Casey's Will Not Spin Off Assets Into an MLP

ANKENY, Iowa -- Casey's General Stores Inc. will not spin off its real estate and fuel assets into a master limited partnership (MLP), Chief Financial Officer Bill Walljasper stressed during the convenience store retailer's 2014 fiscal fourth-quarter earnings call Tuesday.

Three Wall Street analysts peppered the CFO with questions about the possibility of creating an MLP during the conference call. Karen Short, director at Deutsche Bank, noted that the creation of an MLP worked very well for Stripes parent Susser Holdings Corp. and said Casey's has many of the same assets to create a new publicly traded company in an effort to increase shareholder value.

"We have looked at it in great detail," Walljasper responded. "We even had a third party look into the possibility as well. It was determined it would not create the same value [for Casey's shareholders] as [it did for] Susser."

A major missing component preventing Casey's from formulating an MLP is a wholesale fuel distribution business, and creating one is very costly, Walljasper noted.

When Ronald Bookbinder, analyst at The Benchmark Co. LLC, remarked that buying a jobber would eliminate this problem, Walljasper responded that Casey's "is not looking at that option." But the CFO did state that the company has not closed the door on ever creating an MLP and will continue to look into the possibility.

FUELS HURTS EARNINGS

Casey's had a banner 2014 fiscal fourth quarter in every area except one: fuel margins. For the quarter ended April 30, fuel margins decreased 3.2 cents per gallon year over year to 13.8 cents per gallon. This was the main reason why the company's net income declined slightly.

Casey's earned a net profit of $22.816 million in its latest quarter, a decrease of $456,000 compared to the same period in 2013.

On the positive side, same-store grocery and other merchandise sales were up 7.2 percent, and same-store prepared food and fountain sales improved by an even stronger 12.1 percent year over year.

According to Walljasper, the public's absorption of some price increases the c-store retailer passed on was one reason for its strong in-store merchandise sales. For example, the price of pizza slices increased in the latest quarter, but sales remained robust.

Casey's added 18 new stores in its latest quarter and acquired an additional four locations. The c-store retailer operated a total of 1,808 locations as of April 30.

WHAT'S AHEAD

Currently, Casey's has 27 new stores under construction. The company expects to build or acquire a total of 72 to 108 stores and replace 25 existing stores in fiscal 2015, which began May 1.

In its 2015 fiscal year, Casey's also plans to increase same-store fuel gallons sold by 1 percent with an average margin of 15.3 cents per gallon. Same-store grocery sales are targeted to increase 5.3 percent year over year, and same-store prepared food and fountain sales are targeted to rise 9.5 percent.

Walljasper added that Casey's expects to add pizza delivery to approximately 80 more locations during the 2015 fiscal year. The c-store operator also plans to have an additional 100 stores converted to 24-hour locations.

On the fuel side, Ankeny, Iowa-based Casey's currently offers a Fuel Saver program in coordination with Hy-Vee Inc. at 1,200 locations. The chain plans to expand this program or offer a similar program to many more of its locations, Walljasper reported.

"We are also looking into the possibility of creating our own [fuel loyalty] program," the CFO said.