Casey's General Stores Q2 2025 Earnings Report

Casey's General Stores EPS Results

• Actual EPS: $4.85
• Consensus EPS: $4.29
• Beat/Miss: Beat by +$0.56
• One Year Ago EPS: $4.24

Casey's General Stores Revenue Results

• Actual Revenue: $3.95 billion
• Expected Revenue: $4.03 billion
• Beat/Miss: Missed by -$81.59 million
• YoY Revenue Growth: -2.90%

Casey's General Stores Announcement Details

• Quarter: Q2 2025
• Date: 12/9/2024
• Time: After Market Closes
• Conference Call Date: Tuesday, December 10, 2024
• Conference Call Time: 8:30AM ET

Casey's General Stores (NASDAQ:CASY) engages in the provision of management and operation of convenience stores and gasoline stations. It provides self-service gasoline, a wide selection of grocery items, and an array of freshly prepared food items. The firm offers food, beverages, tobacco products, health and beauty aids, automotive products, and other non-food items. The company was founded by Donald F. Lamberti in 1968 and is headquartered in Ankeny, IA.

Casey's General Stores Q2 2025 Earnings Call Transcript

Presentation

[Operator]

Good day and thank you for standing by. Welcome to the 2nd Quarter FY 2025 Casey's General Stores Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

[Operator]

I would now like to hand the conference over to your speaker today, Brian Johnson, Senior Vice President of Investor Relations and Development. Please go ahead.

[Brian Johnson, Senior Vice President of Investor Relations & Business Development at Casey's General Stores]

Good morning, and thank you for joining us to discuss the results from our Q2 ended October 31, 2024. I'm Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Dan Rebellas, Board Chair, President and Chief Executive Officer as well as Steve Bramlett, Chief Financial Officer. Before we begin, I'll remind you that certain statements made by us during this investor call may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements include any statements relating to the potential impact of the Fykes transaction, expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities and performance at our stores.

[Brian Johnson, Senior Vice President of Investor Relations & Business Development at Casey's General Stores]

There are a number of known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward looking statements, including but not limited to the integration of the recent acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan, the impact and duration of the conflict in Ukraine and related governmental actions, as well as other risks, uncertainties and factors, which are described in our most recent annual report on Form 10 ks and quarterly reports on Form 10 Q as filed with the SEC and available on our website. Any forward looking statements made during this call reflect our current views as of today with respect to future events and Casey's disclaims any intention or obligation to update or revise forward looking statements whether as a result of new information, future events or otherwise. A reconciliation of non GAAP to GAAP financial measures referenced in this call as well as a detailed breakdown of the operating expense increase for the 2nd quarter can be found on our website at www.casey.com under the Investor Relations link. With that said, I would now like to turn

[Brian Johnson, Senior Vice President of Investor Relations & Business Development at Casey's General Stores]

the call over to Darren to discuss our 2nd quarter results. Darren?

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Thanks, Brian, and good morning, everyone. We're excited to discuss the strong second quarter results in a moment. First, however, I want to thank the Casey's team for delivering another outstanding quarter in addition to officially welcoming the Feix team to the Casey's family.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Each November, we raise funds for 2 organizations to support veterans and their families, children to follow Patriots and hope for the warriors. This year, we raised over $1,000,000 thanks to our team members, generous guests and partners at PepsiCo. As a veteran myself, I'm personally grateful for the engagement and response this campaign draws each year. Thank you for helping veterans when you shop at cases. Now let's discuss the results from the quarter.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Diluted earnings per share finished at $4.85 per share. Net income was $181,000,000 and EBITDA was $349,000,000 All of these metrics were up 14% from the prior year. Our 2nd quarter results were an excellent example of the strength of Casey's differentiated business model. We were again able to expand gross profit dollars while simultaneously controlling operating expenses. Inside the store, innovation in Prepared Food continued to drive strong performance, while the grocery and general merchandise category was a primary driver of margin expansion.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

On the fuel side, the team is doing an excellent job balancing volume and margin with fuel margins over $0.40 per gallon while outperforming the geographic market in same store fuel gallons. As we discussed at our Analyst Day in October, we are very confident in our ability to execute on our 3 year strategic plan and is showing up in the results both inside and outside the store. I'd now like to go over our results and share some of the details in each of the categories. Inside same store sales were up 4% from the Q2 or 7.1% on a 2 year stack basis with an average margin of 42.2%. Same store prepared food and dispensed beverage led the way as sales were up 5.2% or 11.6% on a 2 year stack basis with an average margin of 58.7%.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Hot sandwiches continue their strong performance up over 60% and cold dispense beverages also performed well up nearly 10%. Margin was down approximately 30 basis points from the prior year due to a modest cheese headwind. Same store grocery and general merchandise sales were up 3.6% or 5.4% on a 2 year stack basis with an average margin of 35.6%, an increase of approximately 160 basis points from the prior year due to product mix and the excellent work of our asset protection and strategic sourcing teams. We saw positive momentum in the category, notably in both non alcoholic and alcoholic beverages, specifically in the energy and liquor categories. Our merchandising team is doing an excellent job optimizing our assortment to meet our guests' needs.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

