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Analyzing Casey’s Business Segments before Its 2Q18 Results

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Aug. 18 2020, Updated 6:32 a.m. ET

Casey’s business segments

In this part, we’ll discuss Casey’s General Stores’ (CASY) business segments.

Casey’s derives ~60% of its total revenue by selling fuel. The business is highly unpredictable due to underlying volatility in fuel prices. Since the Fuel segment is Casey’s largest segment, its performance defines the company’s overall performance in any given quarter. The segment recorded a year-over-year decline in sales during eight quarters between 3Q15 and 2Q17. Since 2Q17, fuel sales have gained momentum and shown strength.

Management has set a target of 1%–2% growth in fuel same-store gallons for fiscal 2018. It’s important to note that 1Q18 was a strong quarter. Casey’s recorded 1.7% growth in same-store gallons.

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Grocery and Merchandise segment

Grocery and Merchandise is Casey’s second-largest revenue segment. The segment recorded ~12% growth between 1Q15 and 4Q16. However, there has been a slowdown since the beginning of 2017 due to food deflation, higher promotional activities by big-box retailers, and a rise in the pricing spread between food away and food at home.

The Grocery and Merchandise segment’s sales grew 5.7% YoY during fiscal 2017. It missed on sales comps targets of 6.2% growth during all four quarters of 2017. The company lowered its annual target for 2018 sales comps to 2%–4% growth and achieved it in 1Q18. Comps grew 3.1% in 1Q18.

Prepared Food and Fountain segment

Growth in the Prepared Food and Fountain segment slowed down in the past year. Casey’s missed the annual sales comps target in all four quarters of fiscal 2017. Management toned-down the targets for this category as well. Sales comps were targeted to grow 5%–7% in fiscal 2018 (versus the 10% goal in fiscal 2017). Casey’s missed the goal and its comps rose 3.7% due to weak traffic. As a result, management revised the comps target for the year. It expects comps to rise 4%–6% in fiscal 2018.

Investors looking for exposure to Casey’s through ETFs can consider the First Trust Consumer Staples AlphaDEX Fund (FXG). Casey’s has a weight of 2.7% in FXG.

In the next part, we’ll discuss Casey’s margins.

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