel gallons. Moreover, rising costs related to the COVID-19 pandemic were a drag. Nevertheless, strong fuel margins and inside same-store sales were upsides. Let’s look closer.

Results in Details

For the QTD period, Casey's same-store fuel gallons declined in the low to mid-teens range compared with the same period in the third quarter of fiscal 2020. We note that the company has long been grappling with dismal fuel sales. During the second quarter, same-store fuel gallons fell 8.6% year on year, owing to lower consumer traffic stemming from the coronavirus pandemic.

Nevertheless, fuel margins were above 30 cents per gallon, which continued to remain higher than the historical averages. Effective retail pricing and procurements are likely to have aided fuel margins.

Further, the company provided details regarding inside same-store sales, which includes Grocery & Other Merchandise as well as Prepared Food & Fountain categories. QTD inside same-store sales were positive, with low single digit growth year on year. Markedly, same-store sales for Grocery and Other Merchandise were up mid-single digits, partially offset by mid-single digits decline in Prepared Food and Fountain same-store sales.

Management highlighted that the company continues to witness incremental costs associated with the pandemic. These include cleaning costs, increased sick and quarantine pay as well as higher team member appreciation pay. As a result, QTD operating expenses were up on a year-on-year basis. Rise in operating expenses is slightly higher than the percentage increase witnessed during the second quarter.  

In respect of the pending Buchanan Energy acquisition, the company informed that it has received a request for additional information from the Federal Trade Commission (“FTC”). The request entails the extension of the anticipated closing date of the acquisition, which was initially expected to take place in late 2020. Casey’s informed that it continues to cooperate with FTC on this matter. Moreover it does not expect FTC’s review to have a material impact on the acquisition.

Wrapping Up

Persistent weakness in the company’s same-store fuel gallons as well as Prepared Food and Fountain same-store sales is likely to dent the company’s top-line performance in the third quarter. We note that the Zacks Consensus Estimate for sales in the third quarter is currently pegged at $2,026 million, which indicates a year-on-year decline of nearly 10%.

The Zacks Consensus Estimate for earnings in the third quarter is currently pegged at 96 cents, indicating a rise of 5.5% year on year. Strong fuel margins are likely to support the bottom line.

Shares of this Zacks Rank #3 (Hold) company have inched up 0.5% in the past three months compared with the industry’s rise of 2.2%.

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Sprouts Farmers Market, Inc. SFM, with a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 59.5%, on average.

Walmart Inc. WMT, also with a Zacks Rank #2, has a long-term earnings growth rate of 5.5%.

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