It has been about a month since the last earnings report for Casey's General Stores (CASY Quick QuoteCASY - Free Report) . Shares have added about 8.7% 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 catalysts.

Casey's Q3 Earnings Top Estimates, Revenues Fall Y/Y

Casey's General Stores, Inc. reported better-than-expected third-quarter fiscal 2021 results. While the top line declined year over year, the bottom line improved from the year-ago period. Notably, this was the third straight quarter of positive earnings surprise. Investment in fuel capabilities and positive inside sales volume, thanks to numerous initiatives in grocery and other merchandise category, favorably impacted results.

A Closer Look at Results

Casey's reported quarterly earnings of $1.04 per share that beat the Zacks Consensus Estimate of 93 cents and improved significantly from 91 cents in the year-ago period. This year-over-year increase can be attributed to higher fuel margin and lower interest expense.

Total revenues of $2,008 million declined 10.7% year over year but surpassed the Zacks Consensus Estimate of $1,991 million, marking the second successive beat. Revenue declines across Fuel and Prepared Food & Fountain categories, were partly offset by higher sales in Grocery & Other Merchandise category. Markedly, digital sales soared 95% compared with year-ago quarter.

In spite of the decline in the top line, gross profit increased 8.7% year over year to $540.2 million due to fall in cost of goods sold. Further, gross margin expanded 480 basis points to 26.9%. The company witnessed a decline of 16.2% in cost of goods sold during the reported quarter.

We note that Casey's registered an increase of 9.8% in operating expenses of $414.4 million on account of operating 36 more stores compared with the same period last year, $11 million expenses associated with the ongoing pandemic, $10 million in incremental incentive compensation costs and $3 million in labor costs, offset by a reduction in credit card fees. Same store operating expenses, excluding credit card fees, were up 5.6% in the quarter under review.

Performance by Categories

We note that Fuel sales decreased 20% to $1,100.9 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 11.6%, while total gallons sold declined 9.5% to 518.4 million. Fuel gallons same-store sales fell 12.1% compared with decline of 2% in the year-ago quarter, on account of lower guest traffic due to the ongoing pandemic. Impressively, gross profit increased 37.1% to $170.4 million. Notably, fuel margin surged to 32.9 cents per gallon from 21.7 cents per gallon in the prior-year period owing to the centralized fuel team and its ability to navigate the broad spectrum of the fuel marketplace.

Grocery & Other Merchandise sales rose 7.2% to $624.5 million. Same-store sales increased 5.4% compared with 3.5% in the year-ago quarter, primarily owing to robust sales of alcohol and packaged beverages. We note that Grocery & Other Merchandise margin contracted 220 basis points to 30.7%. Again, gross profit dipped 0.1% to $191.5 million during the quarter.

Prepared Food & Fountain sales declined 3.5% to $264 million. Same-store sales decreased 5% against 2.8% growth witnessed in the year-ago quarter. The metric declined due to pressure in the dispensed beverage and bakery categories. Nonetheless, Prepared Food & Fountain margin increased 40 basis points to 60.6%. Lower commodity costs favorably impacted the margin. However, we note that gross profit fell 2.9% year over year to $160 million.

Store Update

During first-nine month of fiscal 2021, the company constructed 27 new stores, closed eight and completed the acquisition of three additional stores. As of Jan 31, the company operated 2,229 stores in 16 Midwest states. Meanwhile, the company anticipates to complete the construction of about 40 new stores this fiscal year.

Other Financial Aspects

Casey's ended the reported quarter with cash and cash equivalents of $388.9 million, long-term debt and finance lease obligations (net of current maturities) of $1,362.1 million and shareholders’ equity of $1,893.6 million. The company has full undrawn capacity of $475 million in lines of credit. The leverage ratio stood at approximately 1.8 times. Management notified that it has no maturities of significance due until 2025.

The company generated free cash flow of $7 million in the third quarter. This reflects cash flow from operating activities of $111 million less purchases of property and equipment of $104 million. During the quarter, the company did not make any share repurchases and still has $300 million under authorization.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

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

Casey's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.