It has been about a month since the last earnings report for Casey's General Stores (CASY). Shares have added about 3.4% 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 catalysts.
Casey's Earnings Beat Estimates in Q2, Improve Y/Y
Casey's General Stores, Inc.’s positive earnings surprise streak continued for the sixth straight quarter. Notably, the bottom line improved again on a year-over-year basis in second-quarter fiscal 2020. Management highlighted that sturdy growth in fuel gross profit dollars, new store openings and continuous focus on improving operating efficiencies contributed to results.
However, the top line fell short of the Zacks Consensus Estimate after a beat in the preceding two quarters, and declined year over year. This Iowa-based company also trimmed fiscal 2020 same-store sales projection for fuel and prepared food & fountain categories.
A Closer Look at Q2 Results
Casey's reported quarterly earnings of $2.21 per share that surpassed the Zacks Consensus Estimate of $2.10 and improved 22.8% from $1.80 posted in the year-ago period.
Total revenues came in at $2,487.6 million, down 2% year over year and missed the Zacks Consensus Estimate of $2,546 million. Although revenues at Fuel category declined, Grocery & Other Merchandise and Prepared Food & Fountain categories witnessed growth.
Gross profit came in at $557.1 million, up 9.2% year over year, while gross margin expanded 230 bps to 22.4%.
Casey's witnessed a decline in cost of goods sold (down 4.8%) but an increase in operating expenses (up 8.5%) during the reported quarter. Operating expenses expanded primarily due to operation of 84 more stores from the prior-year period. The company continues to anticipate operating expenses to increase in the band of 7-9% during fiscal 2020.
Performance by Categories
We note that Fuel sales decreased 6.6% to $1,514.5 million. Fuel gallons same-store sales decreased 1.8% compared with 1.1% decline witnessed in the year-ago quarter. Fuel margin of 22.9 cents per gallon increased 14.5% year over year. Total gallons sold were up 3.4% to 614.1 million gallons.
Management now envisions fiscal 2020 fuel gallons same-store sales to be down 1% to up 0.5% compared with decline of 1.7% witnessed in fiscal 2019. It now expects fuel margin in the range of 21-23 cents per gallon compared with 20.3 cents reported in fiscal 2019. Casey's had earlier forecast fuel gallons same-store to be down 0.5% to up 1% and fuel margin in the band of 20.5-22.5 cents per gallon for fiscal 2020.
Grocery & Other Merchandise sales rose 6.8% to $660.6 million, while same-store sales rose 3.2% compared with 2.7% growth registered in the year-ago quarter. Grocery & Other Merchandise margin expanded 90 basis points to 33.3%. Casey's reaffirmed same-store sales growth forecast of 2.5-4% with margin expected between 32% and 33% for fiscal 2020. Notably, the company had reported same-store sales increase of 3.6% and margin expansion of 30 basis points to 32.1% in fiscal 2019.
Prepared Food & Fountain sales jumped 5.2% to $297.8 million. In spite of a highly competitive food service environment, same-store sales increased 1.9% compared with 2.2% growth registered in the year-ago quarter. Further, Prepared Food & Fountain margin shrunk 150 basis points to 60.9%. Higher commodity costs compared with year-ago period adversely impacted the margin.
Management now projects prepared food and fountain same-store sales to increase in the band of 1.5-4% with margin between 61% and 63% for fiscal 2020. Notably, the company had reported same-store sales increase of 1.9% and margin expansion of 120 basis points to 62.2% in fiscal 2019. Casey's had earlier forecast same-store growth of 3-6% for fiscal 2020.
During the six months ended on Oct 31, the company constructed 36 new stores and acquired five. The company closed nine stores. As of Oct 31, the company operated 2,181 stores. The company plans to construct 60 stores and acquire 25 in fiscal 2020.
Other Financial Aspects
Casey's ended the reported quarter with cash and cash equivalents of $44 million, long-term debt (net of current maturities) of $715.1 million and shareholders’ equity of $1,561.8 million. During the quarter, the company did not make any share repurchases and still has $300 million under authorization.
The company generated cash flow from operations of $312 million during the first six-month of fiscal 2020 quarter and incurred capital expenditure of $248.7 million. Management plans to incur capital expenditures of $516 million during fiscal 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a flat trend in estimates revision.
At this time, Casey's has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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.
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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