Caseys General Stores Inc (CASY) 2003 Q4 法說會逐字稿

Good day ladies and gentlemen, thank you for joining Casey's General Stores annual earnings release.

My name is Kathleen and I will be your coordinator today.

At this time you are in listen only mode.

There will be a question and answer session following a presentation.

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As a reminder this conference is being recorded for replay purposes and at this time I would like to turn the program over to your host Chief Financial Officer Mr. Jim Shaffer.

Sir please go ahead.

Good morning and thank you for joining us on this call to discuss Casey's results for the fiscal year ended April 30th.

I am Jim Shaffer, Ron Lamb Chairman and CEO, John Harman Secretary Treasurer are also here.

I hope all of you have already seen the press release.

If you haven't please let me know and I will fax a copy to you.

My direct telephone number is (515)965-6107.

Before I begin I will remind you that certain statements may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

As discussed in the press release in the 2002 annual report such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from future results expressed or implied by those statements.

Casey's disclaims any intension or obligation to update a revise forward-looking statements, whether it’s a result of new information, future events or otherwise.

I will take a few minutes to summarize and then open for questions.

The quarter was in line with expectations with earnings of 14 cents a share up from nine cents a share from the fourth quarter a year ago.

We earned a record 80 cents a share for the year, up from 64 cents of last year.

I will hit the highlights of the quarter first.

We sold 227 million gallons of gasoline, an increase of 6.5%.

Margin was 11.4 cents a gallon up 1.3 cents over the prior fourth quarter and about a penny over our historical target.

Gasoline $25.8 million, up $4.2 million.

Three months ago we were concerned about the potential effect of the war in Iraq on the price of gas.

We saw the price increase in the first half of the quarter but by late March the trend reversed and prices came back down.

Since then price has been fairly stable with gallons up around 8% in the first five weeks of this quarter.

Grocery and merchandise sales were $151.9 million up 1.3% with a margin of 31.2, up 81 basis points.

Gross profit for the quarter was $47.4 million, up $1.8 million.

Prepared food sales for the quarter $40.7 million, up 6.8% with a margin of 58.

Up 180 basis points.

Gross profit was $23.6 million, up $2.1 million.

The total gross profit for the quarter was up $9 million while operating expenses were up $4.4 million.

Net income was $6.9 million up $2.5 million and earnings per share, 14 cents, up five cents.

Now, the results for the full fiscal year.

Gasoline operation was very positive with gross profit of $102 million, increase of $11 million.

The primary reason for the gain was improvement in margin to 10.9 cents per gallon up 9.8 cents the prior year.

Sold 934 million gallons an increase of less than 1% and same store gallons were down 3%.

In the prior year gallons were up 16% with same-store sale gallons up over 9%.

That was not a sustainable growth rate.

We have now cycled through the high comparisons and have a solid basis for future growth.

After two valetal years we had relatively stable gasoline prices throughout the year other than the brief spike during the Iraq war.

Grocery and merchandise sales up 4.4% and margin improved 115 basis points for the year.

Gross profit was $206.4 million, up 8.3%.

Cigarette and POP margins contributed as well as strong grocery and beer sales.

Similar to gasoline we have cycled through the difficult sales comparisons and are seeing growth in both sales and margin.

Role out of the point of sales system will provide the support for increase inside gross profit, the system will facilitate specialization in our marketing department to fine tune product selection, promotions and margins.

We recently added a bier for the seasonal and specialty merchandise category.

Prepared food sales up 6.1%.

Margin improved 398 basis points.

Providing gross profit of $100.5 million up 13.7%.

Our signature product continues to be made from scratch pizza.

This is a destination product for many of our customers.

We have taken some of the volatility out of our cost by providing cheese and a purchased out through October.

We have also introduced new bakery products expanded the number of stores offering sub sandwiches, reduced the stale rates and improved margins in bakery and fountain.

The technology role out has been be important to Casey's.

We now have 964 stores with pay at the pump and cigarette scanning.

We expect to complete the role out over the next six be months of those stores 130 have full point of sale capability.

We think we could be up to four or 500 by next April. 356 stores have satellite communication.

The communication systems provide the capability for real time communication resulting in more efficient gasoline delivery and lower credit card processing costs and could result in even more significant credit card savings as we get more stores operational.

We expect to have this project fully rolled out by April next year.

When we made the store manager compensation change last August we created a system to reward store managers for profitable store performance.

The new system has been well-received by the managers and is succeeded in making a difference both in store operations and in expense control.

Capital expenditures were $62 million in fiscal 2003 and are expected to increase this year.

We used 38 million of that for the combination of technology, transportation, store replacements and re-modeling.

The other $24 million was for building new stores and acquisition of stores.

This year the budget for technology, transportation, replacements and remodeling will be similar to the 38 million last year.

We plan to build 15 new stores as we did last year and plan to increase the number of acquisitions.

We have active negotiations with the owners of more than 25 stores and are aggressively looking for more.