For fuel, same store gallons sold were down 0.6 percent with a fuel margin of $0.422 per gallon. We continue to outperform our geographic region on volume as Opus fuel gallons sold data shows the Mid Continent region down approximately 5% in the quarter, indicating that we are taking market share. Our fuel team is doing a tremendous job balancing volume and margin and the results continue to show it. Operating expense management remains a focus. In the 2nd quarter saw an increase of just 2.3% on a same store excluding credit card fee basis.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Our continuous improvement team is identifying areas to be more efficient and our store operations team is executing on those opportunities at a high level. The results speak for themselves. The same store labor hours were down 1% once again. I'd now like to turn the call over to Steve to discuss the financial results from the Q2. Steve?

[Steve Bramlage, CFO at Casey's General Stores]

Thanks, Darren. Good morning. I'm very proud of the hard work of our team during the quarter. We're now halfway through our 3 year strategic plan and we are carrying tremendous momentum into the second half of it. Total revenue for the quarter was $3,900,000,000 a decrease of $118,000,000 or 2.9% from the prior year and that's due primarily to a 14.1% decline in the retail price of fuel, which was nearly offset by higher inside sales as well as higher fuel gallons sold.

[Steve Bramlage, CFO at Casey's General Stores]

Results were also favorably impacted by operating approximately 4% more stores on a year over year basis. Total inside sales for the quarter were $1,470,000,000 an increase of $121,000,000 or 9% from the prior year. For the quarter, Prepared Food and Dispensed Beverage sales rose by $35,000,000 to $418,000,000 an increase of 9.2 percent and grocery and general merchandise sales increased by $85,000,000 to $1,050,000,000 which is an increase of 8.8 percent. Retail fuel sales were down $232,000,000 in the quarter, driven primarily by a 0.51 dollars decline in the retail price of fuel from $3.62 per gallon in the prior year to $3.11 per gallon in the 2nd quarter. This was partially offset by a 6 percent increase in total fuel gallons sold as our newer units tend to sell more fuel than a chain average.

[Steve Bramlage, CFO at Casey's General Stores]

We define gross profit as revenues less cost of goods sold, but excluding depreciation and amortization. Casey's had gross profit of $959,000,000 in the quarter, that's an increase of $73,000,000 or 8.2 percent from the prior year. This is driven primarily by higher in site gross profit of $66,400,000 or 12%, while fuel gross profit was higher by $3,400,000 or 1.1%. Insight gross profit margin was 42.2% and that's up 110 basis points from the prior year. Prepared food and dispensed beverage margin was 58.7 percent, down 30 basis points from prior year.

[Steve Bramlage, CFO at Casey's General Stores]

The primary driver of the slight decrease was a modest headwind on cheese, which was $2.25 per pound in the quarter compared to $2.12 per pound in the prior year. It's an increase of 6% or approximately 35 basis points. The grocery and general merchandise margin was 35.6 percent, an increase of 160 basis points from prior year. The change was primarily due to favorable mix and good asset protection performance. Fuel margin for the quarter was $0.42 per gallon, that's down $0.021 from the prior year.

[Steve Bramlage, CFO at Casey's General Stores]

Fuel gross profit includes almost $5,000,000 from the sale of RINs and that's down $3,500,000 from the same quarter in the prior year. Total operating expenses were up 5.2 percent or $30,000,000 Approximately 4% of the total operating expense increase is due to unit growth as we operated 93 additional stores versus prior year. Same store employee expense accounted for approximately 1% of the increase as modest increases in wages were partially offset by the reduction in same store hours. Depreciation in the quarter was $96,600,000 that's up $11,000,000 versus the prior year, primarily due to more stores. The effective tax rate for the quarter was 24.5%, and that's compared to 23.6% in the prior year.

[Steve Bramlage, CFO at Casey's General Stores]

That increase was driven by a one time benefit in the prior year that did not repeat. Net income was up versus the prior year to $180,900,000 an increase of 13.9%. EBITDA for the quarter was $348,900,000 compared to $305,900,000 a year ago, an increase of 14.1%. Our balance sheet is in excellent condition. On October 31, we had total available liquidity of $1,250,000,000 Please note the liquidity calculation excludes the impact of the restricted cash balance, which is included within long term assets as of October 31.

