CASY

Caseys General Stores, Inc. (CASY)

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Exchange: NASDAQ
Industry: Consumer Durables
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Casey’s General Stores, Inc. (CASY)

F2Q 2013 Earnings Conference Call

December 11, 2012; 10:30 a.m. ET

Executives

Bob Myers - President & Chief Executive Officer

Bill Walljasper - Chief Financial Officer

Analysts

Ryan Gilligan - BMO Capital Markets

Chuck Cerankosky - Northcoast Research

Kelly Bania - Bank of America- Merrill Lynch

Irene Nattel - RBC Capital Markets

Ben Brownlow - Raymond James & Associates

Anthony Lebiedzinski - Sidoti & Co.

Damian Witkowski - Gabelli & Co.

John Lawrence - Stephens Inc.

Presentation

Operator

Good day ladies and gentlemen and welcome to the second quarter 2013 Casey’s General Stores earnings conference call. My name is Jasmine and I’ll be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session before the end of today’s conference. (Operator Instructions).

I will now like to turn the presentation over to your host for today’s conference, to Mr. Bill Walljasper, Chief Financial Officer. Please proceed.

Bill Walljasper

Good morning and thank you for joining us to discuss Casey’s results for the quarter ended October 31. I’m Bill Walljasper, Chief Financial Officer. Bob Myers, the President and Chief Executive Officer, is also here.

Before we begin I’ll remind you that certain statements may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. As discussed in the press release and in 2012’s Annual Report, such forward-looking statements involve known, unknown risks, uncertainties and other factors that may cause actual results to differ materially from future results expressed or implied by those statements. 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.

I’ll take a few minutes to summarize the quarter and then open for questions. As most of you have seen, diluted earnings per share in the second quarter was $0.85 compared to $0.98 a year ago. Year-to-date diluted earnings per share was $1.86 compared to $2.01.

Earnings shortfall in the quarter from a year ago as a result of difficult fuel margin comparison as well as a challenging cigarette [buyer] [ph]. However this impact was partially offset by a strong performance in our Prepared Food category. We’ll go over each category to give you more detail on what is driving these results.

During the second quarter we experienced a solid fuel margin environment, resulting in an average margin of $0.149 per gallon compared to $0.167 per gallon in the same period a year ago. Year-to-date the fuel margin is at $0.149 per gallon, ahead of our annual goal. Casey’s trailing four year gas margin is $0.143 per gallon.

Same store gallons sold in the quarter were down 0.4%. However total gallons sold increased nearly 3% to 386.2 million. Same store gallons sold through the mid year point were also down slightly. Total gallons sold for the year are up 3.2% to 780.3 million.

For the six months mark the average retail price was $3.49 per gallon compared to $3.53. The average retail price of gasoline for the quarter was $3.61 per gallon compared to $3.43 last year. Due to a lower fuel margin from a year ago gross profit was down 8.1% to $57.6 million in the second quarter.

Positive fuel margin environment continues in November, with an average margin in line with our annual goal of $0.14 per gallon. Same store gallons sold in November rose 1.4% with an average retail price of fuel on the month of $3.22 per gallon.

Sales in the grocery and general merchandise category continued to be adversely impacted by the cigarette environment, resulting in same store sales for the second quarter to be down 0.7%. Excluding cigarettes same store sales would have been up approximately 2%.

Total sales in the quarter were up slightly to $362.7 million with an average margin of 33.4%. Cigarettes in the quarter accounted for approximately 36% of the total revenue in the category, down from 40% a year ago. This product mix shift lifted the contribution of higher margin items, which benefited the overall grocery and other merchandise margin. Due to this, gross profit dollars rose 4.3% to $121.2 million. Year-to-date same store sales were up 0.7% with an average margin of 33.4%.

Over the course of the past several months we have made additional price adjustments in response to the more competitive cigarette landscape. We are encouraged with the recent gains we’ve been able to achieve in this area due to these initiatives. As a result same store sales in the grocery and other merchandise category in November were up 5.1%.

Prepared Food & Fountain category continued its strong performance. Total sales were up 13.7% to $146.5 million for the quarter. Same-store sales in the quarter were up 10.1% with an average margin of 62.5%, up 300 basis points from the same time a year ago. The average cost of cheese this quarter was $2.11 per pound compared to $2.14 a year ago. Apparently the average cost of cheese is approximately $2 per pound.

The margin gain was primarily due to an increase in pizza sales, mainly as a result of increased 24 hour locations, pizza delivery and major remodels. Buying pizza sales with these operational initiatives increased nearly 30% during the quarter.

Gross profit dollars were up 19.4% in the second quarter. Year-to-date same store sales were up 10% with an average margins of 62.9%, well ahead of our annual goal. We continue to benefit from the additional roll out of our operational initiatives. Same store sales for Prepared Foods accelerated in November, up 14.7%.

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