Image source: Getty Images.

Casey's General Stores (NASDAQ:CASY), which operates quick-service gas and food stations in small towns throughout the rural Midwest, released first-quarter earnings Tuesday and Wall Street was not happy. The stock dropped 9% on Wednesday. The company has three reporting divisions: gas, groceries, and prepared food. Most important to the stock's tripling over the past five years has been the popularity of the company's prepared food -- particularly its pizza.

To get an idea of how important this division is, consider that while it only accounts for 12% of revenue, the high-margin nature of in-house pizza making means that it produces a full 34% of the company's gross profit!

Heading into fiscal 2017, management had predicted a 10.2% increase in comparable-store (comps) sales growth for prepared foods. During the first quarter, Casey's missed that figure by a very wide mark, showing growth of just 5.1%. In this context, it's not the least bit surprising that the stock dropped.

But should this be a surprise to investors? I was baffled when the stock rose following the report of fiscal-fourth-quarter comps in prepared foods that also fell below expectations. In fact, if we look back at the past few quarters, we see a consistent pattern of disappointments. The black bars below represent management's stated outlook for the fiscal year, while the color bars show where comps actually came in.

Casey's growth in comparable-store sales of prepared food 2015-2017. Chart by author. 

After developing a solid reputation for underpromising and overdelivering, management has completely reversed course. And even though comps came in consistently behind full-year expectations for the first three quarters of 2016, management never guided comps down, making it seem like it was expecting a monstrous quarter.

Commenting on the shortfall in prepared foods in the most recent press release, CEO Terry Handley said, "Although many retailers in the food service industry have reported a recent softening in traffic, we continue to see strong sales lifts from stores that recently implemented one or more of our growth programs." There seems to be no recognition of the problem.

It wasn't until pressed by analysts on the conference call that Handley finally offered more color. He said that meeting fiscal comps goals for prepared foods would be "challenging." What's surprising is that management isn't updating its outlook for the year.

How did the rest of the business do?

Here's what the company hopes to accomplish by division in fiscal 2017, and how it performed against its stated goals during the first quarter.


Comps Goals

Actual Q1 Comps

Margin Goals

Actual Q1 Margins











Prepared food





Data source: Casey's investor relations.

Management said that the shortfall in groceries was due to a combination of factors, including slowing growth of cigarette sales and decreased foot traffic, perhaps caused by inclement weather during the month of July.

While Handley did his level-best sound optimistic about the potential for growth initiatives -- like store remodels -- to help boost sales for the rest of the fiscal year, the fact remains that investors are concerned about the linchpin for the stock's growth falling apart.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.