CASY

Caseys General Stores, Inc. (CASY)

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

F2Q 2009 Earnings Call

December 4, 2008 10:30 am ET

Executives

William J. Walljasper – Chief Financial Officer

Robert J. Myers – President, Chief Executive Officer

Analysts

[Megan O’Hara] - Friedman, Billings, Ramsey & Co.

Alex Bissen – FTN Midwest

[Ben Bromo] – Morgan Keegan

Anthony Lebiedzinski - Sidoti & Co.

Karen Howland - Barclays Capital

Michael Smith - Kansas City Capital

Presentation

Operator

Good day ladies and gentlemen and welcome to second quarter 2009 Casey’s General Store earnings conference call. My name is [Francine] and I will be your coordinator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference, Mr. Bill Walljasper, Chief Financial Officer. Please proceed sir.

William J. Walljasper

Thank you Francine. Good morning and thank you for joining us to discuss Casey’s results for the second quarter of fiscal 2009, ended October 31. I’m Bill Walljasper, Chief Financial Officer. Bob Myers, President and Chief Executive Officer is also here. Hopefully you all had an opportunity to see the press release. If you haven’t, please let me know and I’ll make sure a copy is forwarded to you.

Before I begin I 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 the 2008 annual report, such forward-looking statements involve known and 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 then open for questions. As most of you have seen, the company had a solid quarter in spite of a challenging environment with earnings per share from continuing operations of $0.54 compared to $0.55 a year ago. Earnings were driven by a higher than normal gasoline margin, increased sales inside the store, and margin expansion in the grocery and other merchandise category.

For the second straight quarter we experienced a favorable gasoline environment, resulting in an average margin of $0.137 per gallon for the quarter compared to $0.136 a year ago. Gross profit in this category was up slightly to $43.5 million. The average retail price of gasoline in the quarter was $3.25 per gallon compared to $2.73 a year ago. As a result of the higher retail prices, we did experience some elasticity in demand with same-store gallons up 0.2% in the quarter and up 0.3% year-to-date.

However, over the latter part of the second quarter gasoline prices dropped significantly, which enabled us to achieve a 3.1% same-store gallon increase in October. Lower retail prices continued to benefit same-store gallons in November.

Sales continued to be strong in the grocery and other merchandise category and the overall margin is improving. For the quarter, total sales were up 6% to $265.1 million, with an average margin of 33.9%, up over 80 basis points from the same period a year ago. Same-store sales for the quarter were up 4.9% while gross profit rose 8.5% to nearly $90 million. Every area in this category experienced solid gross profit gains, especially in the cooler and from cigarettes. We saw cigarette pack sales rise to over 68% in the second quarter compared to 66% in the same period a year ago.

We are pleased with the gains that we’ve been able to achieve in this category, especially in light of the higher retail gasoline environment and a more challenging economy. Same-store customer count remained solid in the quarter, up nearly 2%. Same-store sales in November continued to be strong.

The prepared food category continues to perform exceptionally well. Total sales were up 11% to $87.8 million for the quarter. Same-store sales in the second quarter were up 9.3% with an average margin of 60.6%, down about 240 basis points from the second quarter last year, primarily due to the higher cost of cheese. The average cost of cheese this quarter was approximately $2.10 per pound compared to $1.60 a pound last year.

Year-to-date same-store sales were up 10.8% with an average margin of 60.5. The sales increase was primarily due to the continued popularity of our menu offerings and strategic pricing increases taken earlier in the year. The price increases account for about 3 to 4% of the same-store sales increase. The strong same-store sales trend continues in November.

At the six month mark, operating expenses are up 9.6%. For the quarter, operating expenses rose 10.3% primarily due to several large health insurance claims that came through late in the quarter, higher diesel fuel expense and a 22% increase in credit card fees. Without the effect of these three items, expenses would have been up about 7%.

The average cost of diesel fuel this quarter was approximately $3.70 per gallon compared to $2.96 a year ago. We should start to have more favorable comparisons as we head into last half of the year. We did experience a slowing in the rise of credit card fees and transactions in October. Given the lower gasoline price environment, we should see softer fees going forward.

Our balance sheet continues to be strong. At the end of the quarter, cash and cash equivalents were $137.8 million and shareholders equity rose to $698 million, up $50.6 million from the end of the fiscal year. We continue to pay down debt. Long term debt net at current maturities was down $12.2 million to $169.3 million. At the end of the quarter, our average long term debt to average total capital ratio, including the current portion, was about 26%.

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