Cedar Fair announces results through third quarter, increases distribution

Posted Tuesday, October 30, 2018 10:43 AM | Contributed by Jeff

From the press release:

Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and immersive entertainment, today reported record net revenues for its third quarter ended September 23, 2018 and announced a 4% increase in its quarterly cash distribution.

Highlights

  • Cedar Fair reported record net revenues of $664 million in the third quarter. The 2% increase over last year's third-quarter results was driven by a 2% increase in average in-park guest per capita spending and an 8% increase in out-of-park revenues, including resort accommodations.
  • Preliminary net revenues for the 10-months ended Sunday, October 28, 2018, were up 1%, driven by a 1% increase in average in-park guest per capita spending and a 5% increase in out-of-park revenues.
  • The Company reaffirms its expectations to achieve full-year net revenues between $1.32 billion and $1.34 billion and Adjusted EBITDA1 between $460 million and $470 million.
  • Consistent with Cedar Fair's long-term commitment to increase the distribution annually, its Board of Directors declared a 4% increase in the Company's quarterly cash distribution to $0.925 per limited partner (LP) unit, payable December 17, 2018. The distribution represents an annualized rate of $3.70 per LP unit and a more than 7% yield at current market prices.
  • Early sales from 2019 advance purchase commitments to date, including season passes, are showing strength when compared to the same time last year, driven by enhancements to the program.

CEO Commentary

Commenting on third-quarter and year-to-date results, Cedar Fair's president and CEO Richard Zimmerman said, "Our solid third-quarter results reflect a sustained momentum at our parks, following a strong performance in August. This strength carried into October as we continue to broaden our entertainment offerings for audiences of all ages during our award winning Halloween events. These results reaffirm our confidence in the strength of our business model, as well as our ability to provide compelling entertainment experiences for today's consumer.

"I am proud of the entire Cedar Fair team and what we have accomplished so far this year - producing strong current results while focusing on growing the business and creating value for our guests and unitholders over the long term," continued Zimmerman. "Thanks to our commitment to providing our guests with an amazing experience each and every time they visit our parks, 2018 is on track to be our eighth consecutive year of record net revenues, driven by strength across our three core metrics: attendance, in-park guest spending and out-of-park revenues. Guests of all ages have been delighted by our new rides, attractions and immersive entertainment offerings. By building on our momentum and extending these successful initiatives with our expanded WinterFest holiday celebrations, we expect to drive increased traffic this November and December over last year. We will continue to leverage our management expertise and superior assets to offer a broader entertainment experience at a quality and scale no other regional entertainment venue can match.

"As we strategically invest in long-term growth, we are committed to returning an attractive and sustainable distribution to our unitholders," said Zimmerman. "Based on the resiliency of our cash flow generation, the strength of our balance sheet and the confidence of our board and management team, we are pleased to announce a 4% increase in our 2018 fourth-quarter distribution, which is consistent with our long-term target for distribution growth. The Company's attractive, sustainable and growing distribution is a key aspect of our value proposition for investors, and we remain committed to further extending our long track record of distribution growth in 2019 and beyond."

Third-Quarter Results

Cedar Fair's net revenues increased to $664 million for the third quarter, up $11 million, or 2%, compared with the third quarter ended September 24, 2017. The increase in revenues was the result of a 2%, or $0.74, increase in average in-park guest per capita spending to $49.47, as well as a $5 million, or 8%, increase in out-of-park revenues to $70 million compared with the same period a year ago. These increases were slightly offset by a less than 1%, or 57,000-visit, decrease in attendance to 12.4 million visits compared with the third quarter of 2017.

The increase in average in-park guest per capita spending was driven by a 4% increase in pure in-park spending, while admissions per capita was comparable with the third quarter last year. Excluding the free pre-K season pass program, admissions per capita would have been up 1% compared with the same period last year. The food and beverage category led the increase in pure in-park spending, supported by the increasing popularity of the all-season dining and beverage programs. The increase in out-of-park revenues resulted from higher occupancy rates and average daily room rates at the Company's resort hotels, including the new 158-room tower at Cedar Point's historic beachfront Hotel Breakers.

Although attendance increased in August and the post-Labor Day period, overall attendance during the quarter declined modestly due to inclement weather. Disruptive weather patterns across most of the country throughout July and the impact of Hurricane Florence, which forced the closure of two parks in the Mid-Atlantic for a weekend in September, contributed to the slight decline in attendance for the quarter.

