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Lower Gas Prices Continue to be Casey’s Biggest Revenue Headwind

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Jun. 9 2016, Updated 8:07 a.m. ET

Lower fuel prices weigh on Casey’s top line yet again

Lower gasoline prices have weighed on Casey’s General Stores’ (CASY) top line performance for some time. Fiscal 4Q16 was another such quarter. Though lower gasoline prices boosted the company’s fuel sales volume, they pulled the segment’s total sales down.

Fuel sales fell by 13.6% YoY (year-over-year) in fiscal 4Q16 and resulted in the sixth consecutive quarterly sales fall for the company as a whole.

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Fuel sales fall despite robust same-store gallons

Fuel segment revenue fell to $873 million in fiscal 4Q16 compared to $1 billion in fiscal 4Q15 despite a 4.6% rise in gasoline sales volumes at established stores during the quarter. Fiscal 4Q16 marked the fourteenth consecutive quarter of positive fuel comps for the company.

CASY’s fuel margin strengthened to 17.8 cents per gallon in fiscal 4Q16 compared to 16.9 cents per gallon in 4Q15 on account of higher renewable fuel credit sales.

Casey’s outperforms its own same-store sales and margin targets

In fiscal 2016, same-store gallons improved by 3% compared to the company’s own target of 2% comparable store sales. The full-year average margin of 19.6% also exceeded the company’s goal of 16.7% for fiscal 2016. “The fuel margin remained strong throughout the year, aided in part by favorable renewable fuel credit values,” said Terry Handley, president and CEO of Casey’s.

Casey’s has kept its fiscal 2017 same-store fuel gallons target unchanged at 2%. However, the company expects a higher average margin of 18.4 cents per gallon in fiscal 2017 compared to fiscal 2016.

Competition for the fuel segment

For fuel sales, Casey’s competes with both independent and national brand gasoline stations, other convenience store chains such as CST Brands (CST) and Murphy USA (MUSA), and nontraditional fuel retailers such as supermarkets Kroger (KR) and Costco (COST).

Despite unstable fuel sales, Casey’s has been able to maintain better margins than most of its above-mentioned competitors. The company reported a net margin of 3.2% in fiscal 2016. This was higher than the trailing-12-month net margins of CST Brands, Murphy USA, and Sunoco, which stood at 1.4%, 1.9%, and 0.92%, respectively. Kroger and Costco also registered lower trailing-12-month net margins of 1.9% and 2%, respectively.

Investors looking for exposure to Casey’s can invest in the iShares S&P Mid-Cap 400 Growth ETF (IJK), which has around 0.36% of its holdings invested in the company. IJK has exposure to midsize US companies whose earnings are expected to grow at an above-average rate relative to the Market.

Move on to the next section to read about the company’s grocery business, which accounted for 28% of its total sales in fiscal 4Q16.

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