01—Abstract
Summary
Summary of the 10-K filed July 28, 1994. Cited figures are marked; the original filing is the authoritative source.
Casey's General Stores (CASY) reported fiscal 1994 (year ended April 30, 1994) results that show a company in expansion mode, with net income rising 24.3% to $16.6 milliona on net sales of $731.2 million (up 8.5%).
Earnings per share (primary) were $0.73b, up from $0.60. The growth was driven mainly by higher retail gasoline gallons sold (up 11.8%) and a notable improvement in gasoline gross margins, which rose to 10.1% from 8.2%. Average operating income per Company Store rose 20.3% to roughly $73,600.
The company operates 876 stores across eight Midwestern states, of which 687 are Company-operated, and it is shifting its model toward owning and operating more stores rather than franchising them. Prepared foods carry gross margins around 53%c, far above gasoline's roughly 9%, which underpins the company's focus on higher-margin food items. The balance sheet strengthened materially.
Shareholders' equity grew to $158.4 milliond from $108.0 million, largely because $35 million of 6.25% convertible debentures converted into 3.68 million common shares in March 1994. Long-term debt fell to $61.4 million from $99.0 million. Operating cash flow rose to $52.7 million, and management plans roughly $50 million of capital spending in fiscal 1995, with about 60 new Company Stores planned, mostly in Iowa, Illinois and Minnesota, plus the first store outside the eight-state area in Sullivan, Indiana.
The main risk for investors is a pending class action (Bathke Complaint) alleging predatory pricing under federal antitrust and Iowa price discrimination laws, with trial set for October 17, 1994 and damages potentially trebled. Management believes the company is not liable and intends to contest it vigorously. Other risks include gasoline margin volatility, which the company itself identifies as capable of materially affecting earnings, and the Iowa franchise legislation, which may limit enforcement of some existing franchise agreements.
02—Key points
Key Highlights
- Net income rose 24.3% to $16.6 million in fiscal 1994, from $13.3 million, on net sales of $731.2 million (up 8.5%).
- Primary EPS was $0.73 versus $0.60 in fiscal 1993; fully diluted EPS was $0.68 versus $0.57.
- Gasoline gross margin improved to 10.1% from 8.2%, and gallons sold rose 11.8% to about 376 million.
- Company Stores grew to 687 of 876 total stores (78%), with 56 new Company Stores opened in fiscal 1994 and about 60 planned for fiscal 1995.
- Converted $35 million of 6.25% convertible debentures into 3.68 million shares, lifting equity to $158.4 million and cutting long-term debt to $61.4 million from $99.0 million.
- Pending Bathke antitrust class action alleging predatory gasoline pricing in Iowa, with trial scheduled to begin October 17, 1994; management intends to contest it vigorously.
- Prepared foods carry about 53% gross margins versus about 9% for gasoline, supporting the strategy of expanding high-margin food offerings.
03—Questions
Frequently Asked Questions
How did Casey's perform financially in fiscal 1994?
Net sales rose 8.5% to $731.2 million and net income rose 24.3% to $16.6 million. Primary EPS reached $0.73, up from $0.60. Growth came from higher gasoline volume, a wider gasoline margin, and more Company Stores in operation.
What is the biggest legal risk facing the company?
The Bathke class action, brought by Iowa gasoline dealers, alleges that Casey's low gasoline prices violate federal antitrust and Iowa price discrimination laws. Plaintiffs seek a permanent injunction, unspecified damages that would be trebled, and attorneys' fees. The company filed for summary judgment, and trial was set to begin October 17, 1994. Management believes it is not liable. The filing does not quantify a potential loss.
Why is the company shifting from franchised to Company-operated stores?
Management says Company Stores are more profitable and give the company greater operating control. It plans to increase the number of Company Stores through new construction and by acquiring existing franchised stores. It converted 135 franchised stores to Company ownership from inception through April 1994.
How is the company's balance sheet positioned after the debenture conversion?
Shareholders' equity increased to $158.4 million from $108.0 million after the $35 million convertible debenture conversion. Long-term debt fell to $61.4 million from $99.0 million. Current assets were $41.4 million against current liabilities of $75.5 million, a current ratio of about 0.55, which is typical for a cash-based convenience store operator with fast inventory turnover.
What are the main risks to future earnings?
Gasoline profit margins are the largest risk. The company notes that oversupply, wholesale price volatility, and competition from other gasoline marketers could materially reduce earnings. Other risks include supply disruptions, the Bathke litigation, environmental compliance costs for underground storage tanks, and the Iowa franchise legislation's effect on existing franchise agreements.
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