Operating income for the third quarter of 2018 was $259 million, up 1% when compared with the prior-year third quarter, due to the 2% increase in net revenues. The increase in net revenues was partially offset by an increase in depreciation and amortization expense primarily due to a change in the estimated useful life of an asset at one of the Company's parks, as well as an increase in loss on impairment/retirement of fixed assets in the third quarter of 2018. Operating costs and expenses, which totaled $328 million for the third quarter of 2018, were comparable with the same period a year ago.

Interest expense and net effect of swaps for the third quarter were both comparable to the same period in the prior year. During the third quarter, the Company recognized a $13 million net benefit to earnings for foreign currency gains compared with a $29 million net benefit to earnings for the comparable period in 2017. Both amounts primarily represent re-measurement of the US-dollar denominated debt held at the Company's Canadian property from the applicable currency to the legal entity's functional currency.

A $39 million provision for taxes was recorded for the quarter to account for the tax attributes of the Company's corporate subsidiaries and publicly traded partnership taxes, compared with a $74 million provision for taxes in the same period a year ago. This decrease in provision for taxes relates to the decrease in the federal statutory income tax rate resulting from the implementation of the 2017 Tax Cuts and Jobs Act and the decrease in pretax income from the Company's corporate subsidiaries.

Net income for the third quarter of 2018 totaled $213 million, or $3.76 per diluted LP unit, an increase of $22 million, or 11%, when compared with the same period a year ago.

Adjusted EBITDA, which management believes is a meaningful measure of the Company's park-level operating results, was $338 million in the third quarter, up 1%, or $4 million, from the third quarter of last year. See the attached table for a reconciliation of net income to Adjusted EBITDA.

October Operations

Based on preliminary results through October 28, 2018, net revenues were up $9 million, or 1%, to $1.25 billion when compared with the 10-month period a year ago. The year-to-date increase was driven by a 1% increase in average in-park guest per capita spending and a 5% increase in out-of-park revenues, offset slightly by a 1% decrease in attendance.

Distribution Declaration

Today, the Company also announced the declaration of a quarterly cash distribution of $0.925 per LP unit, representing a 4% increase from the previous distribution. The distribution will be paid on December 17, 2018, to unitholders of record on December 4, 2018.

"One of our primary financial objectives has been to further bolster the strength of our balance sheet," said Executive Vice President and CFO Brian Witherow. "The foundational strength created by our actions over the last seven years, combined with our ability to consistently generate positive free cash flow, gives our board the confidence to maintain our distribution's 4% growth trajectory for 2019 and beyond. Our strong balance sheet and free cash flow generation also provide us with the financial flexibility to responsibly invest in the long-term growth of the business."

Outlook

Based on its performance to date and expectations through the end of the year, the Company is reaffirming its previously announced full-year net revenue forecast of $1.32 billion to $1.34 billion and full-year Adjusted EBITDA forecast of $460 million to $470 million in 2018.

The Company's 2019 marketing programs, which included unlimited visits in 2018 for new 2019 season pass purchases and a new affordable 12-month payment program, are well underway and trending favorably with this same time last year. Notably, next year's program will be highlighted by two thrill-packed roller coasters in unique themed areas of Canada's Wonderland and Carowinds. Additionally, Cedar Point will introduce a new interactive adventure where guests of all ages will be challenged, questioned and pushed to the limits in both brain and brute power.

Looking ahead, the Company will continue to seek new ways to broaden the guest experience, expand its season pass platform, and pursue the development of land adjacent to its parks. "While focused on wrapping up a strong finish to 2018, we're even more excited about the opportunities ahead of us in 2019 and beyond. We remain solidly committed to providing the best entertainment value for our guests and the best long-term investment value in our industry," Zimmerman concluded.

Read more from Cedar Fair.

Tuesday, October 30, 2018 10:45 AM

It seems like they're making some solid strides on hotel pricing, but they seem to be making up for misses in ticket revenue and in-park spending. They're basically on pace with inflation at this point.

