Casey’s General Stores Earnings Call Insights: Two Big Costs, Accellerated Depriciation

On Wednesday, Casey’s General Stores, Inc. (NASDAQ:CASY) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Two Big Costs:

Karen Short – BMO Capital Markets: Just a couple of questions on your OpEx. Did you give the actual dollar amount of the self-insurance adjustment just kind of back in about $3 million, but I know you said four to five times.

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William J. Walljasper – SVP and CFO: It was about $2.5 million from combined plus two non-operational events.

Karen Short – BMO Capital Markets: So, backing that out then, you are kind of looking at an overall OpEx growth rate in the 15-ish% range?

William J. Walljasper – SVP and CFO: Yes. That would be correct.

Karen Short – BMO Capital Markets: Okay. So I guess just looking to next year, just to help me model through, is it fair to say that you are probably going to be looking at that kind of level at least in terms of OpEx growth, kind of maybe less lumpy but consistent with that 15% at least for the first through the third quarter of next year, and then kind of falling off in the fourth as you cycle? I am just kind of trying to think about that too.

William J. Walljasper – SVP and CFO: No, I think you are right on point, Karen. Based on the operational initiatives that we outlined, I think a run rate for fiscal 2013 would be a mid-teens percentage increase. So I think that’s correct. Now keep in mind we also had a hot field lawsuit that was settled. It’s still pending in the course that’s running to the fourth quarter as well even though it’s not material. Yeah, I think you are right on point.

Karen Short – BMO Capital Markets: I guess looking at prepared food, your prepared food margin goal for fiscal ’11, sorry, for fiscal ’12 originally started off at like 61.8%, and obviously you didn’t make that goal given the pressures – commodity cost pressures, I guess looking at 2013, I am surprised your goal might not be higher just because so many of these costs seem to be coming down quite dramatically.

William J. Walljasper – SVP and CFO: Well, the two big costs – that’s a good question, Karen. The two big costs that will drive that from a commodity perspective, certainly cheese would be the biggest, followed by coffee, and then there are some miscellaneous items as well. When you look at the cheese cost, as I mentioned, right now currently we’re about $1.80 is the current cost. As we look forward in a comparative standpoint, Q1 the average cost of cheese was about $2.11 per pound in Q2 2014 and then it came down in the latter half of fiscal 2012. So it’s hard to predict commodity cost increases, but certainly we anticipate a benefit which is in part why we have an increase in the margin for next fiscal year. Now coffee we have locked that in. That $0.70 differential is about 20, 25 basis points in the prepared food margin. So we do have that particular commodity locked in. I just don’t see an opportunity yet to lock cheese in. We currently continue to look at that on a very regular basis, but some of the benefit of those two commodities in the fourth quarter were offset by increases in several other items within the prepared food items such as chicken, beef, icing cups, donut oil, fountain – any one of them itself is not a large increase, but in aggregate (they do start to add up, so).

Karen Short – BMO Capital Markets: Okay. That’s fair. And then wondering if you could give your range of CapEx for fiscal ’13?

William J. Walljasper – SVP and CFO: Yeah, we’ll wait to give that range until the 10-K comes out. It’ll come out in a couple weeks.

Karen Short – BMO Capital Markets: And then last question I just had is, I know there was some analysis done or some concern that maybe the rollout of the pizza initiative might cannibalize some of your existing stores sales that don’t have a pizza delivery. Can you maybe just give a little color on where that analysis kind of should go?

William J. Walljasper – SVP and CFO: Right now we’re not seeing that cannibalization of other stores and that’s primarily because the stores that we’re targeting for pizza delivery are typically outside of the area of an existing Casey store (indiscernible). We’re still pushing this program out, albeit it’s in the preliminary stages, and as I outlined, we anticipate somewhere around 226 stores delivering pizza by then end of the fiscal year. We certainly believe that number could probably double and that program we’re encouraged by it, and we’re certainly going to continue pushing that out.

Karen Short – BMO Capital Markets: Within the guidance for the 15th July, 15th October and 15th January, same comment, no cannibalization expected from your location?

William J. Walljasper – SVP and CFO: Yeah, and also we’re not seeing any drop-off inside the store either. That was one of the concerns that people wouldn’t be coming into the store, because they are getting the pizza product delivered. In contrast, we’re actually seeing an uptick in general merchandise. So yeah, we’re encouraged by that program, we’re encouraged by all three of those initiatives.

Accelerated Depreciation:

Sam Zevik – Northcoast Research: Bill, I just had a quick question about – I see your depreciation seem to pick up a bit in the fourth quarter and I was just curious though, what drove that year-over-year increase from last year?

William J. Walljasper – SVP and CFO: When you look at the year-over-year increase and you’re talking fiscal 2011 to 2012, I’m going to take you back to the unit movement that we experienced in fiscal 2011. As you might recall, we acquired 89 stores in the fiscal 2011 and we built 20 stores (indiscernible) over 80% of those stores were done in the back half of fiscal 2011. So you’re not going to see the full depreciation for the full year obviously coming through. Also those 89 stores, most of those stores we went back in fiscal 2012 and added kitchens, and when you do that we had a fair amount of equipment and which would accelerate the depreciation. That was the reason you saw a little bit larger depreciation increase in fiscal 2012 over 2011.

Sam Zevik – Northcoast Research: Then another question, you mentioned on your prepared statements that credit card fees were up $20 million. I think 12.5% increase?

William J. Walljasper – SVP and CFO: Well, just to clarify that, they ended up at $20 million. They were up about $2.3 million.

Sam Zevik – Northcoast Research: How did credit card transactions trend during the quarter?

William J. Walljasper – SVP and CFO: They trended about what they’ve been trending in the third quarter. When you look at it there about 19%, 20% utilization as far as you look at the total sales dollars, we been tracking that up of 56% to 58%. So, that’s kind of been in that range for a few quarters now.