After a few years of stagnation in its stock, Casey's General (CASY 0.83%) has given investors something to cheer for. After reporting strong progress in price optimization and an upbeat outlook in June, shares have risen 25%.
The company followed that up with a mixed bag of results for the first quarter of fiscal 2020 this week. As you'll see, there were many bright spots and some areas for concern, but management remained confident that the company would reach its full-year goals.
Image source: Getty Images.
Casey's earnings: The raw numbers
Before diving into the weeds, let's review how Casey's performed on the headline numbers.
| Metric | Q1 2020 | Q1 2019 | Growth |
|---|---|---|---|
| Revenue | $2.63 billion | $2.59 billion | 1.5% |
| EPS | $2.31 | $1.90 | 22% |
Data source: Casey's General investor relations. EPS = earnings per share.
On the face of it, this is pretty impressive. The company was able to grow earnings 22% based on just a 1% bump in revenue. But with Casey's, the story is a bit more complicated. Because fuel accounts for the lion's share of sales -- but a far lower percentage of profits -- revenue alone doesn't tell us much.
Instead, it's important to monitor how the other two segments -- groceries and prepared food -- performed, as well. Casey's lures in customers with gas but makes most of its money on these other two offerings.
Here's how the company performed in all three areas, versus its stated outlook for the year ahead.
| Metric | FY 2020 Goal | Q1 2020 Results | Goal Met? |
|---|---|---|---|
| Fuel comps | (0.5%) to 1% | (2%) | No |
| Fuel margin | $0.205 to $0.225 | $0.244 | Yes |
| Grocery comps | 2.5% to 4% | 3.2% | Yes |
| Grocery margin | 32% to 33% | 31.3% | No |
| Prepared food comps | 3% to 6% | 1.6% | No |
| Prepared food margin | 61% to 63% | 62.2% | Yes |
Data source: Casey's General IR. Comps = comparable store sales.
We'll start by focusing on the positive. Fuel comps came in lower than expected, but Casey's more than made up for it with the impressive gas margins. In his prepared remarks, CEO Darren Rebelez heaped praise on the company's new price-optimization strategy: "We have gained significant agility to capture additional fuel margin while maintaining a competitive pricing structure."
Even though grocery margins came in below expectations, it mostly had to do with a $6.6 million inventory adjustment. Assuming such adjustments are one time in nature, this isn't much to worry about. Without the charge, margins would have come in at 32.3% -- within management's range.
Prepared foods, on the other hand, remain a thorn in the company's side. Casey's pizza sales were a huge driver for the stock coming out of the Great Recession. But over the past four years, management has continually over promised and under delivered when it came to this critical category.
It's worth noting this has been a trend in food stocks, in general, over the same time frame. That said, the pattern of missing expectations continued, with comps coming in light at 1.6%.
As we'll cover in greater detail below, however, Rebelez is still optimistic. "We believe the previously launched e-commerce website and new mobile app, when combined with our future loyalty program, will significantly enhance the overall guest experience."
What else happened during the quarter?
Here are some other nuggets of note from the company's release:
- With the elevated stock price, Casey's did not make any share repurchases under the $300 million program that's in place.
- Total store count increased by 76 year over year and 15 sequentially, to end the quarter with 2,161 locations.
- Casey's has a pipeline of 107 new sites, with 35 currently under construction.
- Cost-cutting measures continued to to juice returns, with operating expenses up just 5.7%. If credit card fees are backed out, operating-expenses growth looked even better, registering at 2.5%.
Looking ahead
Despite that fact that gas sales are coming in light and prepared foods are badly missing expectations, management made no changes to the company's outlook. If the company can keep getting the gas margins it did this quarter, any shortfall in gallons sold shouldn't be too big of a problem.
What investors should really watch is whether or not prepared-food comps can come in within the 3% to 6% growth range by the end of the year. The fiscal year didn't start on the right foot, but if Casey's can really accomplish this feat, it would be a very positive sign for Rebelez's tenure -- and the company's shareholders, in general.