Casey's is well-positioned for growth.

We have a strong balance sheet with a debt to capital ratio under 28.

We have a proven business model, we have an experienced management team, we are improving the performance six of existing stores, we are upgrading our systems and have experienced integrating stores into our systems.

The Board of Directors increased the quarterly dividend to 3.5 cents a share to 2.5 cents reflecting their confidence in the business plan as well as be strength of the Company financial position.

That concludes my remarks.

We will now take your questions.

Ladies and gentlemen, if you wish to ask a question at this time you may do so by keying star one on touch-tone telephone.

If your question has been answered or you wish to withdraw it please key star 2, questions will be taken in the order received.

Please key store one to begin.

Please hold while we pause for questions.

Your first question, sir, comes from Pat English (ph) from FMI.

Good morning guys.

Could you repeat the CAPEX plans for this year broken out by new stores or purchase of franchise stores and remodeling and technology please?

I mentioned first of all the $38 million that is really for technology, transportation, replacements and remodeling.

That is with no additional stores.

That's about the same as last year.

The difference between last year and this year is the expense for investment and technology this year will actually bellower than next year and the reason is we are nearly done with pay at the pump and that role out was more expensive than the be point of sale role out.

So the result of that is we will replace more stores than we did last year.

Instead of replacing ten last year we will be closer to 20 this year.

That is the basic part of CAPEX.

Now in addition to that, last year we spent $24 million for building and acquiring stores.

In that process we built 15 new stores and that will be similar to this year.

The wild card for this year will be our success in acquisitions.

So I expect the total to be greater than the $62 million of last year but until I know a little more about how the acquisition trend is going, it's kind of hard to put a number on that.

But as you can see we have a lot of resources to put to work here and we are aggressively trying to put those to work with good acquisitions

One question on gasoline volumes.

What are the initiatives do you plan to be undertake to drive higher volume growth there?

We are getting some benefit, obviously, from the pay at the bump conversion.

We are nearly through that now.

We are continuing to be very responsive to the market.

Gasoline is a very competitive product.

And I think we have improved our market responsiveness.

It's very important to be in the market all the time.

And one of the things I think we have done to help that move along is the way we are now compensate store managers and we have seen a better responsiveness just from that effort.

The margin for performance has really come around.

You have done a great job managing the gallon versus, you know, the margin equation.

At this point, I mean it wouldn't be unreasonable to expect mid-single digit growth in gallons for fiscal 04?

I think that is a very reasonable number.

I hope maybe we can -- if you are talking about total gallons?

We might do a bit better than that in 04.

Thanks.

Thank you.

Next question from Gary Gibblan (ph) from BLK Associates.

Hi good morning.

Should we expect materially higher gas margins in the coming quarters and kinds of would have expected to see a, you know more of a pick up in this quarter because of whole sales coming down, et cetera.

Well-, over a long period of time, when I say a long period of time, five, six, seven and a half years, gas margin tends to be in ten and a half sent ranges.

And I think we consider that a normal margin.

There are some years we can do a little better and years we can't get that, but I think that’s a reasonable margin.

We are at 10.9 cents this year.

So we are a little above average this year.

So I am not looking so much for improvement over the margin on a fiscal year basis as I am looking for improvement in gallons this year.

So --

So even with whole sales generally coming down, having gone up last year, it's really gallon edge, not margins that are going to change?

We think it's really balance, Gary.

We can't get too focused on the margin or too focused on the gallons.

We are trying to balance it out to focus it out to gross profit dollars.

If we have a favorable marketplace that tends to help the margin, the favorable marketplace is a gradually declining cost of gasoline that's the best market we can operate in.

We have a relatively stable market in the fiscal year just closed

One other set of questions, the effect of Flemings facilities closures and so forth.

They are closing five supermarket distribution centers which may have -- I don't know if they may have served some convenience stores but apparently they just announced Marsh Field, Wisconsin to be closed which was a see store distribution center and also they have be independent supermarket operators that are small footprint stores that might overlap in the convenience space, so on to speak.

So can you address those aspects and how directly it's helping you or is it more of a pro attractive long-term benefit.

The

The thing it makes me is it makes me very happy that Casey's self-distributes.

The decision that Casey’s made years and years ago to build our own distribution center I was strongly reinforced when we watched this thing unfold.

I think that is the first thing that comes to mind.

I think whenever somebody in the industry falters a bit, obviously that has the potential for improving the competitive landscape for us but again I think the strongest thing is reinforcing the fact that we are as virtually integrated as we are.

Okay.

That's, I mean -- but is there any particular fallout of convenience store operators because of Fleming or any supply?

Do you do any supply business to competitors or non operators in non competitors?

We don't supply anybody.

We just supply ourselves so we haven't seen any fall out from that, if there is some we will be watching.

It hasn't had any effect on us

Good. [Coodoas] on the self-distribution strategy.

Obviously that was a good idea.

Okay thank you.

