For anyone still following Casey’s on this board…
Casey’s reported their 2017 Q1 Earnings yesterday after the close and it was a big miss. The stock traded down 9% today after EPS fell short of guidance (but still up about 8% YOY). Most disturbing was the prepared foods segments falling well short of its 10%+ SSS guidance. Foolish contributor Brian Stoffel wrote an excellent article on the store’s miss:
Casey’s General Stores (NASDAQ:CASY), which operates quick-service gas and food stations in small towns throughout the rural Midwest, released first-quarter earnings Tuesday and Wall Street was not happy. The stock dropped 9% on Wednesday. The company has three reporting divisions: gas, groceries, and prepared food. Most important to the stock’s tripling over the past five years has been the popularity of the company’s prepared food – particularly its pizza.
To get an idea of how important this division is, consider that while it only accounts for 12% of revenue, the high-margin nature of in-house pizza making means that it produces a full 34% of the company’s gross profit!
Heading into fiscal 2017, management had predicted a 10.2% increase in comparable-store (comps) sales growth for prepared foods. During the first quarter, Casey’s missed that figure by a very wide mark, showing growth of just 5.1%. In this context, it’s not the least bit surprising that the stock dropped.
But should this be a surprise to investors? I was baffled when the stock rose following the report of fiscal-fourth-quarter comps in prepared foods that also fell below expectations. In fact, if we look back at the past few quarters, we see a consistent pattern of disappointments.
Read the whole thing at http://www.fool.com/investing/2016/09/07/caseys-general-stor…
For those interested here are their updated revenue and earnings numbers:
Revenue (billions) Q1 Q2 Q3 Q4
2014 1.790 1.920
2015 2.291 2.150 1.672 1.654
2016 2.049 1.925 1.566 1.583
2017 1.970
EPS (Diluted) Q1 Q2 Q3 Q4
2014 0.33 0.54
2015 1.34 1.28 1.01 1.05
2016 1.57 2.00 0.97 1.19
2017 1.70
2017 Q1 Earnings (Current):
Revenue Growth (billions)
2016 Q1 TTM Revenue = 7.525
2017 Q1 TTM Revenue = 7.044
Year Over Year Revenue Growth = (6.4%)
EPS Growth (non-GAAP)
2016 Q1 TTM Earnings = 4.91
2017 Q1 TTM Earnings = 5.86
Year Over Year EPS Growth = 19.35%
P/E (Check Current Price) = 121.21/5.86 = 20.68
1YPEG = 20.68/19.35 = 1.07
Quick thoughts: As you can see, their earnings growth is about to drop off dramatically unless they post another monster second quarter, like they did last year. Right now, I find it unlikely they will be able to match the growth we saw in last year’s second quarter.
With the EPS growth slowing down like it is, the slowdown in SSS in the prepared food category is especially concerning. The segment only accounts for about 12% of Casey’s revenue but over a third of its profits!
Beyond the CEO’s odd refusal during the conference call to revise their full year guidance for prepared food (as the article so aptly points out), the CFO was also confusing on whether they were going to raise prices or run an increased number of promotions. Here’s an exchange between CFO Bill Walljasper and BMO Capital Markets analyst Kelly Bania where she asks him to clarify his comments:
Kelly Bania
Just trying to make sense of some of the comments. So you’re talking about still some opportunities for price increases, but also planning some new promotional activities. So I’m just trying to understand. Do you think net prices for in-store are coming up, or maybe one was in a different category? I was just trying to – think you could parse that out a little bit?
Bill Walljasper
Yes. They’ll be in different categories. Most of the price increases will come through in the prepared food category. Those are the – that’s a shift that we’re seeing in after market place that I referred to. Some of the promotional activities that we’re looking at will be [indiscernible] of the merchandize, but that’s not to say that we won’t run promotional activity in prepared food category as well. Really we just need to find what works the best to drive customer traffic inside the store.
The bolded section does not exactly inspire confidence. CFO Walljasper might as well have said: ”Well, we’ll be running promotions in other categories and raising prices in prepared foods. Unless we decide to run promotions in prepared foods. Once I find out what works we’ll have it all figured out!”
Still long. But only holding, not adding, right now.
If you have a Stock Advisor subscription, there has been some really good discussion over there today, well worth checking out.
Matt
Long CASY
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