[Steve Bramlage, CFO at Casey's General Stores]

The restricted cash relates to cash held in an escrow account for the acquisition of Feix, which closed the next day on November 1, and that is subsequent to the quarter end. On October 31, the leverage ratio of debt to EBITDA was 2.3 times per the covenants in the company's recently amended credit facilities. We still plan to delever to 2 times within the 1st year of closing, and we will reduce spending as originally planned on property, plant and equipment. We likely will not repurchase shares until we achieve the targeted leverage ratio. For the quarter, net cash generated by operating activities of $271,000,000 less purchases of property and equipment of $111,000,000 resulted in the company generating $160,000,000 in free cash flow compared to $145,000,000 in the prior year.

[Steve Bramlage, CFO at Casey's General Stores]

At the December meeting, the Board of Directors voted to maintain the quarterly dividend at $0.50 per share. Primarily due to the closing of the FICS transaction, we are updating our previously communicated fiscal year guidance. For the second half of fiscal twenty twenty five, specifically related to the Fikes transaction, Casey's expects to incur an additional $15,000,000 to $20,000,000 in one time deal and integration costs, primarily in the Q3. EBITDA contribution from FICS is expected, therefore, to be modestly dilutive in the Q3, again, primarily due to the previously mentioned costs. EBITDA contribution from FICS is expected to be modestly accretive in the Q4.

[Steve Bramlage, CFO at Casey's General Stores]

Interest expense will be $35,000,000 higher than the original outlook due to the financing of the transaction. For Casey's total fiscal year 2025 outlook, including the impact of the Fikes acquisitions, EBITDA is now expected to increase at least 10%. Total operating expenses are expected to increase between 11% to 13% for the fiscal year, and that includes approximately $25,000,000 to $30,000,000 in one time deal and integration costs. While same store operating expenses, excluding credit card fees, are expected to only increase approximately 2% for the year. Net interest expense is expected to be approximately $90,000,000 for the year.

[Steve Bramlage, CFO at Casey's General Stores]

Depreciation and amortization is expected to be approximately $410,000,000 and purchases of PP and E are expected to be approximately $550,000,000 The tax rate is expected to be approximately 23% to 25% for the fiscal year. Note that Casey's is not updating its outlook for the following metrics. We still expect to add approximately 2 70 stores for the fiscal year. We expect inside same store sales to increase between 3% to 5% and inside margins to be comparable to the prior year. The company expects same store fuel gallons sold to be between negative 1% to positive 1%.

[Steve Bramlage, CFO at Casey's General Stores]

Overall, Feis is expected to contribute over $200,000,000 of inside sales and approximately 200,000,000 gallons of fuel for the second half of fiscal twenty twenty five. Of the expected total operating expense increase of 11% to 13%, approximately 5% to 7% of the increase is due to the existing Casey's business and that's a decrease from our previously communicated 6% to 8% expected increase. The Fikes acquisition is expected therefore to contribute approximately 6% of the total increase, over 1% of which is related to the one time deal and integration costs. Our results for November

[Steve Bramlage, CFO at Casey's General Stores]

were

[Steve Bramlage, CFO at Casey's General Stores]

as follows. Inside same store sales were near the midpoint of the annual outlook range. As we enter the seasonally lower time of year for both fuel margin and fuel volume, same store fuel gallons are near the low end of the annual outlook range and CPG is between the mid to high 30s. Current cheese costs have improved, but are still modestly unfavorable versus prior year by several 100 basis points. Our Q3 total operating expense expectation is an increase of approximately 20%, and that's primarily due to the Fikes acquisition and the $15,000,000 to $20,000,000 of one time deal and integration costs.

[Steve Bramlage, CFO at Casey's General Stores]

As a result of these closing costs and the incremental interest expense, Fikes will be dilutive to our earnings in the 3rd 4th quarters as we expected. I'll now turn the call back over to Darren.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Thanks, Steve. I'd like to thank the entire Casey's team for another outstanding quarter and again want to welcome the Feike's team to the Casey's family. We're excited to have you on board and are looking forward to integrating these stores into our network. Our team has done an incredible job executing on the first half of the 3 year strategic plan and is looking forward to finishing out the second half strong. Growth is a key pillar of the strategic plan and we're executing on it.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Announcing the closing of the largest transaction in the company's history is extremely exciting and right in line with the plan we laid out in June of 2023. We are also committed to maintaining a strong balance sheet and we'll work to delever toward targeted 2 times leverage ratio quickly. We believe our ability to execute and integrate acquisitions like these will continue to build shareholder value. Inside the store, we continue to produce excellent results. On the prepared food and dispensed beverage side of the business, guests are flocking to our refresh sandwich lineup as we offer high quality products at a great value.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

