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Analyzing Casey’s Fiscal 3Q16 ahead of Its Fiscal 4Q16 Results

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Dec. 4 2020, Updated 10:52 a.m. ET

Why Casey’s missed its fiscal 3Q16 sales estimates

Casey’s General Stores (CASY) reported a 6.3% YoY (year-over-year) fall in total sales to $1.6 billion in fiscal 3Q16, missing consensus estimates by $29 million. The main reason for this fall was a 20% fall in the price of retail fuel, which was partly offset by a 5.7% rise in gallons sold and by an increase in CASY’s store base.

As per Wall Street analysts’ consensus estimate, CASY is expected to a witness a continued fall of more than 5% in its top line in fiscal 4Q16.

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Casey’s gross margin improved in fiscal 3Q16

Casey’s, however, reported an improvement in its gross margin during the quarter. Its gross margin rose by 271 basis points to 23.7% of sales in fiscal 3Q16 due to higher margins in the prepared food category.

The company’s gross margin has shown significant improvement over the past several quarters. It rose from 14% in fiscal 4Q12 to 23.7% in fiscal 3Q16. Wall Street expects the company’s gross margin to touch 24.7% of sales in fiscal 4Q16.

Higher operating expenses resulted in a fall in operating profit

CASY’s operating expenses rose by 8.7% YoY to $259 million in fiscal 3Q16. This rise was driven by the company’s ongoing operational initiatives, such as the rollout of its 24-hour conversions, the addition of a pizza delivery service, major remodels, and a rise in its store base.

As a result, Casey’s operating profit fell by 6.3% YoY to $68 million. However, its operating margin remained flat at 4.3% during the quarter. Its net profit stood at $38 million, falling 3.8% compared to fiscal 3Q15.

CASY’s top line and bottom line have been vulnerable to fuel price volatility, as fuel constitutes more than 65% of the company’s total sales.

Comparing CASY’s profitability to its peers’

Casey’s has better margins and profitability than its peer group. The company’s trailing-12-month net profit is 3.0% of sales, higher than CST Brands’ (CST), Murphy USA’s (MUSA), and Sunoco’s (SUN) trailing-12-month net margins of 1.4%, 1.9%, and 0.92%, respectively.

Investors looking for exposure to Casey’s can invest in the iShares Russell 2000 Growth ETF (IWO), which has around 0.53% of its holdings invested in the company.

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