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Casey's (CASY) Up 7.7% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Casey's General Stores (CASY). Shares have added about 7.7% 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 drivers.

Casey's Q4 Earnings & Revenue Beat Estimates

Casey's General Stores, Inc. continued with its positive earnings surprise streak for the fourth straight quarter. Notably, the bottom line improved yet again on a year-over-year basis in fourth-quarter fiscal 2019. The top line also came ahead of the Zacks Consensus Estimate after missing the same in the preceding quarter. Further, total revenues increased year over year.

The quarterly results benefited from gross margin expansion, cost containment efforts and opening of more stores. The company remains on track with its Value Creation Plan. This combined with fleet card program and efforts to strengthen store base have been yielding positive results. The company launched the new Caseys.com e-commerce website, initiated fuel price optimization platform across all outlets and will soon launch enhanced mobile app. At the end of fiscal 2019, the new fleet card program has more than 2,000 active cards and 500 new accounts.

A Closer Look at Q4 Results

The company reported quarterly earnings of 68 cents a share that surpassed the Zacks Consensus Estimate of 42 cents and improved 33.3% from 51 cents posted in the year-ago period.

Total revenues came in at $2,178.4 million, up 4.3% year over year and beat the Zacks Consensus Estimate of $2,125 million. The company registered revenue growth across all categories, namely Fuel, Grocery and Other Merchandise and Prepared Food and Fountain categories.

Gross profit during the quarter came in at $452.4 million, up 11.7% year over year, while gross margin expanded 140 bps to 20.8%.

Further, Casey's witnessed an increase in cost of goods sold (up 2.5%) and a jump in operating expenses (up 9.6%) during the reported quarter. Operating expenses expanded primarily due to operating 73 more stores from the prior-year period, cycling or the reduction in 24-hour and pizza delivery formats, rise in technology spend, and higher incentive compensation. The company now anticipates operating expenses to increase in the band of 7-9% during fiscal 2020.

Performance by Categories

We note that Fuel sales increased 1.9% to $1,345.9 million. Fuel gallons same-store sales decreased 2.8% against growth of 2% witnessed in the year-ago quarter. Fuel margin of 18.6 cents per gallon increased 14.1% year over year. Management now envisions fiscal 2020 fuel gallons same-store sales to be down 0.5% to up 1%, compared with decline of 1.7% witnessed in fiscal 2019. It projects fuel margin in the range of 20.5-22.5 cents per gallon compared with 20.3 cents reported in fiscal 2019.

Grocery and Other Merchandise sales rose 9.9% to $562.7 million, while same-store sales rose 5.7% as against decline of 0.4% witnessed in the prior-year quarter. Grocery and other merchandise margin expanded 30 basis points to 31.5%. Casey's anticipates grocery and other merchandise same-store sales to increase in the band of 2.5-4% with margin expected between 32% and 33% for fiscal 2020. Notably, the company reported same-store sales increase of 3.6% and margin expansion of 30 basis points to 32.1% in fiscal 2019.

Prepared Food and Fountain sales jumped 5.4% to $254.1 million. Same-store sales increased 2% against decline of 1.3% in the year-ago quarter. Further, Prepared Food and Fountain margin expanded 250 basis points to 62.2% on account of price increase, favorable commodity costs and changes in promotional campaigns. Management projects prepared food and fountain same-store sales to increase in the band of 3-6% with margin between 61% and 63% for fiscal 2020. Notably, the company reported same-store sales increase of 1.9% and margin expansion of 120 basis points to 62.2% in fiscal 2019.

Store Update

During fiscal 2019, the company constructed 56 new stores and acquired 24. The company closed 10 stores. The company replaced eight stores and have eight acquisition stores under agreement to purchase. It has 81 stores in pipeline, including 41 under construction. As of Apr 30, 2019, the company operated 2,146 stores. The company plans to construct 60 and acquire 25 stores in fiscal 2020.

Other Financial Aspects

Casey's ended the reported quarter with cash and cash equivalents of $63.3 million, long-term debt (net of current maturities) of $1,283.3 million and shareholders’ equity of $1,408.8 million. During the quarter, the company did not make any share repurchases and still has $300 million under authorization. The company also raised quarterly dividend to 32 cents from 29 cents a share.

The company generated cash flow from operations of $550 million during the fiscal year and incurred capital expenditure of $482 million. Management plans to incur capital expenditures of $516 million during fiscal 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.35% due to these changes.

VGM Scores

At this time, Casey's has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Casey's has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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