4 Fuel Takeaways From Casey’s Second Quarter
By Samantha Oller on Dec. 12, 2016ANKENY, Iowa -- Low fuel prices and a successful loyalty program helped Casey’s General Stores Inc. grow fuel gallons more than 7% in the second quarter of fiscal 2017, outpacing its inside sales growth.
CFO Bill Walljasper shared the key drivers of the growth, fuel margins and the future of RIN (Renewable Identification Number) prices in the Ankeny, Iowa-based chain’s most recent earnings call for the fiscal quarter ending Oct. 31, 2016. Read on for four key fuel takeaways ...
1. Growing gallons, lower in-store sales
Casey’s basket ring inside its more than 1,900 stores declined sequentially from first-quarter to second-quarter fiscal 2017, running counter to a 3.7% increase in same-store gallons. Same-store sales growth also lagged gallons on a percentage basis. It’s a dynamic that Casey’s executives continue to examine.
“We are getting the traffic definitely at the pumps,” said Walljasper, adding that consumers appear to have a tighter spending “consciousness.”
“From our perspective … we needed to understand that and are trying to drive some promotional activity to get them into the store,” he said.
2. Margin volatility
Casey’s fuel margins averaged out at 18.6 cents per gallon (CPG) in second-quarter 2017, lower than the same period a year ago. The company cited lower volatility in wholesale fuel costs for the decline.
“A lot of it has to do with what I would call more rational pricing environment, buyer competition and it just kind of [is] spurred by some of the competitive pressures on gross-profit dollars over that course of time,” said Walljasper. These include minimum-wage increases, and legislative efforts to increase taxes on different products.
“Obviously, volatility gives us an opportunity to spread margin,” said Walljasper.
3. The direction of RINs
Casey’s generated $15.9 million during second-quarter 2017 from selling 17.8 million RINs, credits that obligated parties under the Renewable Fuel Standard use to demonstrate their compliance with biofuel blending mandates. Casey’s earned the credits by blending in ethanol.
Growth in fuel gallons—thanks to low fuel prices, higher vehicle miles traveled and Casey's Fuel Saver loyalty program with the Hy-Vee grocery chain—has helped drive RIN earnings. Fuel Saver has its biggest presence in Iowa, “where we happen to secure the RINs,” said Walljasper.
RIN prices also have risen as the Environmental Protection Agency (EPA) has increased blending targets. Walljasper noted that RINs are currently trading at about $1.12, vs. 61 cents during third-quarter fiscal 2016.
With the nomination of Oklahoma Attorney General Scott Pruitt, a critic of the RFS, to head the EPA under the incoming Trump administration, Walljasper was asked how this might affect RIN prices. He declined to make any predictions, but said that Casey’s is fortunate to be able to benefit from the current environment, due to its markets, where it operates and how it distributes fuel.
4. Fuel loyalty program rewards
Same-store fuel gallons at Casey’s rose 3.7% in second-quarter 2017. Three factors have driven it: low fuel prices, growing vehicle miles traveled and the retailer’s partnership with the grocery chain Hy-Vee on the Fuel Saver fuel loyalty program. Through the program, Hy-Vee customers earn discounts on gasoline at Casey’s by buying select items at Hy-Vee.
About 1,100 of Casey’s stores participate in the program, most in the states of Iowa and Missouri, as well as Kansas and Nebraska. As Hy-Vee continues to work on keeping customers engaged in the Fuel Saver program—for example, through periodic promotions on private-label brands—Casey’s is considering other partnerships as it enters new markets.
“Also we are looking at opportunities that we may be able to do ourselves and creating a Fuel Saver-type opportunity," said Walljasper.