Growing Pains Cut Into Casey’s General Stores, Inc Profits

Inflation Takes A Bite Out Of Casey’s General Stores 

Casey’s General Stores, Inc NASDAQ: CASY is a solid post-pandemic play and steady growth story and nothing has changed about that. If anything, Casey’s is growing a wee bit faster than expected but there is a problem, at least a small one. The impact of acquisitions compounded by inflation has cut into the bottom line. While revenue is outpacing consensus margins are slipping and operating costs are on the rise. The good news is that, once acquisitions are absorbed, operating costs will come down and margins will likely improve. What this means for us today is the chance to get into this great stock at some of the lowest prices all year. 

Mixed Results Send Casey’s General Stores, Inc Lower 

Casey’s had a good quarter but we have one of those situations where the market was expecting more than what it got. The company reported $3.26 billion in net consolidated revenue for a gain of 46.8% over last year. This is against an easy comp and does include acquisitional gains but is strong nonetheless. The problems begin with the analyst’s expectations which were basically in line with the results. The net revenue beat the Marketbeat.com consensus by 95 basis points but this is a small margin in light of retail strength in other sectors. 

On a segment basis Inside comp-store sales increased by 6% versus last year’s strong gains. Gross profit increased by 12.3% due to acquisitions but the strength was offset by a 30 basis point decline in margin. Within that, grocery and merchandise sales rose 6.8% while prepared foods and beverages grew a slower 4.1%. Prepared foods and beverages were impaired by supply chain disruption and product availability and are the reason for most of the margin decline. Fuel gallons posted a 2.5% comp with a $0.347 per gallon margin. That’s down $0.006 per gallon but resulted in a 13.6% increase in gross profit due to acquisitions. 

Moving down, operating expenses increased by 22% on a combination of factors that include an increased store count, higher wages, increased CC fees, and increased depreciation related to the higher store count. This resulted in GAAP EPS of $2.59 versus the $2.91 expected by the Marketbeat.com consensus estimate. So, while revenue is growing and growth is projected for the future, growing pains and inflation are digging into the profits. 

Casey’s Is Growing, Growing Growing 

Casey’s added 137 new stores over the course of the last quarter and is expecting to add another 100 or so by the end of the fiscal year. This includes a recently announced purchase of 40 Pilot stores in the eastern Tennessee region and we expect to hear of more acquisitions in the coming quarter. The company is planning to build a new store as well but has cut back on those plans due to the increase in acquisitions. As for the balance sheet, Casey’s is using some debt to help finance the growth and is carrying a bit of leverage at roughly 10X FCF. The upshot is that coverage remains strong and growth is good.

The Technical Outlook: Casey’s Falls To Support 

Shares of Casey’s are down more than 6% in premarket trading and near the bottom of their recent range. There is a risk of lower prices but support appears to be strong at the $185 level. If price action falls below there we would expect to see bargain hunters scooping up the shares. If not price action could fall to $180 or lower. Assuming support holds at or above $185, we see Casey’s moving sideways within the range of $185 to $200 and possibly as high as $220 in the near to mid-term. Longer-term we would expect to see shares of Casey’s General Stores move up to set new highs above $220.