Casey's (CASY) Up 3.3% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Casey's General Stores (CASY). Shares have added about 3.3% 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 Q2 Earnings Miss Estimates, Revenues Up Y/Y

Casey's General Stores, Inc. reported second-quarter fiscal 2022 results, wherein the top line not only surpassed the Zacks Consensus Estimate but also improved year over year. This was the fifth straight quarter of positive sales surprise. On the contrary, the bottom line missed the consensus mark and declined from the year-ago tally.

A Closer Look at Results

Casey's posted quarterly earnings of $2.59 per share that lagged the Zacks Consensus Estimate of $2.92 and declined from $3.00 in the prior-year period. This year-over-year decrease in the bottom line was due to higher operating expenses and increased depreciation expenses from operating additional outlets than the year-ago period.

Total revenues of $3,262.9 million surged 47.3% year over year and outpaced the Zacks Consensus Estimate of $3,154 million. Revenues grew across all the three categories, Fuel, Grocery & General Merchandise, and Prepared Food & Dispensed Beverage. Digital sales rose 10% in the second quarter, cycling a 120% increase registered in the last-year period.

Inside sales jumped 13.1% to $1,139 million during the quarter under review. Inside same-store sales increased 6% compared with 3.5% rise registered in the year-ago period. The metric improved on account of sturdy performance in packaged beverages, grocery items such as salty snacks and meat snacks, as well as continued momentum in pizza slices, driven in part by increased guest traffic.

Margins & Expenses

Gross profit increased 13.6% year over year to $717.6 million, courtesy of higher revenues. However, gross margin contracted 650 basis points to 22%. Inside gross profit grew 12.3% to $463.4 million. Management informed that Inside gross profit rose significantly despite product availability pressures, especially in Prepared Food & Dispensed Beverage segment, and an inflationary supply chain environment. Meanwhile, Inside margin shrunk 30 basis points to 40.7%.

Adjusted EBITDA declined 2.8% year over year to $217 million as higher gross profit from inside the store and fuel was offset by increase in operating expenses on account of rise in wage rates and credit card fees as well as operating 161 additional stores. Both the Buchanan and Circle K acquisitions were accretive to EBITDA.

Casey's witnessed an increase of 22% in operating expenses of $500.6 million. Approximately 9% of the increase was due to operating 161 more stores compared with the same period last year, about 7% of the increase was due to same-store employee and store operating expenses, and roughly 2% of the change was due to rise in same-store credit card fees from higher retail fuel prices and increased sales volume.

Performance by Categories

We note that Fuel sales surged 71.7% year over year to $2,048.8 million during the quarter. Well, Fuel gallons sold jumped 15.8% to 668.8 million. Same-store gallons sold were favorably impacted by improved guest traffic despite lapping a challenging comparison from the previous second quarter. Fuel gallons same-store sales rose 2.5% during the quarter under discussion against a decline of 8.6% in the year-ago period. Fuel gross profit rose 13.6% to $231.9 million. Fuel margin declined to 34.7 cents per gallon from 35.3 cents per gallon in the prior-year period. The Company sold $6.2 million in renewable fuel credits (RINs) in the quarter, an increase of $2.4 million from the year-ago period. Fuel margins continue to trend in the low to mid 30 cents per gallon range.

Grocery & General Merchandise sales rose 15.5% to $829.5 million. Same-store sales increased 6.8% compared with 6.6% growth in the year-ago quarter. Grocery & General Merchandise margin remained flat at 33.3%. Again, gross profit increased 15.5% to $275.9 million during the quarter.

Prepared Food & Dispensed Beverage sales rose 7.2% to $309.5 million. Same-store sales increased 4.1% against a decline of 3.6% in the year-ago quarter. Casey’s informed that the metric was adversely impacted by supply chain bottlenecks, primarily in bakery and dispensed beverages. Prepared Food & Dispensed Beverage margin expanded 50 basis points to 60.6%. We note that gross profit jumped 8% year over year to $187.5 million. Higher volumes, mix enhancement, procurement actions, and selective price increases helped mitigate the impact of inflationary pressures.

Store Update

During six-month period ended Oct 31, 2021, Casey's constructed seven new stores, acquired 144 stores (including the 89 Bucky’s and 48 Circle K stores) and closed 12. As of Oct 31, 2021, the company operated 2,380 stores. The company now plans to add roughly 225 units during fiscal 2022, up from the earlier expectation of 200 units, owing to the recently announced acquisition of 40 stores from Pilot Corporation. It remains committed to add 345 stores over a three-year period by the end of fiscal 2023.

Other Financial Aspects

Casey's ended the quarter with cash and cash equivalents of $311.7 million, long-term debt and finance lease obligations (net of current maturities) of $1,677.4 million and shareholders’ equity of $2,123.1 million. The company has the full capacity undrawn of $475 million in lines of credit, giving ample available liquidity of $787 million. We note that leverage ratio remained at 2.4x.

For the quarter, net cash provided by operating activities of $213 million less purchases of property and equipment of $78 million, resulted in free cash flow of $135 million. During the quarter, the company did not make any share repurchases and still has $300 million under authorization, which expires in April 2022.

FY22 Outlook

Casey's continues to envision same-store fuel and inside sales to rise in mid-single digit percentages during fiscal 2022. Management now foresees fiscal 2022 operating expenses to increase in the high-teen percentages versus the prior view of mid-teens percentages due to the additional units as well as elevated credit card fees stemming from higher retail fuel prices.

Casey's anticipates operating expenses to rise 18-20% in the third quarter and 11-13% in the fourth quarter. The company expects same-store fuel and inside sales to rise in mid-single digit percentages in the third quarter. Net earnings for both the third and fourth quarters are expected to be modestly higher than the prior year.

The company expects to make an investment of roughly $400 million in property and equipment in the fiscal year down from the prior projection of $500 million owing to the lower new store construction because of increase in acquisition activity.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -14.51% due to these changes.

VGM Scores

At this time, Casey's has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Casey's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Casey's General Stores, Inc. (CASY) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research