With respect to grocery and general merchandise, our merchandising team is doing an excellent job identifying the right products and working with our supplier partners to develop effective promotions for our guests. One shining star within the non alcoholic beverage category remains energy drinks, where we had another quarter of over double digit same store growth. Overall, we believe our inside offering is a meaningful differentiator in the industry. Enhancing operational efficiencies is the 3rd pillar of strategic plan. Our continuous improvement team is doing a great job collaborating with store operations to make the organization more efficient.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

The results are compelling as the 2nd quarter marked the 10th consecutive quarter with a reduction in same store labor hours. The team has done this with a rigorous process to simplify store operations and get rid of non value added work. To sum things up, we've never felt more confident in our team's ability to execute our plan and deliver differentiated results for our shareholders. We'll now take your questions.

[Operator]

Thank you.

[Operator]

And our first question comes from Bobby Griffin of Raymond James. Your line is open.

[Bobby Griffin, Managing Director at Raymond James Financial]

Good morning, everybody. Thanks for taking my questions and congrats on giving the fight steal over the finish line. So I guess, first for me, I just wanted

[Bobby Griffin, Managing Director at Raymond James Financial]

to kind of

[Bobby Griffin, Managing Director at Raymond James Financial]

dive in a little bit to the grocery and general merchandise margin, another great quarter, 2nd quarter in a row over 35%. So can you maybe talk a little bit more about the puts and takes there? And is this a more structural step up in your view of where the margins in this business, this side of the business could be at, especially with some of the opportunities like we saw out there with the back bar changes coming in and some things like that?

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Yes, Bobby, this is Darren. What I'd tell you is, I think there's a few things going on in grocery and general merchandise, obviously. We've done a great job in just working with supplier partners on a joint business planning and that ultimately translates into some impact there. But really, I think the biggest driver is in mix. And what we're seeing kind of across the board is a mix shift to some of the higher margin items that we have in the categories.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

I'll give you a couple of examples. If you take a look at alcohol as an example, the lowest margin subcategory within alcohol is premium beer and that's been probably the softest of the subcategories within alcohol. Inside of beer though, the fastest growing part of that is imports and super premiums, which tend to come with higher margin. If you go to the other subcategories, liquor and wine, those are both growing at about a 10% clip and those have higher margin as well. So as we continue to accelerate growth in the higher margin areas and the lower margins are kind of hanging in there, you're just seeing that margin shift.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

And so that was a 200 basis point improvement year over year, primarily driven on mix. You go to the other example would be tobacco. And again, you have a similar dynamic where cigarettes, combustible cigarettes are the lowest margin subcategory within that category and they're declining and have been declining for a number of years. On the flip side, nicotine alternatives and vapor, which are growing at the fastest pace. In fact, nicotine alternatives are almost triple digit increases and those tend to come with a much higher margin rate.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

So we're actually seeing margin rate expansion in tobacco overall, even though you're seeing that decline on combustible cigarettes. And then lastly, our asset protection team has done a really nice job on shrink and we've done a lot of work over the last year or so with exception based reporting and some other technology to really identify sources of shrink and root those out. So when you put all that together, that's where you end up with 160 basis point improvement in margin. And so I would say to your other question on is this structural, I'd say to a large extent, it is because that mix shift is continuing to go.

[Bobby Griffin, Managing Director at Raymond James Financial]

Thank you. That's very helpful. And I guess just my final one for me is just on the Fikes deal itself, is there a seasonality aspect to their EBITDA that we should be aware of? I think just some of the investors that were doing some quick math on the $89,000,000 that was given when you announced the deal and then kind of back it into what's implied for the guidance change. So I just want to make sure, is there any seasonality aspect we should be aware of?

[Bobby Griffin, Managing Director at Raymond James Financial]

And is that business still trending around $90 ish million which in EBITDA as it was when you guys announced the deal?

[Steve Bramlage, CFO at Casey's General Stores]

Yes. Hey, Bobby, this is Steve. There is some seasonality with bikes. Yes, it's probably not quite as significant as what we would call the Casey's mother ship just because they're not as far north as we are, but there's still some seasonality. So the second half of the year for them is not going to be quite as big as the first half of the year, and that would be consistent with our business on a general rule.

[Steve Bramlage, CFO at Casey's General Stores]

And yes, the LTM, dollars 89,000,000 that we had talked about previously, which included some contributions from ramping stores, right, that had not been open. They had about 20 stores or so that were either under construction or had not been open a full year. That's a good number to start with. That's the number we're basing all of our plans, etcetera, on. But just remember that there's some ramping store dynamics in that number.

