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Why Is Casey's (CASY) Up 6.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Casey's General Stores (CASY). Shares have added about 6.3% 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 its most recent earnings report in order to get a better handle on the important drivers.

Casey's Q1 Earnings Top Estimates, Revenues Fall Y/Y

Casey's General Stores, Inc. reported mixed first-quarter fiscal 2021 results. While the top line fell short of the Zacks Consensus Estimate, the bottom line beat the same. Total revenues continued to decline year over year but earnings per share increased. Notably, improved sales volume coupled with strong fuel margin and better expense management contributed to bottom-line growth.

Casey's reported quarterly earnings of $3.24 per share that beat the Zacks Consensus Estimate of $2.00 and improved significantly from $2.31 in the year-ago period.

Total revenues came in at $2,105 million, which not only declined 19.9% year over year but also missed the Zacks Consensus Estimate of $2,134 million. We note that the company had surpassed revenue estimates in the preceding quarter. Revenue declines across Fuel and Prepared Food & Fountain categories, was partly offset by increase in Grocery & Other Merchandise category.

In spite of the decline in the top line, gross profit increased 10.2% year over year to $623.5 million due to fall in cost of goods sold. Further, gross margin expanded to 29.6% from 21.5% in the year-ago period. The company witnessed a decline of 28.1% in cost of goods sold during the reported quarter.

We note that Casey's registered an increase of 1.6% in operating expenses on account of operating 53 more stores compared with the same period last year and incremental expenses associated with the ongoing pandemic. This was partly offset by reduction in hours at the stores and lower credit card fees. Management expects operating expenses to increase commensurate with store hours, returning to pre-COVID levels.

Adjusted EBITDA for the quarter was $237.8 million compared to $186.4 million a year ago.

Performance by Categories

We note that Fuel sales decreased 33.3% to $1,086 million on account of decline in average retail price per gallon and the number of gallons sold. We note that average retail price per gallon decreased 24.8%, while total gallons sold fell 11.2% to 549.5 million. Fuel gallons same-store sales fell 14.6% compared with decline of 2% in the year-ago quarter owing to the ongoing pandemic and lower guest traffic. Impressively, gross profit increased 39.1% to $210 million driven by higher fuel margin. Notably, fuel margin surged to 38.2 cents per gallon from 24.4 cents per gallon in the prior-year period driven in part by the company's centralized retail pricing strategy and procurement improvements.

Grocery & Other Merchandise sales rose 6.4% to $731.9 million. Same-store sales rose 3.6% compared with 3.2% in the year-ago quarter, primarily due to robust sales of alcohol and packaged beverages. Notably, Grocery & Other Merchandise margin expanded 90 basis points to 32.2%. Again, gross profit jumped 9.4% to $235.6 million during the quarter.

Prepared Food & Fountain sales declined 8.5% to $270.8 million. Same-store sales decreased 9.8% against 1.6% growth witnessed in the year-ago quarter. The metric declined owing to lower store traffic and restrictions limiting self-serve prepared food items such as bakery and dispensed beverages. Further, Prepared Food & Fountain margin shrunk 250 basis points to 59.7%. Higher commodity costs and increased promotional activity adversely impacted the margin. Gross profit fell 12.2% year over year to $161.6 million. Lower volumes, ongoing self-service restrictions and a 9% increase in cheese costs to $2.12 per pound versus $1.95 per pound last year, contributed to this decline.

Management highlighted that for second quarter-to-date ending Sep 9, 2020, the company has experienced negative same store gallons in the mid-to-high single digits, while fuel margin is above 30 cents per gallon. While Grocery & Other Merchandise category is trending up in the high single digits, Prepared Food & Fountain is trending down mid-single digits.

Store Update

During the quarter, the company constructed nine new stores and closed two. As of Jul 31, the company operated 2,214 stores in 16 Midwest states. The company had four acquisition stores under agreement to purchase and a new store pipeline of 86 sites, including 20 under construction, as of Jul 31. Management expects new stores to generate double digit returns on invested capital on average by their third year of operations. Notably, the company plans to open 40 new stores in fiscal 2021.

Other Financial Aspects

Casey's ended the reported quarter with cash and cash equivalents of $246.5 million, long-term debt (net of current maturities) of $1,281.7 million and shareholders’ equity of $1,751.2 million.  Cash and cash equivalents together with undrawn capacity of $325 million line of credit, provides an ample liquidity of $572 million. During the quarter, the company did not make any share repurchases and still has $300 million under authorization. The company generated cash flow from operations of $352.1 million during the quarter and incurred capital expenditure of $45.1 million, resulting in free cash flow of $306.9 million.

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 17.24% due to these changes.

VGM Scores

Currently, Casey's has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 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 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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