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How Did Fuel Price Volatility Affect Casey’s in 4Q16?

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Fuel price volatility hammers Casey’s top line

Volatility in fuel prices has been weighing on Casey’s General Stores’ (CASY) top line for some time now. The company has reported six consecutive quarters of sales decline despite strong growth in its in-store sales for its prepared food and grocery categories.

In the last quarter of 2016, the company reported a 4.3% YoY (year-over-year) decline in total sales to $1.6 billion. The decline was due to a 20.3% fall in the retail price of fuel, which was partially offset by an 8.4% increase in gallons sold and an increase in the number of stores in operation during the quarter compared to the same period last year.

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How has fuel price volatility impacted Casey’s competitors?

Fuel sales account for a significant portion of convenience store chains, including CST Brands (CST), Murphy USA (MUSA), and supermarket giant Kroger (KR). For Kroger, fuel accounted for 13% of its total sales averaged over the last four quarters. It was 78% for MUSA and 66% for CST.

All these players have been reporting a weakness in fuel sales, which has negatively affected their top lines. CST Brands reported a 5.3% decline in total sales, which was due to a 5.7% decline in fuel sales in its last reported quarter.

MUSA witnessed a 14.5% decline in total revenue, primarily due to a 17% decline in fuel sales.

Kroger also reported a 14.7% decline in fuel sales in its last quarter. The company’s top line increased 4.7%. However, excluding fuel sales, revenue growth was about 7.8%.

Margins get a boost from lower fuel prices

While lower fuel prices have depressed Casey’s top line, they have led to a tremendous margin benefit for the company. Its earnings per share increased 14% YoY in fiscal 4Q16 as stronger fuel margins easily offset the negative effect of lower gasoline prices. You can find out more about sales and margins of Casey’s business segments in the next part of the series.

Casey’s posted net income of $47.0 million, or $1.19 per share, in fiscal 4Q16. This compares to $41.3 million, or $1.05 per share, in the same quarter of fiscal 2015.

However, in fiscal 4Q16, the company missed analysts’ earnings estimates after delivering a beat for nine consecutive quarters. Analysts on average were expecting the company to report earnings of $1.22 per diluted share.

Investors looking for exposure to Casey’s through ETFs can invest in the First Trust Consumer Staples AlphaDEX ETF (FXG). CASY makes up 3.3% of FXG.

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