Cedar Fair attendance down at former Paramount Parks with elimination of comps
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Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and active entertainment, today announced that combined 2007 revenues at its parks through September 3, 2007, were $828.4 million, on 18.5 million guest visits and average in-park per capita spending of $40.30. The 2007 results include the operations of the Paramount parks, which the company acquired from CBS on June 30, 2006.
On a same-park basis, excluding the effect of the newly acquired parks, total revenues through the Labor Day weekend were up 2%, or $7.8 million. The increase in same-park revenues is the result of a 5% increase in average in-park guest per capita spending to $39.54, offset somewhat by a 3% decrease in attendance, or approximately 319,000 visits. Out-of-park revenues on a same-park basis were up slightly through the Labor Day weekend.
Including results from the acquired parks, revenues for the month of August, including the Labor Day weekend, decreased 1%, or $2.6 million, from a year ago. The decrease in revenues for the month is attributable to a 5% decrease in attendance, or 315,000 visits, substantially offset by a 4% increase in average in-park per capita spending to $40.11. Out-of-park revenues during this same period increased 3%, or $573,000. The decrease in attendance and revenues during the month is primarily attributable to a significant decrease in complimentary tickets and season pass visits at the newly acquired parks.
“During the month of August we eliminated approximately 120,000 complimentary tickets that had been issued in prior years at the newly acquired parks,” said Dick Kinzel, Cedar Fair’s chairman, president and chief executive officer. “We also experienced a decrease of 110,000 visits from season passholders at the same parks, which resulted from increasing season pass prices at the new parks to bring them in line with the Cedar Fair pricing strategy. The resulting decrease in season pass visits, combined with the elimination of complimentary tickets, accounts for more than 70% of the year-over-year decrease in August attendance.
Read the press release from Cedar Fair.
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CoastaPlaya said:
I can't see how they're screwed 'for the long run' if they've already bit the bullet. Those programs are already gone, the wors has already happened and there's nowhere to go but up from here.
I heard the same thing about Geauga Lake in 2004... and 2005... and 2006... and 2007... it has caused me to lose a lot of faith in Cedar Fair.
CoasterDad64 said:
For comparisson sake, if you look at SIX, FUN looks like prime rib and SIX looks like store brand SPAM. FUN debt/equity ratio 5.52 – SIX 15.88. Leverage FUN 7.6, SIX 19.4. (You can find any of this information on the internet.)
Yes, Cedar Fair is in much better financial condition than Six Flags, on a relative basis. But I wouldn't touch either of these companies with a ten-foot pole. Compared to the broader market, Cedar Fair is richly valued and there doesn't appear to be much more room for growth. Cedar Fair's dividend looks very generous right now, but the stock has also lost 10% of its value YTD, and I wouldn't be surprised to see it lose another 10% or more as Wall Street digests the newest round of disappointing numbers, broken promises and hackneyed excuses.
I think that covers most of what an average guest with a free ticket would spend their money on.
I agree that caution is key here, I would not drop a large sum on FUN stock right now, but I am not sure I would drop a large sum on any company right now. Of course I don't have a large sum anyways, so it is irrelevant.
Cedar Fair will be around for a long time and their investors/partners will be relatively happy with their return. Hell, Six Flag has been in the red for how long, and they are still here - still the major player, still #1 in the world of regional parks. I think they will be around as well. If I had a big sum laying around and no worries about risk, SIX could offer a 200-300% return. Invest at $3 or 4 and sell at $10 or 12. But then you have to wait and you also have to invest a big chunk for it to matter. $1000 today for $3500 tomorrow is only worthwhile if tomorrow is really tomorrow or you don't have any other need for the $1000.
I have digressed enough.
Basically, Paul - I agree - a big investment is a risk.
At 25x trailing earnings, 20x forward earnings and 3.17 PEG (price times earnings times growth) my personal conclusion is that FUN is overvalued.
So what are investors sticking around for? The dividend is my guess. Given the course Cedar Fair is on, the question of whether or not that dividend is sustainable is debatable (it used to be given) and if and when Cedar Fair cuts the dividend the stock will fall like a house of cards.
My guess is that a lot of investors (not including enthusiasts or people in love with amusement parks) are started to get frustrated with Dick and the management team will bail if the situation does not improve. Now that Cedar Fair has taken on a huge debt load it isn't going to be the safe haven it once was (another reason I suspect people were attracted to it). Now that the stock is flirting with 5-year lows I wonder how many are asking "is it really worth it?"
With the global economy expanding a lot of investors might want to switch their money into companies with international exposure and growth (Cedar Fair lacks both). Heck, a story in Investor's Business Daily today recommended Latin American utilities - they're profitable, growing like crazy, and many of them pay 5%-10% dividends. If you're looking for growth, dividend payments, and don't mind risk exposure there are a lot of attractive places to put your money. Cedar Fair isn't one of them.
As for Six Flags - pure speculation in my opinion. But who knows, maybe they'll surprise this quarter? I wouldn't do anything with it until I see their Q3 numbers.