Thank you Gary.

Next question from Dennis Tellsrow (ph) of Stevens Inc.

Good morning Jim great year and quarter.

You mentioned you had 25 stores in your active discussion.

Are most of those franchised.

It's a mix.

We have quite a few of those that are franchised.

We also have more that -- you know we are gradually picking up the traction on the once that are not franchised.

We have quite a few that are franchised that we are looking at as well.

You will see a bit of a shift that are franchised acquisitions but we see non franchised opportunities out there as well and we are gearing up to be more active in that market

Any comments on the --

You are fading on me Dennis.

Any comments on the strategy to improve gas buying?

We continue to fine tune that operation.

We are focused right now on the delivery efficiency, opportunities that the satellite communication program will give us and we continue to fine tune the buying, making small steps and I think we have demonstrated now our ability to better balance that whole operation with all factors involved.

Last question, car coil of course is in bankruptcy and is selling assets.

Have you seen any material impact on your business from a positive standpoint or are there any of those stores that would make sense for, they don't fit for a standpoint of what you have in your normal strategy?

We would look -- there are a lot of those that are kind of outside of our business model, outside of our territory so we will look at some.

I think Clark was a pretty aggressive gasoline competitor in Illinois, I think there will be positive from that.

We might see a little more stability in that market.

So, if anything, a net positive.

Okay thank you.

Thank you.

Next question, sir, from Fred Spees (ph) from Spees Store and Capital.

Yes Jim congratulations and nice job.

Thank you Fred.

The grocery margins, I am assuming that there is still some shrink to be had.

You didn't have all of this in place the entire year and there is still a learning curve there.

Are we now comfortable to talk about something north of 32 as sustainable margin in the country.

We are not hanging numbers on it this year.

We have been a little vague in that grocery market thing other than we have seen continued improvement now and we are still, as you say, we are still relatively new in the point of sale systems.

We have our cigarette point of sale system pretty well rolled out now.

But more robust full point of sale system, we have in a little over 100 stores and building toward 400 or 500 there year and I think there is real potential there as we get that system rolled out and begin to get the benefits both in terms of product selection and promotion and pricing and so forth.

How about the reverse of part of your huge margin expansion and prepared was your, you know, I am not bee letting it single point by in the cheese and that is hard to duplicate.

Where does that find itself settling?

What we did was added a tool to that category in the way we are buying cheese.

It turned out to be effective tool in the past nine or ten months and now we are managing that process better to take some of that volatility out.

And as I mentioned we bought out now through October.

I think that is another arrow in our quiver in that category.

I think along that line there will be a challenge to maintain those kind of margins going forward but we have positive things going beyond the cheese.

We have seen improved fountain margins, although some of that fountain margin improvement will be offset by higher cup costs but we are still seeing improvement there.

We are improving the sale percentage particularly in bakery.

The point of sale data that we are getting on prepared food is really helping our production planning and helping us manage the category better and we are continuing to add new products with attractive margins in both bakery and sandwich categories.

We are continuing to expand the number of stores offering sub sandwiches, for example, and other new product.

We are working on that and that whole prepared food area has been historically a competitive strength of ours and we are continuing to try to capitalize on that.

Any -- you don't know how high you are going to be on the acquisitions, do you?

Are you assuming that your debt capital goes up or down in '04.

At this moment we are pretty cash flush, Fred, and we have strong operating cash flows, so we have quite a bit of money available to us without any increase in debt and we haven't really talked about increase in debt.

Although in this kind of a market it wouldn't necessarily be a negative thing I don't think.

But we are conservative in that regard.

One other thing we found is we found a fair amount of interest among some of the sellers in something other than cash up front.

You know a lot of these people are looking for like kinds exchanges or looking for installment purchase treatments.

So some of these we are getting some transactions without as big a cash effect as we might otherwise have.

My impression was you were headed toward the 20% debt to capital rather than up.

Am I few --

We haven't stated anything publicly on that and quite honestly we have not discussed any need for finance at the board level in the Company.

So we are not looking for capital, either debtor equity at this point.

Thank you.

If there are any further questions please key star one now.

Your next question from Gary Gibblan of BLK Associates.

High Jim, I know you don't give formal guidance beyond the general points in the release but you know is it the consensus numbers for your fiscal next year are about 95 cents?

I mean is that ballpark reasonable?

I really try to avoid commenting on those numbers.

That becomes a slippery slope.

I think some of those numbers, the stars in movement would have to line up pretty straight to get up in that area but I try to avoid making those comments.

We try to give general guidance and we let the people building models make their own assumptions.

Okay.

Thanks.

That helps a little bit.

Thank you.

Okay.

If there is any other questions please key star one now.

Mr. Shaffer, sir, looks as if there are no further questions

Thank you again very much for joining us.

We look forward to reporting our first quarter on next conference call.

Thank you very much

Ladies and gentlemen, this does conclude your conference call for today.

You may now disconnect.