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Casey's (CASY) Down 20.5% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Casey's General Stores (CASY - Free Report) . Shares have lost about 20.5% 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 Q3 Earnings Surpass Estimates, Decline Y/Y

Casey's General Stores, Inc.’s third-quarter fiscal 2020 marked the seventh straight quarter of a positive earnings surprise. However, the bottom line declined on a year-over-year basis. The top line fell short of the Zacks Consensus Estimate for the second quarter in row but increased from a year ago. Notably, this IA-based company retained fiscal 2020 same-store sales projection for Fuel, Grocery and Other Merchandise, and Prepared Food & Fountain categories.

Management highlighted that an unfavorable pricing environment compared with the year-ago period resulted in lower growth in fuel gross profit dollars. Nevertheless, it is optimistic about the January launch of the Casey's Rewards program.

A Closer Look at Q3 Results

Casey's reported quarterly earnings of 91 cents a share that surpassed the Zacks Consensus Estimate of 87 cents but declined 19.5% from $1.13 in the year-ago period on account of lower fuel margin and higher operating expenses.

Total revenues of $2,248.2 million rose 9.8% year over year but missed the Zacks Consensus Estimate of $2,290 million. We note that revenues at Fuel, Grocery & Other Merchandise and Prepared Food & Fountain categories witnessed growth.

Gross profit came in at $496.9 million, up 5.7% year over year, while gross margin contracted 90 bps to 22.1%.

Casey's witnessed an increase of 11% in cost of goods sold and a rise of 10.5% in operating expenses during the reported quarter. Increase in operating expenses can be attributed to operating 70 more stores in the quarter under review, technology costs associated to digital systems and rise in credit card fees. The company continues to expect an increase in the band of 7-9% in operating expenses during fiscal 2020.

Performance by Categories

We note that Fuel sales increased 11.5% to $1,376 million. Fuel gallons same-store sales declined 2% compared with a 3.4% decline in the year-ago quarter. Fuel margin of 21.7 cents per gallon fell 1.8% year over year.

Management envisions fiscal 2020 fuel gallons same-store sales decline of 1% to up 0.5% compared with decline of 1.7% witnessed in fiscal 2019. It expects fuel margin in the range of 21-23 cents per gallon compared with 20.3 cents reported in fiscal 2019.

Grocery & Other Merchandise sales rose 7.1% to $582.4 million, while same-store sales rose 3.5% compared with 3.4% growth registered in the year-ago quarter. Grocery & Other Merchandise margin expanded 100 basis points (bps) to 32.9%. Casey's reaffirmed same-store sales growth forecast at 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 bps to 32.1% in fiscal 2019.

Prepared Food & Fountain sales jumped 6.8% to $273.6 million. In spite of a competitive food service environment, same-store sales increased 2.8% compared with 1.5% growth registered in the year-ago quarter. Further, Prepared Food & Fountain margin shrunk 210 bps to 60.2%. Higher commodity costs compared with the year-ago period and increased promotional activity affected margins.

Management projects prepared food and fountain same-store sales increase of 1.5-4% 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 bps to 62.2% in fiscal 2019.

Store Update

During the nine months ended on Jan 31, 2020, the company constructed 50 new stores and acquired 10. The company closed 12 stores. As of Jan 31, the company operated 2,193 stores. It plans to construct 60 stores and acquire 20 in fiscal 2020.

Other Financial Aspects

Casey's ended the reported quarter with cash and cash equivalents of $43.5 million, long-term debt (net of current maturities) of $715.1 million and shareholders’ equity of $1,588.6 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 $399.7 million during the first nine months of fiscal 2020 and incurred capital expenditure of $376.5 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 5.37% due to these changes.

VGM Scores

At this time, Casey's has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 B. 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. Notably, Casey's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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