Granted there are things in play that will help. The PP ticketing system will allow them to be incredibly agile. The more agile you are, the faster you can respond to market conditions. Now we just need the right responses.
I don't downplay all of Dick's accomplishments and where he brought the company. Even since the mid-90s it is stunning where they've come. But, they are going to need a dynamic leader as his replacement that is ready to bring some new ideas and ways of doing business into the company. And, a leader who can get everyone past the WWDD stage.
So what are investors sticking around for? The dividend is my guess. Given the course Cedar Fair is on, the question of whether or not that dividend is sustainable is debatable (it used to be given) and if and when Cedar Fair cuts the dividend the stock will fall like a house of cards.
Is there some supporting rationale as to why the dividend is NOT sustainable? I mean, CF is meeting debt payments, investing $70-80 mil per year in capex AND paying the dividend. Oh yeah, profit was up for the 1st 6 months of the year.
When people take out a mortgage and buy a house their debt skyrockets. Yet they still make car payments, eat out and put a little something in their 401(k).
My guess is that a lot of investors (not including enthusiasts or people in love with amusement parks) are started to get frustrated with Dick and the management team will bail if the situation does not improve.
What is "the situation?" CF is meeting its debt payments, spending $70-80 mil in capex and slightly increasing the dividend. Oh yeah, they said the PP aquisition would only be "marginally accretive" for the first two years. So far, CF is doing what they said they would.
Will they make great gains in year 3? No idea. But even if "the situation" stays the same, CF is profitable, making its debt payments, and paying the dividend.*** This post was edited by Captain Hawkeye 9/14/2007 8:50:47 PM ***
*** This post was edited by Captain Hawkeye 9/14/2007 8:52:14 PM ***
In the end something is going to have to give. Maybe it will be cap-ex, but how will customers respond after years and years of non-stop cap-ex expansion? Can Cedar Fair expect people to come back year after year if they don't offer new attractions? Not only that, but how can they expect to "grow" attendance? They've gotten away with flat attendance this summer by jacking up in-park prices (ie. "pricing integrity"); but there is only so long they can get away with that. In park prices are only inelastic up to a certain point, and I believe we've reached that tipping point. People are leaving these parks and the impression the park left on them was "wow, those prices were outrageous."
"The situation" I'm referring to is disappointing attendance and revenue numbers referred to in the above news story and the Q2 report. Whether or not Cedar Fair is profitable in 3 years is not relevant to my argument - growth is key to stocks. Wal-Mart is a profitable company but has been a horrible stock to own over the past five years because eventually the growth dried up.
The bottom line is that the debt is eating significantly into EBITDA and jacking up prices has failed to bring in the revenue necessary to cover the expense. The next step is steeper cost cutting, either by giving up cap-ex or slashing the dividend. You can't have your cake and eat it too, somebody has to for all of this, and it will either be the investor or the park-goer.
I agree with the above posters that Kinzel is not the man for the job. The issue I have is who is going to replace him when he's gone. The entire upper management seems to be molded to think and act like Kinzel and replacing him with one of his clones wouldn't excite me. Dick ran a great company for many years; but as of last summer the business changed significantly and the company needs someone much more skeptical thank Dick. Sugar-coating everything the company is doing now will only lead to bigger problems down the road.
Anyway, one question I have is whether the comp tickets that Cedar Fair eliminated include the thousands upon thousands of tickets that Kings Island has always blanketed a three-state area with at the end of the season in order to drive attendance for the last couple of days. If those are gone, then the effect of eliminating them should not have shown up in the attendance numbers just yet...
In all seriousness, Cedar Fair has not been about growth in the past, and it isn't going to be about growth in the near future. Their units are trading low right now, but historically if you were hoping to buy into FUN and sell out when the value went up, either you'd better buy now when it's low, or figure on waiting a very long time. As I understand it, the reason they are a publicly traded partnership in the first place is all because it's a way to reduce or eliminate the company's corporate income tax load. Have your FUN and enjoy the dividends, but it's not gonna show a whole lot of growth in market value.
Like a lot of people here, I'm kind of concerned to see them boosting per-cap income past the decline in attendance. I have to wonder how much of the decline in attendance is *because of* the increased per-caps. Poor customer service, excessive prices, and any other factors that leave the customer less than satisfied at the end of the day are problems that you can't see immediately, but they have a long-term effect that's really difficult to manage. It's a big part of what's killing Six Flags, and until recently I thought Cedar Fair was smart enough to see it, understand it, and deal with it. But over the past six or seven years, Cedar Fair has been repeatedly shooting itself in the proverbial foot, usually by putting the shareholders ahead of the customers, or by running operations based on paranoia instead of experience. They keep doing that, and eventually it's going to actually hurt!
--Dave Althoff, Jr.
http://www.fool.com/investing/dividends-income/2007/09/14/i-know-what-you-didnt-do-this-summer.aspx
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