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Why Is Casey's (CASY) Down 5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Casey's General Stores (CASY - Free Report) . Shares have lost about 5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Casey's due for a breakout? 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 Q1 Earnings Beat Estimates, Increase Y-o-Y

Casey's General Stores, Inc.’s positive earnings surprise streak continued for the fifth straight quarter. Notably, the bottom line improved yet again on a year-over-year basis in first-quarter fiscal 2020. The top line came ahead of the Zacks Consensus Estimate for the second quarter in a row and increased year over year. In spite of reporting better-than-expected results, this Iowa-based company kept its fiscal 2020 view intact.

The quarterly results benefited from gross margin expansion, cost containment efforts, store growth and fuel price optimization initiative.

A Closer Look at Q1 Results

The company reported quarterly earnings of $2.31 per share that surpassed the Zacks Consensus Estimate of $2.05 and improved 21.6% from $1.90 posted in the year-ago period.

Total revenues came in at $2,626.6 million, up 1.5% year over year and beat the Zacks Consensus Estimate of $2,605 million. The company registered revenue growth across categories, namely Grocery and Other Merchandise and Prepared Food and Fountain categories.

Gross profit came in at $565.7 million, up 8.4% year over year, while gross margin expanded 130 bps to 21.5%.

Casey's witnessed a marginal decline in cost of goods sold (down 0.3%) but a jump in operating expenses (up 5.7%) during the reported quarter. Operating expenses expanded primarily due to operation of 76 more stores from the prior-year period. The company continues to anticipate operating expenses to increase in the band of 7-9% during fiscal 2020.

Performance by Categories

We note that Fuel sales decreased 1.2% to $1,627.6 million. Fuel gallons same-store sales decreased 2% against 0.5% growth witnessed in the year-ago quarter. Fuel margin of 24.4 cents per gallon increased 19% year over year. Management reaffirmed fiscal 2020 fuel gallons same-store sales forecast of down 0.5% to up 1% against decline of 1.7% witnessed in fiscal 2019. It continues to project 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 6.7% to $687.9 million, while same-store sales rose 3.2%. Grocery and other merchandise margin shrunk 110 basis points to 31.3%. Casey's continues to anticipate 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 had 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 5.3% to $295.9 million. Same-store sales increased 1.6% compared with 1.7% growth registered in the year-ago quarter. Further, Prepared Food and Fountain margin expanded 20 basis points to 62.2%. Management continues to project 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 had reported same-store sales increase of 1.9% and margin expansion of 120 basis points to 62.2% in fiscal 2019.

Store Update

In the quarter under review, the company constructed 15 new stores and acquired four. The company closed six stores. As of Jul 31, 2019, the company operated 2,161 stores. The company plans to construct 60 stores and acquire 25 in fiscal 2020.

Other Financial Aspects

Casey's ended the reported quarter with cash and cash equivalents of $96.7 million, long-term debt (net of current maturities) of $1,303.4 million and shareholders’ equity of $1,489.2 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 $178.8 million during the quarter and incurred capital expenditure of $106.3 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 a downward trend in fresh estimates.

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. Charting a somewhat similar path, 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 downward for the stock, and the magnitude of these revisions looks promising. Notably, Casey's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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