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Tuesday, October 30, 2018 11:58 AM

For once I will cut them some slack on the weather excuse. They lost a full fall weekend (opening of Haunt) at Carowinds and KD, and the impact of Florence on the Carolina market will have lingering effects well into 2019. (can't pay for a coaster trip if you've got a flood damaged home and lost job hours)

That said....... they obviously weren't able to overcome the beginning of the year slowness. They seemed to have condensed a lot of attendance into a much shorter period, which on the surface is a good thing. How much of that early season miss was weather, or other non-park controllable events, I'm not sure. How much of that is people knowing that CP will suck until fully staffed later in the summer, or know to plan their trips later? Is that same scenario playing out at other parks in the chain? How much of the pick up was due to discounting and thus overloading the parks with capacity on the back end of summer?

Jeff has mentioned in several threads about degradation of customer experience. Parents taking the family to an overcrowded (especially if midweek) park, can quickly turn a fun day into vows of "never coming back". Look at the BGW Facebook page and see the hundreds of scathing comments about the crowds and operational snafus for their Halloween events. Yes they've done a great job of extending the season, but man, there is some angry undercurrent out there. How many of those affected people won't come back next summer?

Tangent, but I think we are coming to the point where the Haunt events will be re-imagined as far as pricing/experience. I'll save that for another thread, but limited dates/overwhelming demand have upended the equation for those events (in some markets), and radical changes are going to be necessary.

Last edited by CreditWh0re, Tuesday, October 30, 2018 12:08 PM
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Tuesday, October 30, 2018 1:25 PM

I’m not sure what radical changes can be done... if people want to go in October, I don’t think dynamic pricing and separate gating is going to change it. It hasn’t at Halloween Horror Nights. I think Halloween events are just that popular.

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Tuesday, October 30, 2018 2:26 PM

I think you're right. Disney is selling their event pretty well, and that's not really a fundamentally different experience the way that HHN is. I think raising the prices for those weekends at the Cedar Fair parks is a good idea, provided they don't use it as a way to sell more season passes. That would be a very Six Flags thing to do.

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Wednesday, October 31, 2018 5:22 PM

I'd love to know a bit more about the breakdown of per capita spending by park. The number has not really budged much higher for years when inflation is considered despite the introduction of Fastlane, better food, better merch, and more seasonal events like Brew and BBQ. That seems kind of disappointing thinking about it from an investor perspective. I have a feeling that per cap numbers at some of the parks is probably MUCH higher than the rest of them. I'd be concerned that season passes eat away at that number as well, but with an average visit count of 5, that's probably not a huge concern.

Maybe if they go the membership route, they can shift some of the renewal freebies that come with it to other parts of the season like May/June and drive attendance for those months since they're certainly not hurting in October.

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Thursday, November 1, 2018 1:11 PM

Is the average visit count 5? If so I would imagine the median is a bit below that, which is probably a more relevant number.

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Thursday, November 1, 2018 1:48 PM

Zimmerman made this statement on the earnings call earlier this week when asked about the frequency of visits and number of unique visits:

When thinking about average visits, we've gone from just around 4 visits per pass a few years ago to now a little over 5 and trending up.

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Thursday, November 1, 2018 3:57 PM

If those folks over at PointBuzz go as often as they say they do, then I’m not surprised if it skews to the high side!
I probably had 6 or 7 visits to CP this summer, two to KD, one to KI and two to Carowinds. Which is more than I usually get in a season I suppose, but Steel Vengeance kept me pretty interested this summer.

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Thursday, November 1, 2018 4:13 PM

As a PointBuzzer, I made it to CP 63 times this summer and will be hitting Kings Island a few times for WinterFest.

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Thursday, November 1, 2018 4:38 PM

I'm not sure if I went to work 63 times this summer.

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Thursday, November 1, 2018 5:30 PM

I thought that might be hyperbole, but I just checked. When I factor in vacation time and a day on jury duty, I went to work 52 days between Memorial Day and Labor Day.

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Thursday, November 1, 2018 6:08 PM

It was hyperbole, but yeah, now that I look, there were 69 work days between those holidays. I wouldn't want to even hear the words "Cedar Point", let alone set foot in the park again for the rest of my life if I was there all but 6 days of that.

Edit: Unless they were paying my current salary.

Last edited by Vater, Thursday, November 1, 2018 6:10 PM
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Thursday, November 1, 2018 8:04 PM

Having a boat docked there probably changes the equation for folks like Steve.

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