Why Casey's EPS rose 28% as free cash flow fell 28%

Casey’s led its first-quarter release with diluted earnings per share of $7.37, up 27.7%.

Free cash flow in the same quarter was $189.7 million against $262.4 million — down 27.7%.

Both numbers are correct, and they are not in conflict. They are the two ends of a quarter in which the company earned more and spent a great deal more.

Revenue grew four times faster than gross profit

FY2027 Q1    FY2026 Q1    change
Total revenue                     5,678,336    4,567,106    +24.3%
Cost of goods sold                4,439,142    3,454,660    +28.5%
Gross profit                      1,239,194    1,112,446    +11.4%
gross margin                        21.8%        24.4%   -2.5pp
Operating expenses                  754,111      698,176     +8.0%
Depreciation and amortisation       115,994      108,963     +6.5%
Interest, net                        22,059       26,850    -17.8%
Income before income taxes          347,030      278,457    +24.6%

Revenue rose $1,111.2 million and gross profit $126.7 million. The incremental gross margin on that extra revenue was 11.4%, against a blended margin of 21.8%.

That is what fuel does to a convenience store’s income statement. A higher price per gallon lifts revenue and cost of goods sold by nearly the same dollar amount, so it inflates the top line without adding much to the line below it. Revenue other than inside sales rose 35.3% while gallons sold rose 2.5%.

The fuel gain is price, not volume

Same-store gallons fell 0.3%. Total gallons rose 2.5%, to 934.2 million, and the fuel margin rose from 41.0 cents to 47.8 cents a gallon. Fuel gross profit rose 19.6%, to $446.9 million.

Inside the stores the picture is steadier and smaller: inside sales up 5.6% to $1,777.5 million, inside gross profit up 6.3% to $749.8 million, and inside margin 42.2% against 41.9%. Prepared food and dispensed beverage margin was 59.3% against 58.0%.

How 11% became 28%

Four steps, each one adding a little.

Gross profit                                 +11.4%
less operating expenses      +8.0%
less depreciation            +6.5%
less net interest           -17.8%
Income before income taxes                   +24.6%
effective tax rate      22.7% -> 21.1%
Net income                                   +27.1%
diluted share count           -0.6%
Diluted earnings per share                   +27.7%

Operating expenses grew 8.0% against gross profit’s 11.4%, which is the operating leverage. Below that, net interest fell 17.8%, the effective tax rate fell 1.5 percentage points, and the diluted share count fell 0.6%. None of the last three is a bigger store or a better sandwich.

Credit card fees, which the company breaks out inside operating expenses, rose 19.5% to $85.7 million — the other side of a higher fuel price.

And the cash

FY2027 Q1   FY2026 Q1    change
Net cash from operating activities     384,072     372,417     +3.1%
Purchases of property and equipment    194,395     110,046    +76.6%
Free cash flow                         189,677     262,371    -27.7%
Payments for acquisitions               43,904       9,495
Dividends paid                          22,283      19,655
Repurchases and related payments        44,856      31,251

Operating cash flow rose 3.1% while net income rose 27.1%, and then capital expenditure rose 76.6%.

The store count explains part of it. Casey’s went from 2,944 stores at 30 April to 2,959 at 31 July — nine built, twelve acquired, six closed or divested — and it paid $43.9 million for acquisitions against $9.5 million a year earlier. The company says it released a new three-year strategic plan in June and is “running ahead of schedule on our integration of the Fikes acquisition”.

Spending is a choice, not a fault. But it is the reason the two headline percentages of this quarter point in opposite directions by the same amount.

What this article does not settle

• No consensus comparison. Analyst estimates are not filings and we do not verify them. Every comparison here is against the company’s own prior-year figures.
• Free cash flow is our subtraction. The company reports EBITDA, not free cash flow, in this release. We use operating cash flow less purchases of property and equipment and say so.
• We have not split fuel revenue from other revenue. The 35.3% figure is revenue other than inside sales, which includes items besides fuel. The direction is unambiguous — gallons rose 2.5% — but the residual is not a pure fuel line.
• Higher capital expenditure is not by itself good or bad. Whether the stores being built and bought earn their cost is not something one quarter can show.
• EBITDA is company-defined and reconciled to net income in the release.
• The exhibit is furnished, not filed. The 10-Q linked above is the filed document and carries the statements used here.

Check it yourself

The income statement and the cash flow statement are four pages apart in the 10-Q. Purchases of property and equipment is the first line of investing activities. In the release, the Fuel table carries same-store gallons and cents per gallon, the Inside table carries the margins, and the store roll-forward is the short table underneath.

For the same measurement on companies where the gap sat in working capital rather than capital expenditure, see NetApp and the screen of companies whose profit rose while free cash flow fell. For a quarter where the ladder ran the other way — a large operating gain arriving small — see Docusign. For a company that cut capital expenditure and still reported free cash flow only by adding back proceeds from selling its buildings, see Dave & Buster’s. For a quarter where the per-share gain came from the denominator rather than from earnings at all, see Kroger.

The calculations and their numeric inputs are displayed in the “Calculations and inputs” section below.

If a figure here does not match a filing, tell us and it will be corrected on the article and on the corrections log, with the date.