ANKENY, Iowa -- The strain of margin pressures and the opportunities for longer-term growth sum up fuel sales performance for Casey’s General Stores Inc. in its latest quarter ending Jan. 31, 2017.
In a third-quarter 2017 earnings call for the Ankeny, Iowa-based chain, CEO Terry Handley and CFO Bill Walljasper touched on a range of issues, from flat margins to potential changes to the Renewable Fuel Standard (RFS) and the promise of alternative fuels.
Here are six pieces of fuel insight from Casey's recent earnings call …
1. Sales volume
Same-store gasoline gallons rose 2.6% for the chain in the third quarter, while total gallons grew 5.5% to hit $498.1 million in sales. Walljasper credited low gasoline prices—the average was $2.12 per gallon for the quarter—and Casey’s Fuel Saver program for the growth.
Casey’s same-store gallons are up 3% year to date, with total gallons for the year up 6.5% to reach $1.6 billion.
2. Fuel margins
Casey’s average fuel margin was 17.9 cents per gallon (CPG) for the quarter, just below its 18.4-CPG annual goal, as rising wholesale costs provided pressure. Year to date, margin is tracking at 18.7 CPG. Fuel gross profits rose 4.5% to reach $89.3 million for the quarter.
Besides rising wholesale costs, Walljasper, pictured above, cited a lack of volatility for Casey’s lower margin in the quarter.
“When you have volatility, no matter what direction the wholesale cost is going whether they are up directionally or down directionally, you have an increased opportunity to spread your margin, and we haven't seen that yet [this year],” he said.
The sale of renewable identification numbers (RINs), credits that obligated parties—refiners—buy from fuel blenders such as Casey’s to meet their volume obligations under the RFS, helped Casey’s third-quarter margin. The chain sold $14.5 million worth of RINs in the quarter, for an additional 3 CPG to its fuel margin.
RIN prices have fallen on news that the Trump administration may shift the point of obligation under the RFS downstream from refiners to fuel blenders. Walljasper said RINs are currently trading around 35 cents, compared to about 71 cents in fourth-quarter 2016.
4. RFS changes
Reports that the Trump administration is weighing a plan to move the point of obligation downstream to blenders such as Casey’s that earn millions from RIN sales has profit implications. But Walljasper shrugged off the speculation.
“It would be challenging I think for the point of obligation to change at this point,” he said, noting that the number of obligated parties would explode from less than 200 today to thousands. It would be very challenging for the Environmental Protection Agency (EPA) to manage and enforce this much larger number of obligated parties, he said.
“This is something that does not keep us up at night,” he said. “RINs are not a strategy in our long-term forecast. It's just something that we secure based on how we operate our stores and where we operate our stores.”
5. Loyalty program
Casey’s partnership with the grocery chain Hy-Vee on the Fuel Saver fuel loyalty program continues to help grow its fuel volumes. Through the program, Hy-Vee customers earn discounts on gasoline at Casey’s convenience stores by buying select items at Hy-Vee grocery stores.
In terms of expanding the program beyond Hy-Vee, Walljasper said that is under development. Casey’s has a Fuel Saver card with other grocery stores in the southern part of its footprint, where Hy-Vee does not operate, he noted.
Casey’s is also exploring how to increase its digital engagement with customers as it moves into fiscal 2018.
“It goes way beyond just having a Fuel Saver card or rewards program as we really try and integrate every aspect of how we interact with the customer and make it kind of a seamless transaction for the customer whether it's coming into our store, whether it's a telephonic order, whether it's somebody using their phone to interact with us,” said Walljasper. “So, this will be definitely a focus for us.”
6. Alternative fuels
While fellow Iowa-based chain Kum & Go has embraced higher ethanol blends, and other large chains have dabbled with electric vehicle charging, Casey’s has largely kept to its traditional fuels mix. But that does not mean it does not see the potential for alternative fuels, especially for select markets.
“There seem to be some newsworthy trends toward use of electric vehicles, driverless vehicles and so forth,” said Walljasper. “We certainly want to be mindful of that, and we want to look toward our metropolitan markets maybe where [there] might be greater opportunity than maybe some of our rural markets.
“As we move into new states,” he concluded, “we will certainly be mindful of what those opportunities may be.”