Shares of Casey's General Stores hit all-time highs this afternoon after an upbeat conference call that followed the disclosure of very robust earnings yesterday. But dynamic OPIS data suggests that top brass at the c-store firm underplayed what could be a year for fuel profits that smashes the 2019 record.
Example: Casey's outgoing CEO Terry Handley increased guidance on fuel margins to 20.5-22.5cts/gal for fiscal 2020 which began on May 1. He indicated that May gasoline margins were in line with company expectations, and indeed, OPIS shows that if Casey's purchased at average wholesale prices, the unleaded regular margin in May averaged 18.2cts/gal. Considering the company's buying power and higher returns for midgrade, premium, E15 and diesel, May probably saw fuel margins within or above guidance.
And Handley did not talk about just how prosperous June has been for retailers.
The OPIS database suggests that the first 11 days of June has seen off-the-charts returns across the company's 16-state marketing area. Measured against average rack prices, Casey's unleaded regular has fetched 33.5cts/gal over cost, exceeding target margins by over 50%.
The company is clearly targeting fuel profitability over market share and earnings guidance for 2020 brackets same-store sales that could drop 0.5% or rise 1%. Beyond legacy sites, Casey's hopes to build 60 stores and acquire 25 additional locations. The guidance on 2020 margins represents what Wells Fargo analyst Bonnie Herzog called a "decent step-up" from last year, but Handley expressed confidence in the goals. The CEO praised new price optimization software and said that proper use might increase volumes as well as margins on a market-to-market basis.
The market optimization led Casey's to realize that in some markets where they were a market leader, they were "most likely holding margin opportunities down and artificially inflating volumes."
Casey's is also undergoing a major transformation in fuel procurement. They traditionally relied on simple truckload purchases from various rack suppliers without many forays into term deals or special contracts. Chief Financial Officer Bill Walljasper hinted that the new fuel procurement team would look at much more ambitious and innovative contracts.
That may help solve the challenge of autumn 2019 comps which will compare to very robust fall margins in 2018. Still, management believes it has further opportunities to grow the margin.
But changes in fuel procurement will not result in any deals to replace the Casey's private label with a national brand. When asked about the possibility of teaming up with a major brand, Walljasper replied, "No, no absolutely." He added that they consider Casey's a national brand for fuel.
Renewable Identification Numbers (RINs) are no longer a major factor in Casey's earnings. The company sold 18.6 million RINs in the fourth quarter for $3.5 million, but those revenues are now baked into overall margins.
Some other details that emerged from the conference call:
- Management acknowledges that high multiples are being paid for some c-store acquisitions but pledged to concentrate on "tuck-in" deals and remain disciplined.
- Specific numbers weren't revealed, but brass noted that the performance in newer markets like Ohio and Michigan has met expectations. They also singled out success in Oklahoma and Arkansas.
- Year-to-date same-store gallons are down 1.7%. Adverse weather in the Midwest probably crimped volumes in May.
- For the fiscal year which ended April 30, Casey's opened 56 new stores and acquired 24 sites. They also replaced eight stores and have another eight under agreement to purchase. Some 81 stores are in the development pipeline, including 41 under construction.
- A new fleet card launched in late October has 1,300 new accounts with a total of about 7,200 new cards. Total fleet gallons grew 9% in fiscal 2019.
Casey's shares closed Tuesday at $1.4639, up $13.35 on the day. The market capitalization for the company is now approaching $5.5 billion.
--Tom Kloza, tkloza@opisnet.com
Copyright, Oil Price Information Service