[Bobby Griffin, Managing Director at Raymond James Financial]

Absolutely. I appreciate the details and congrats again on a great quarter.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Thanks.

[Operator]

Thank you. Our next question comes from Bonnie Herzog of Goldman Sachs. Your line is open.

[Bonnie Herzog, Managing Director at Goldman Sachs]

All right. Thank you. Good morning, everyone.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Good morning.

[Bonnie Herzog, Managing Director at Goldman Sachs]

Same store inside sales guidance of 3% to 5% for the year, which you maintained. I guess at the midpoint, this does imply a bit of an acceleration in the second half versus the first half. So just curious what will be the drivers of this? And then along those lines, could you maybe touch on how your traffic levels trended in the quarter versus last quarter? And then maybe any color on November and so far in December?

[Bonnie Herzog, Managing Director at Goldman Sachs]

And again, outlook for traffic for the or heading into next year or the rest of your fiscal year? Thanks.

[Steve Bramlage, CFO at Casey's General Stores]

Hey, good morning, Brian. It's Steve. I'll start with that. Traffic was positive in the quarter for us. Our November experience, we were right at literally right at 4% inside same store sales for November, so right in the middle of the range.

[Steve Bramlage, CFO at Casey's General Stores]

And so certainly, we were obviously below the low end of the range in the Q1 on inside same store sales. So we're aware of that, obviously. But our current thought is the second quarter was kind of right on the nose in the middle of the range. November, which is the biggest month of the Q3, is right on the nose in the middle of the range. We feel pretty good about comparability from some of the exogenous stuff on weather and a lot of the initiatives that the team has to launch various programs, etcetera, as we kind of get into the new part of the calendar year.

[Steve Bramlage, CFO at Casey's General Stores]

So it just felt like that range still felt good to us within the range. We are certainly aware of in the Q4 that there's the dynamic obviously of lapping the prior year's leap day, but we know that that's in there already. So it felt like there was no need really to change that range. It feels pretty safe based on what we know kind of year to date through November and what we have going forward.

[Bonnie Herzog, Managing Director at Goldman Sachs]

Okay. And can I just clarify something, then I'll pass it on? Just in the context of what you just talked about then are you seeing any change behavior consumer behavior? Are you seeing any strengthening with the consumer in the context of all of this?

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Hey Bonnie, it's Darren. With respect to the consumer, we're directionally the consumers hanging in there about the same as what we would have talked about last quarter. We're still seeing a little bit of softness on that lower income consumer. But again, we don't have disproportionate exposure to that consumer. For the balance of the consumers, which are about 3 quarters of them, they're continuing to shop, they're continuing to visit the store at the same frequency, continuing to buy as normal.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

So I think getting back to Steve's point, we've this quarter we're at the midpoint of the guidance this past month. In November, we were at the midpoint. We think that 3% to 5% is the appropriate range that ultimately we will land on for the year.

[Bonnie Herzog, Managing Director at Goldman Sachs]

Thank you.

[Operator]

Our next question comes from Jacob Aitken Phillips of Melius Research. Your line is open.

[Jacob Aiken-Phillips, Vice President at Melius Research LLC]

Hi, thanks for the question. I just wanted to go a bit into prepared food and the competitive dynamic there. I'm just wondering what you're seeing in terms of competition with Pizza, other QSRs and if you may feel the need to increase like the promotional or investments in the gross margin there?

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Yes, Jacob, this is Darren. We're keeping an eye on the competition pretty closely. And I guess I'd break it into 2 segments. There's the pizza segment and then there's the rest of the QSRs. With the rest of the QSR, obviously, it's become a much more value oriented environment.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

But as we discussed previously, our value proposition just on a line pricing basis is pretty compelling relative to what a lot of the others are doing. And so if you think of the sandwich QSR players that have really invested heavily in extreme value, I mean, those are typically sandwiches and that sort of thing. And that's where we're seeing the most strength. And so that's more reflective of the innovation and our line pricing value proposition. So we don't feel the need to have to get any more aggressive than we already are and those products carry a pretty healthy margin.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

On the pizza side, I wouldn't say that it's gotten any more competitive than it always is. And we look at our pricing across our geography. And I'd probably remind you that in about half of our stores, we don't even have one of the major pizza competitors. So we're not under any real pressure at all from a pricing perspective in about half of our stores. And the other half, we tend to be $1 to $2 below their standard menu pricing just every day.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

And then of course, we layer in a variety of promotional offers via our rewards platform. And so, what you see right now in terms of margin and value proposition is pretty reflective of our normal operating mode. And as long as our sales volume continues to perform like it has, then we don't see the need to get any more aggressive from a value standpoint.

