CASY

Caseys General Stores, Inc. (CASY)

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Casey's General Stores (CASY)

F3Q09 Earnings Call

March 10, 2009 10:30 am ET

Executives

William Walljasper – Chief Financial Officer

Analysts

[Megan O'Hara – Freedman, Billings, Ramsey]

Alex for Charles Cerankosky – Ftn Equity Capital Markets

Karen Howland – Barclays Capital

Michael Smith – Kansas City Capital

Ben Brownlow – Morgan Keegan

[Anthony Liebinsky – Sidoti & Company]

Presentation

Operator

Welcome to the third quarter 2009 Casey's General Stores earnings conference call. (Operator Instructions) I would now like to turn the presentation Mr. Bill Walljasper, Chief Financial Officer.

William Walljasper

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

Before I 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 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 all of you have seen, the company had a record third quarter with earnings per share from continuing operations of $0.28 compared to $0.26 a year ago. Year to date earnings from continuing operations were $1.38 compared to $1.39 last year.

This strong earnings performance is driven by a decrease in operating expenses and solid gains inside our stores. I'll go over each category in more detail on what is driving these improvements.

In the first part of the quarter in gasoline, we experienced a rapid decrease in the cost of gasoline. Generally in a declining cost environment, there's an opportunity to expand the gasoline margin as retail prices tend to lag this downward movement. However, we experienced a rapid adjustment in retail prices in response to the sharp decline which put pressure on our margins.

Gasoline costs did begin to stabilize towards the end of the quarter which allowed margin improvement to partially offset the earlier pressure. The result was a third quarter margin of $0.909 per gallon compared to $0.135 a year ago in the same period. This margin differential would have represented about $0.14 decrease in earnings per share.

Year to date our gas margin is $0.131 per gallon compared to $0.143 during the first nine months of last year.

Total gallons sold in the quarter were up 3.5% to 307.4 million. Same store gallons sold in the quarter were up 2.1%. The average retail price of gasoline in the quarter decreased over 40% to $1.73 a gallon compared to $2.89 a year ago.

Same store gallons in February are flat to slightly positive. However, we are comparing to a month last year with an extra day due to leap year. This extra day represents approximately 3%. The margin in February is above our annual goal of $0.108 per gallon.

In the grocery and other merchandize category, sales continued to be solid and the overall margin is improving. For the third quarter, total sales were up 7.7% to $231.3 million with an average margin of 32.9%, up over 100 basis points from the same period last year. Same store sales in the quarter rose 6.5% while gross profit rose over 11% to $76.1 million.

Year to date same store sales are up 5.3% with an average margin of 33.6%, well ahead of our annual goal and up 60 basis points. The performance in this category is related to increased sales in higher margin items, primarily in the coolers. We are very pleased with the gains we've been able to achieve in this category, especially in light of the difficult economic conditions. Same store sales in February continue to be solid.

The prepared foods and fountain category continue to perform exceptionally well. Total sales in the quarter were up over 10.4% to $81 million and up 11.6% year to date. Same store sales in the third quarter were up 8.1% with an average margin of 61.8%, down from the record margin a year ago in the third quarter.

This is primarily due to increases in product costs that we were able to pass on to maintain gross profit dollars, but not margin. However, the margin did increase sequentially from the second quarter by about 120 basis points.

As the press release indicated, we were able to take advantage of lower commodity costs and lock in the price of cheese through October 2009. The average all in cost of this core buy of cheese is $1.68 per pound. Going forward, we anticipate to show margin improvement given the favorable cheese cost comparison.

Year to date, sales are up 11.6% while gross profit climbed to $155.1 million. Same store sales for the nine months rose 9.9%. The gains that we experienced are related to strong sales across the category and strategic price increases. Price increases represent approximately 4% of the same store sales reported. The strong same store sales trend continues in February.

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