Cedar Fair controls normal first quarter loss despite longer quarter

Posted Wednesday, May 8, 2019 9:02 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 announced results for the first quarter ended March 31, 2019, and due to the later timing of the Easter and spring break holidays, the Company provided an update on revenue trends through the first four months of the year. Historically, first-quarter results represent less than 5% of the Company’s full-year net revenues as the majority of its parks and facilities are closed during the first quarter. As a result, the Company typically operates at a loss during this three-month period.

Based on preliminary results for the first four months ended April 28, 2019, the Company indicated net revenues are up 2%, or approximately $2 million, when compared with the same prior-year period ended April 29, 2018, primarily a result of strong in-park guest spending and out-of-park revenues.

“We are pleased with the start to the year and our early-season trends through the first four months of the season, which for the most part normalize for the spring break calendar shift associated with a later Easter holiday,” said Richard Zimmerman, Cedar Fair’s president and CEO. “Importantly, deferred revenues through the first four months of the year are up 12%, or more than $20 million year-over-year, on the sale of advance purchase commitments for 2019, including sales of season passes and our all-season dining and beverage products. We believe our strong early-season performance and positive outlook are attributable to the outstanding job our teams have done to elevate the guest experience. For instance, Knott’s Berry Farm in California is off to its strongest start ever as its early-season PEANUTS Celebration and Boysenberry Festival events continue to expand their offerings and guest appeal. Meanwhile, in Charlotte, Carowinds’ newest world-class roller coaster, Copperhead Strike, is quickly becoming a signature attraction in this growing and attractive market, and the initial response to Canada’s Wonderland’s newest coaster, Yukon Striker, has been even better than expected.”

Zimmerman stated that the Company is on track to achieve its long-term Adjusted EBITDA target of $575 million by 2023 as it aggressively pursues growth through multiple channels. This includes broadening and enhancing the guest experience, expanding its season pass program, increasing market penetration through targeted marketing efforts and pursuing adjacent development.

First-Quarter Results

For the first quarter ended March 31, 2019, Cedar Fair’s net revenues increased $12 million to $67 million, compared with $55 million last year. The increase in revenues reflects increases in attendance, in-park per capita spending and out-of-park revenues, all of which were up meaningfully in the quarter due to an additional nine operating days, compared with last year’s first quarter ended on March 25, 2018.

The operating loss for the quarter was in line with the Company’s expectations at $85 million, compared with an operating loss of $76 million last year. The higher operating loss reflects a $14 million increase in operating costs and expenses, which totaled $138 million for the first quarter of 2019. The increase in operating costs and expenses was in line with the Company’s expectations and was largely due to an extra calendar week and the nine additional operating days in the quarter.

Depreciation and amortization expenses for the first three months of 2019 were $14 million, an increase of $8 million compared with last year, due to a change in the estimated useful life of a long-lived park asset, as well as the additional week in the current-year period. The loss on impairment/retirement of fixed assets in the current quarter was comparable to last year’s first quarter.

Interest expense for the first quarter was $21 million, up slightly from $20 million in 2018, due to the additional week in the current-year period. The net effect of the Company’s swaps during the quarter resulted in a $6 million charge to earnings in 2019 compared with a $4 million benefit to earnings in 2018. The difference reflects the change in fair market value movements in the Company’s swap portfolio. During the first quarter of 2019, the Company also recognized a $9 million net benefit to earnings for foreign currency gains and losses related to the U.S.-dollar denominated Canadian notes compared with a $10 million net charge to earnings for the first quarter of 2018.

During the first three months of 2019, a tax benefit of $20 million was recorded to account for publicly traded partnership taxes and income taxes on the Company’s corporate subsidiaries. This is comparable to the tax benefit recorded in the first three months of 2018.

The net loss for the 2019 first quarter totaled $84 million, or $1.49 per diluted LP unit. This is comparable with a net loss of $83 million, or $1.49 per diluted LP unit, reported in 2018.

Cash Flow and Liquidity Remain Strong

As of March 31, 2019, the Company had $735 million of variable-rate term debt, before giving consideration to fixed-rate interest rate swaps; $950 million of fixed-rate debt, before reduction for debt issuance costs and original issue discount; $120 million of borrowings under its revolving credit facilities; and $60 million of cash and cash equivalents on hand. The Company believes it is in a strong position to produce future cash flows from operations that, combined with its credit facilities, will be sufficient to meet working capital needs, debt service, planned capital expenditures and distributions for the foreseeable future.

Distribution Declaration

The Company also announced today the declaration of a cash distribution of $0.925 per LP unit. The distribution will be paid on June 17, 2019, to unitholders of record as of June 4, 2019. This distribution reflects the Company’s confidence in its business model and long-term strategy and is consistent with its targeted annual distribution rate of $3.70 per LP unit for 2019.

Outlook

“This is an exciting time of year for Cedar Fair, as all of our parks begin full summer operations,” said Zimmerman. “Over the next several months, we will be introducing even more immersive experiences to attract incremental guests to our parks and create reasons for our loyal season passholders to visit again and again. We are launching several new events, including Grande Carnivale, a nightly parade and street party featuring music and dancing, and authentic food, drinks and live entertainment from around the world. Also new this year at several of our parks is Monster Jam® Thunder AlleyTM, an interactive experience featuring Monster Jam’s most popular trucks. And, in addition to the excitement around a new coaster, our Canada’s Wonderland team is looking forward to extending its operating season with a new WinterFest celebration.”

Zimmerman also noted the Company has several major development projects underway, scheduled to open in the fourth quarter of 2019. “As we continue to focus on expanding our accommodations portfolio, we look forward to cutting the ribbon later this year on a 129-room SpringHill Suites hotel adjacent to our Carowinds park. The addition of this hotel will provide our guests a convenient option for extending their stay at the park while enhancing Carowinds’ position as a multi-day destination,” said Zimmerman.

Set to open later this year at the Cedar Point Sports Center in Sandusky is a new indoor sports facility located next to the successful outdoor sports complex that opened in 2017. “The outdoor complex has had overwhelming success, drawing athletes and their families from multiple states for tournament play, and we believe the stage is set for the indoor facility to be just as successful,” added Zimmerman. “Scheduled to open in December, this new facility will allow us to expand our draw in the very attractive and ever-growing amateur sports market.

“As our teams focus on readying the majority of our parks for opening day, we are confident Cedar Fair is well positioned to deliver one of our best years yet. As consumers continue to prioritize experiences over possessions, we are confident the Company has the right strategy and team in place to give visitors the premium guest experience they have come to expect from Cedar Fair,” concluded Zimmerman.

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