[Jacob Aiken-Phillips, Vice President at Melius Research LLC]

I appreciate that. And then just wondering if you had any updates on

[Jacob Aiken-Phillips, Vice President at Melius Research LLC]

the timeline for re bantering the FICO stores or for incorporating some of

[Jacob Aiken-Phillips, Vice President at Melius Research LLC]

their fuel assets into your upstream capabilities?

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Yes. With respect to the remodeling of stores, that's going to that's probably the longest pull in the tent in terms of the overall integration. That'll take a few years. And first, as we discussed before, they had a pretty successful food program and obviously we have one as well. And so we're going to quickly remodel a few stores, integrating those two platforms and really understand how they perform together, so we can really have an informed scope of work to apply to the rest of the chain.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

And so there'll be a little bit of work to do there. And then permitting process can take anywhere from 12 to 24 months depending on the jurisdiction. So there's a pretty long timeline there. On the fuel side, that integration will happen a little more quickly as we take over pricing and procurement activities and that sort of thing. So I would anticipate a little more benefit sooner in the timeline than on the remodel side.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

But really, you should be thinking 3 to 4 years from where we sit here today to the end of that integration process.

[Operator]

Thank you. Our next question comes from Anthony Bonadio of Wells Fargo. Your line is open.

[Anthony Bonadio, Analyst at Wells Fargo]

Hey guys, nice quarter. So just wanted to talk a little bit more about guidance. It looks like the back half now implies 8% EBITDA growth, which includes call it a 4% headwind from one time costs in that $15,000,000 to $20,000,000 So if you guys work through your revision to guidance, I guess has anything fundamentally changed about how you're thinking about the existing Casey's business in the back half? And then any initial thoughts on the fiscal 2025 contribution from synergy capture from Fikes? Just trying to better bridge the back half of the year.

[Steve Bramlage, CFO at Casey's General Stores]

Yes. Hey, Anthony, good morning. This is Steve. I'll start on that. Related to kind of mothership assumptions for the second half of the year, I think nothing has fundamentally changed.

[Steve Bramlage, CFO at Casey's General Stores]

I mean, we tried to acknowledge our OpEx performance is better than we originally guided to. So the OpEx growth and the Casey's legacy operations is going to be lower than we had originally guided to by 100 basis points or so. And that's even with some incremental incentive compensation. So I think we feel really good about that. We certainly, to Darren's earlier comment, have seen really good margin performance in the legacy business inside the stores.

[Steve Bramlage, CFO at Casey's General Stores]

And so we would have no reason to think that that's not going to continue as a general rule. And so I would say it's largely steady as she goes in the mothership from an income statement perspective. We're making some consciously different decisions on some items that will impact cash flow just to contribute to the speed of deleveraging. And so we're resequencing some capital spending on new units that we otherwise would have been building. We'll have a little bit lower set of tax payments because of some of the benefits of the deal.

[Steve Bramlage, CFO at Casey's General Stores]

So cash flow, I think, is going to be a little higher than we had initially thought it was going to be and that'll directly get applied to paying off debt associated with the transaction. And as it relates to fights, we don't have any specific commentary out on the next fiscal year yet at this point in time. But generally on synergies from the transaction, if I bucket them, kind of what comes first, etcetera, We would expect to get some fuel synergies very quickly in the game. That's really a function of us taking over and centralizing the pricing and the procurement of fuel that's already underway as we sit here today. A little bit further out will be some SG and A related synergies as some of that work gets consolidated.

[Steve Bramlage, CFO at Casey's General Stores]

And then procurement synergies will come kind of in line with the G and A as we get the advantage of greater scale on a lot of the sourcing side of the business. Ultimately, the real most significant savings will be on the inside of the store as we introduce the pizza into the stores. That is more dependent on the remodel schedule. So that will certainly not be in the next 12 months realistically. But in the second half of this fiscal year, it's not going to be a significant number, and it is reflected in the guidance that we've given.

[Steve Bramlage, CFO at Casey's General Stores]

But just in the next 6 months, other than a little bit of fuel, I don't think there'll be synergies per se that would move any of the numbers we've given.

[Anthony Bonadio, Analyst at Wells Fargo]

Got it. That's super helpful. And then just a follow-up on fuel. I guess just any additional thoughts on how you're thinking about fuel margins in the context of that 10% EBITDA growth? And just to clarify that, I believe mid to high 30s you said Q2 date includes the new Sefco stores.

