Coastal residents might be surprised to find out, but Casey's General Stores (NASDAQ:CASY) -- popular in Midwest and Great Plains towns of 5,000 or fewer people -- is one of the biggest pizza-makers in the country.

Yes, the stores offer gas and basic groceries like every other convenience chain, but its prepared-food segment is what really helped shares advance 470% -- including dividends -- between 2009 and 2015. But Tuesday's earnings release confirms a pattern already identified: This part of the growth story has hit a wall.

Hands grabbing slices of pizza

Image source: Getty Images.

Casey's General earnings: The raw numbers

I'll get into the details below, but let's start with the view from 30,000 feet. Here's how the company performed during the second fiscal quarter.

Metric Q2 2018 Q2 2017 Growth
Revenue $2.15 billion $1.92 billion 12%
Earnings per share $1.28 $1.44 (11%)

Data source: Casey's General Stores.

It's not very helpful to focus too much on revenue, as the price of gasoline has enormous sway over Casey's top-line results. The company has no control over this, and sometimes the bottom line benefits from lower gas prices.

That's why it's more instructive to look at how Casey's different reporting segments -- fuel, groceries, and prepared food -- performed. Last summer, management set comparable-store (comps) and margin targets for each division.

Metric Fiscal 2018 Goal Q2 Results Goal Met?
Fuel comps growth 1% to 2%  1.9% Yes
Fuel margin per gallon $0.18 to $0.20 $0.197 Yes
Grocery comps growth 2% to 4% 2.5% Yes
Grocery margin 31% to 32% 32% Yes
Prepared food comps 4% to 6% 2.1% No
Prepared food margin 61.5% to 62.5% 61.3% No

Data source: Casey's General Stores.

As you can see, Casey's performed on par with what investors were expecting in two out of the three segments. And with prepared food accounting for just 12% of all sales, it might seem like the market is making a mountain out of a molehill with the stock's 8% decline as of 2 p.m. Tuesday.

But it's important to understand that the sales of pizza, wings, and other such food are very high margin. While it might only account for a small slice of sales, the prepared-foods segment contributes more than one-third -- 34% actually -- of gross profit dollars. Of course, the grocery and fuel divisions need to continue doing well, too, but prepared foods is why Casey's earnings have been growing and the stock has been afforded a premium by the market.

To get a better idea of how quickly things have slowed, here's a look at Casey's comps in prepared foods over the past few years.

Chart showing comps at Casey's for Prepared Foods

Data source: Casey's General Stores.

What's important to note here is that while some level of slowdown has to be expected, the results for these time periods were almost universally below goals and forecasts set by management.

CEO Terry Handley said, "Softer traffic in the back half of the quarter affected overall results in the category." Management has cited weaker rural agricultural economies, the trend away from eating out, and competition all as sources for weakness.

What else happened during the quarter?

The company had a number of other announcements, mostly focused around its expansion progress:

  • A total of 26 stores have been built or acquired through the first six months of the fiscal year, with 66 under construction right now.
  • The company opened its 2,000th store in the quarter.
  • So far, 14 stores have been replaced, with another 18 currently slated to be replaced.
  • Casey's has completed 28 remodels, with another 14 underway.

Looking ahead

Management said it expects to meet all of its annual expansion goals by summer 2018. Furthermore, it maintained its guidance for five out of the six key metrics -- comps and margins in all three divisions -- with the exception of one: comps for prepared food was lowered from a range of 4% to 6%, to 2% to 4%.

Through the first six months of the year, comps for this division stand at 2.9%. That means there's a good chance that Casey's will be able to hit this new mark, but the downward trend in comps needs to shore up first.

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.