Casey's General Stores Inc Meets Some Objectives, Misses the Mark on Others

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Coming into the current fiscal year, Casey's General Stores (NASDAQ: CASY) was dogged by the fact that management offered up fiscal "goals" for the year that it refused to change or modify based on results. This led to significant underperformance in certain categories.

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This fiscal year -- which we are only one quarter into -- management is being more open. And by most accounts, the first quarter was a solid one, with goals being met in all but one area. But that one area is crucial, and the underperformance could continue to haunt shareholders.

Casey's General: The raw numbers

Before diving into all of the targets that Casey's hit -- and the one that it didn't -- let's take a look at the headline numbers for the company.

Metric

Q1 2018

Q1 2017

Year-Over-Year Growth

Revenue

$2.09 billion

$1.97 billion

6%

Earnings per share

$1.46

$1.70

(14%)

Free cash flow

$25 million

$79 million

(68%)

These numbers don't tell the whole story. Revenue growth, for instance, is highly dependent upon the price of gas, even though margins are actually better when the price of oil is lower. Therefore, it isn't a great indicator of how the business is actually doing.

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Earnings also took a pretty big hit, but that was due to a combination of stock-option activity and an increase in Illinois state taxes. The former isn't likely to play a huge role moving forward, while the latter is likely to stick around. Either way, earnings would have been as high as $1.63 per share had both of these factors not been present.

The free cash flow took a big hit, because the company is building up its inventory, presumably in anticipation of opening so many new stores.

So did Casey's hit its targets?

There were many different goals that management set out to meet in the upcoming year. The three biggest were for performance in fuel, groceries, and prepared food, which account for 24%, 41%, and 35%, respectively, of gross profit dollars.

Division

Goal

Results

Goal Met?

Fuel

Comps 1% to 2%
Margin of $0.18 to $0.20

Comps of 1.7%
Margin of $0.193

 YES

Grocery

Comps of 2% to 4%
Margin of 31% to 32%

Comps of 3.1%
Margin of 31.9%

YES

Prepared food

Comps of 5% to 7%
Margin of 61.5% to 62.5%

Comps of 3.7%
Margin of 62.5%

NO

While groceries performed admirably well, the company's performance in prepared-food comps -- particularly pizza sales -- has continued the trend of disappointing growth. To get an idea for where the trends are, look at prepared-food comps over the past few years.

Moving forward, management is lowering its guidance for prepared-food comps from a midpoint of 6% to a range of 4% to 6%. Even then, however, comps will have to significantly reaccelerate if the company is to hit that goal.

The outlook for fuel and groceries was reaffirmed.

Expansion is slow but remains on track

Heading into the year, management had ambitious goals for expanding its footprint across the country. Though we're only one quarter into the year, there wasn't much progress made on this front.

Type of Growth

2018 Goal

Progress through Q1

Build or acquire

80 to 120 stores

5 stores

Replace

30 stores

1 store

Remodel

75 stores

11 stores

Obviously, this falls well short of where the company should be if the building projects were evenly distributed throughout the year. But that's not how this works, and the overall prognosis from management was actually quite positive.

CEO Terry Handley commented, saying, "Expansion activity for new store construction continues to increase as there are now 179 sites either under construction or under agreement." Management doubled down on that sentiment, changing its goal for new or acquired buildings from 80 to 90 stores.

Looking forward, the company now trades for 25 times trailing earnings, though it's also free cash flow negative over the past 12 months -- while still having a share buyback plan in place and paying a small dividend.

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Brian Stoffel has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Casey's General Stores. The Motley Fool has a disclosure policy.