[Anthony Bonadio, Analyst at Wells Fargo]

And just any thoughts on how those margins blend in?

[Steve Bramlage, CFO at Casey's General Stores]

Yes. Listen, we consciously we don't guide the fuel margins. Our crystal ball is not any better than anybody else's necessarily. And so our obviously experience in

[Steve Bramlage, CFO at Casey's General Stores]

the

[Steve Bramlage, CFO at Casey's General Stores]

quarter is kind of that between the mid and the high 30s. I would expect just the mixing in of the Fikes business, those geographies tend to be a little bit lower margin fuel geographies than what we have. There's probably about a penny or maybe a little bit more than a penny per gallon headwind just on the math of mixing in that fuel profitability from Fikes. That would be reflected obviously in our EBITDA expectations for the second half of the year. But we don't have a specific number we're going to guide to for CPG in the second half of the year, just consistent with how we manage the full year expectations.

[Operator]

Thank you. Our next question comes from Michael Montani of Evercore ISI. Your line is open.

[Michael Montani, Managing Director at Evercore]

Yes. Hey, guys. Congrats on the quarter and getting the Fikes deal completed.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Thanks.

[Michael Montani, Managing Director at Evercore]

I just wanted to ask on the inside margins. First off, if there's anything to be aware of in terms of timing or headwinds, etcetera, that could kind of impact this improvement that we've seen in grocery and gen merch into the back half of the year? And then secondly, other than cheese spot, any headwinds you'd call out to the prepared food side of the gross margins as well?

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Yes. Michael, this is Darren. On the grocery and general merch side, I wouldn't anticipate any real headwinds. We're not seeing any of that. As we roll over the calendar year, there'll be some cost increases in some categories and we should be able to offset that largely through pricing actions.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

So I wouldn't anticipate any big shifts there. The mix evolution is something that I do think will stick. And so I think that's probably to our benefit. On the cheese side, Steve, maybe you can comment on

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

the cheese side.

[Steve Bramlage, CFO at Casey's General Stores]

Yes. I just one thing to buttress Darren's comment. There's a little bit of seasonality in our normal course product mix on the grocery side, right? In the coldest part of the year, we don't sell as much ice and things that are kind of higher margin products for us.

[Steve Bramlage, CFO at Casey's General Stores]

So I think the Q3 natural mix is probably going to be a little bit dilutive relative to the summer periods of time. And outside of cheese and prepared food, no, I don't think there's anything significant to note. Again, cheese at the moment is a little bit more, it's less of a headwind as we sit here today than it was in the second quarter.

[Michael Montani, Managing Director at Evercore]

Thank you.

[Operator]

Thank you. Our next question comes from Christina Catay of Deutsche Bank. Your line is open.

[Krisztina Katai, Analyst at Deutsche Bank]

Hi, good morning Darren and Steven and congrats on nice results. So I wanted to ask on OpEx, but as it relates to the Feike stores and now that you've owned them for almost a month and a half, I was wondering if you could just discuss your initial assessment on some of the opportunities at these acquired stores. Just how do you see opportunity to implement many of the same labor hours saving initiatives that were so successful at Casey's? And then what could that general timeline look like over the next 18 to 24 months?

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Yes, Christina, this is Darren. Yes, we feel pretty good about that. I Sykes has done a great job operating their stores. So I would say they have a good operation generally. But we've learned a lot ourselves over the last couple of years employing a lot of these different techniques and tactics and technologies to impact our OpEx.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

So we feel we still have that opportunity to do that in the Fife stores. That's going to take some time. I wouldn't anticipate a lot of that for the balance of this fiscal year. We're still pulling together that operation overall, but we'll have some more detailed plans as we go into the next fiscal year in terms of how we might approach that and when we might expect to see some of those benefits. But we definitely have the opportunity there.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

So we feel really good about that.

[Krisztina Katai, Analyst at Deutsche Bank]

Got it. That's helpful. And then just a follow-up. I was hoping you could talk a little bit more about your joint planning process on the prepared food side of things, which I think is a relatively newer development for you. And then just if you could discuss on the type of benefits you and your vendors look to achieve in the upcoming calendar year?

