Please ensure Javascript is enabled for purposes of website accessibility

Things Are Changing at Casey's General Stores -- for the Better!

By Brian Stoffel - Jun 11, 2019 at 12:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While results were good, the outlook is even better.

Three years ago, when Terry Handley took the reins as CEO at Casey's General Stores (CASY 1.70%), the company was having difficulties. The company -- which operates primarily in Middle American towns of 5,000 people or fewer -- had a booming pizza business to complement its basic grocery and gas sales. As it looked to expand, however, it continually failed to live up to its own expectations.

It's fitting then that Handley -- in his last quarter as CEO -- seems to have helped right the ship. The company reported earnings this week that show a reversal of trends. More important, management sees a brighter future in the year ahead.

Cartoon of people at gas station and convenience store

Image source: Getty Images.

Casey's General Stores earnings: The raw numbers

Before we dig into the details of the company's fiscal fourth quarter, let's review how it performed on the headline numbers.

Metric Fiscal Q4 2019 Fiscal Q4 2018 Growth
Revenue $2.18 billion $2.09 billion 4%
EPS $0.68 $0.51 33%

Data source: Casey's investor relations.

Shareholders should know that the revenue figure needs to be taken with a grain of salt. Gas is the primary driver of sales, but it is a low-margin business that's almost entirely out of the company's control. Instead, more profit comes from the things that people pick up while filling up: groceries and prepared foods.

From 30,000 feet, one of the big stories is that the company showed profit-making leverage. The cost of goods sold rose just 2.5%, while operating expenses at existing stores actually dipped 1.1%. That helped far more money drop to the company's bottom line -- resulting in the large earnings growth.

As you can see in the table below, the company hit all its goals when it came to its nonfuel lines of business.

Metric FY 2019 Goal Goal Met? Q4 '19 Results
Fuel comps (2%) to (0.5%) No (2.8%)
Fuel margin $0.19 to $0.21 No $0.186
Grocery comps 1.5% to 3% Yes 5.7%
Grocery margin 31.5% to 32.5% Yes 31.5%
Prepared food comps 1.5% to 3.5% Yes 2%
Prepared food margin 60.5% to 62.5% Yes 62.2%

Data source: Casey's investor relations. Comps = comparable store sales.

Speaking on the conference call with analysts, management said that packaged-beverage sales -- including of beer -- were a strong driver of comparable-store sales for groceries. Favorable weather in April was cited as a strong catalyst for that increase.

Equally important, the company is becoming leaner while accomplishing all these goals. It announced that many areas of its "Value Creation Plan" had been realized, continuing the trend from a quarter ago:

  • Casey's e-commerce site -- Caseys.com -- was launched to sell pizza, sandwiches, and other items.
  • The company's fuel optimization platform -- which adjusts fuel prices based on various data -- has now been deployed at all stores.
  • By the end of the quarter (April 30), there were 2,000 active Fleet Card users (500 of them being new). By the time of the conference call (June 11), those numbers had jumped to 7,200 and 1,300, respectively.
  • A price optimization platform for in-store sales had completed its test run, and will be rolled out to all stores throughout the year ahead.
  • An in-store order management system that is largely automated will be launched in the year ahead. It is expected to cut down on operating expenses.
  • An enhanced mobile app will be released in this fiscal year.

Hitting key targets for in-store sales and cutting costs through the Value Creation Plan have given investors a lot to cheer about.

What else happened during the quarter?

The company also announced the retirement of Handley, who has been with Casey's for 38 years. In his stead, the board will be bringing on Darren Rebelez, who is currently president at IHOP and before that served as COO at 7-Eleven.

Beyond that announcement, there were other tidbits of note:

  • The company did not repurchase any shares during the quarter, and still had $300 million authorized for repurchases.
  • The quarterly dividend was raised from $0.29 to $0.32 -- for a current yield of roughly 0.9%.
  • The company ended the fiscal year with 56 total new stores, 24 acquired stores, and a grand total of 2,146 locations.

Looking ahead

Perhaps most encouraging for investors, management sees the positive trends continuing. With fiscal 2020 already underway, these are the comparable-store (comps) forecasts for the year.

Metric FY 2020 Goal
Fuel comps (0.5%) to 1%
Fuel margin $0.205 to $0.225
Grocery comps 2.5% to 4%
Grocery margin 32% to 33%
Prepared food comps 3% to 6%
Prepared food margin 61% to 63%

Data source: Casey's General investor relations.

Study this and you see management is expecting both more sales and greater margin on those sales.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Casey's General Stores, Inc. Stock Quote
Casey's General Stores, Inc.
CASY
$206.49 (1.70%) $3.46

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
332%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.