[Krisztina Katai, Analyst at Deutsche Bank]

Thank you.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Yes. You're right. The joint planning process on prepared foods is a little bit newer than it is on the grocery and general merchandise side. But I think what we're seeing more broadly is that we're the suppliers that we've used historically are pretty large companies that have a lot of capabilities. And I don't think we were truly tapping into all the capabilities that they can bring to bear to help us improve our business.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

And so we're doing a much better job of that and I think that's starting to yield some results, I would say, primarily in the innovation side of the equation. So most of these ingredient suppliers have pretty sophisticated culinary teams in their own right. And when we partner them with our culinary team, we can really get some great innovation, get some great improvements in quality and get some improvements in costs at the same time. And so I think the chicken sandwich platform and really the hot sandwich platform overall is a great example of that. All of the ingredients and components in those sandwiches are new and those were jointly developed with our culinary team and the culinary team of the ingredient manufacturers to produce a higher quality product at a better cost that allowed us to get the kind of performance we're getting.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

So we're going to continue that process with all of our suppliers and this will be year 2 of that process that we're wrapping up right now. And so we're pretty optimistic about what's lying ahead for us.

[Operator]

Thank you. Our next question comes from Cory Tarlow of Jefferies. Your line is open.

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

Great. Thanks. Darren, I had 2 for you and then one for Steve. For Darren, I had so you mentioned, I think it was energy drinks where you had seen some nice momentum. I was just curious if you could talk a little bit about what's driving that momentum?

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

And then I was also curious about the effectiveness of the promotions that you've been doing recently and how that's helped support inside sales? And then for Steve, could you just remind us about what the traditional ramp to maturity is for a new Casey store and maybe if you could contrast that with bikes as well? Thank you so much.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Yes. Corey, this is Darren. Yes, on the energy drinks, that category is up essentially 13% year over year. And I would say that that is a combination of assortment optimization, assortment management and promotional activity. So we've got some new products in the assortment, Alani Nu, Ghost and C4 are all performing very well and those are newer entrants into the assortment.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Red Bull and Monster on the flip side have been stalwarts in the category and continue to grow and accelerate pace. So I'd say the growth is really being driven in part by the new items coming into the assortment. And then on the Red Bull and Monster side, less of that and more of some different promotional activities and really execution at the stores. And as a reminder, we self distribute Monster, which is unique in the industry. And I feel like our execution at store level and our in stock position as a result of that is a differentiator versus others in the industry.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

And so I think that really accrues our benefit and that's part of the equation behind the growth in energy drinks.

[Steve Bramlage, CFO at Casey's General Stores]

On the question on ramping, so we really don't have a significantly different expectation for ramping a new to industry build versus an acquisition model. But in terms of returns of how quickly they generate returns on NTI, we would expect that to be certainly a positive return in the very 1st year right out of the gate. It should be a double digit after tax returns by the 2nd year, and it should be mature in terms of kind of mid teens after tax returns on invested capital by the 3rd or 4th year. Our literally decades of history with NTIs would be very supportive of that as a consistent pattern in a newer geography, where the brand is a little bit less recognized and people aren't as familiar with the quality of the pizza specifically, you probably add an extra year to that ramp as a general rule and that's all about just adoption of prepared foods. For Fikes stores specifically, they're a little bit different in that.

[Steve Bramlage, CFO at Casey's General Stores]

We're obviously buying an existing business. They've got some very, very busy high returning stores already. The returns there, they're not going to be starting at 0 because you're buying that existing business. So you'll get more of a step change as we remodel those stores because you're putting in the pizza business kind of all at once and you're introducing a prepared food business that they just don't have something comparable. So that will be a little bit different pattern.

[Steve Bramlage, CFO at Casey's General Stores]

But back to the return expectations on those stores, right? We'll finish the remodeling of those stores over a 3 to 4 year period of time based on permitting timelines. But in the meantime, above unit of the stores, right, the fuel benefits, the procurement benefits, the SG and A benefits, those are going to accrue to kind of ACs consolidated even if they don't show up on an individual store's P and L necessarily.

[Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC]

Great. Thank you so much.

[Operator]

Thank you. I'm not showing any further questions at this time. I would like to turn it back to Darren Rebelez for closing remarks.

[Darren Rebelez, President, CEO & Board Chair at Casey's General Stores]

Okay. Thank you for taking the time today to join us on the call. And before we sign off, I want to once again thank our team members. Wish them and everyone on the call a happy holiday season.

[Operator]

This concludes today's conference call. Thank you for participating and you may now disconnect.

Participants

Executives

• Brian Johnson, Senior Vice President of Investor Relations & Business Development
• Darren Rebelez, President, CEO & Board Chair
• Steve Bramlage, CFO

Analysts

• Bobby Griffin, Managing Director at Raymond James Financial
• Bonnie Herzog, Managing Director at Goldman Sachs
• Jacob Aiken-Phillips, Vice President at Melius Research LLC
• Anthony Bonadio, Analyst at Wells Fargo
• Michael Montani, Managing Director at Evercore
• Krisztina Katai, Analyst at Deutsche Bank
• Corey Tarlowe, SVP - Equity Research at Jefferies Group LLC