Cedar Fair reports "lower than anticipated" results for 2018 second quarter

Posted | 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 second quarter ended June 24, 2018, along with revenue trends for the month of July and the declaration of a quarterly cash distribution for unitholders.

CEO Commentary

Commenting on the Company's second-quarter results and trends through July 29, 2018, Richard Zimmerman, Cedar Fair's president and CEO, said, "The investments we have made in our parks over the past several years have significantly enhanced the guest experience and, combined with our current and future investments, will provide meaningful economic returns for many years to come. As a result of our investments, the guest response to our new rides and attractions has been very positive, guests are increasing spending levels inside our parks, and the renewal rates of season passholders remain strong. We believe disruptive weather patterns have contributed negatively to our year-to-date attendance, however, we have launched incremental research efforts to better understand market-specific results."

"In response to the lower-than-anticipated first half results, we have implemented a number of initiatives designed to drive attendance and maximize profits over the balance of the season," added Zimmerman. "These initiatives, combined with our very popular Halloween events, WinterFest celebrations at five parks, including the recent addition of Kings Dominion, and the continued strength of long-lead demand indicators, such as group bookings and resort reservations, give us confidence that we are well positioned heading into the second half of 2018."

Zimmerman continued by stating that despite some recent areas of strength in the business, the lack of meaningful momentum or attendance pickup in July could have results fall below the low end of the Company's full-year guidance of net revenues between $1.34 billion and $1.38 billion and Adjusted EBITDA1 between $475 million and $495 million. Because full-year results will be heavily influenced by the parks' performance over the next month, the Company will update its guidance in early September.

"We remain confident in the resiliency of our business model, the experience of our management team, the strength of our balance sheet and the outlook for growth in the business long term. As a result, we remain committed to delivering a steady 4% annual increase in the cash distribution to unitholders while continuing to invest in our business at a responsible level," concluded Zimmerman.

Six-Month Results

Net revenues were $435 million for the six months ended June 24, 2018, a decrease of $6 million, or 1%, compared with the six-month period ended June 25, 2017. The decrease was attributable to a 2%, or 211,000-visit, decrease in attendance to 8.7 million guests. This was partially offset by a 1%, or $0.27, increase in average in-park per capita spending to $45.42, and a 2%, or $1 million, increase in out-of-park revenues to $56 million when compared with the prior-year period.

Short-term factors, such as inclement weather in the Mid-Atlantic region and a delayed ride opening at California's Great America, combined with a decrease in the number of season passes sold at Kings Island, negatively impacted early-season attendance at the Company's seasonal amusement parks. This was somewhat offset by increased attendance at Knott's Berry Farm, the Company's only year-round park. The increase in average in-park per capita spending through the first half of the year was driven by increased spending on food and beverage, merchandise and extra charge attractions. These increases were partially offset by a small decrease in admissions revenue per capita attributable to a higher season pass mix, the introduction of a free pre-K season pass at three more parks in 2018 and the recognition of season pass revenue over a longer period of time at a fifth park that will be hosting a new WinterFest celebration in November and December this year.

The increase in out-of-park revenues is the result of 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.

The operating loss for the six-month period was $7 million compared with operating income of $19 million for the six-month period in 2017. The decline in operating income is the result of the 1% decrease in net revenues noted above, combined with a 4%, or $16 million, increase in operating costs and expenses, which totaled $380 million for the first half of 2018. The increase in operating costs and expenses was in-line with the Company's expectations and reflects higher labor costs due to market/minimum-wage rate increases, higher operating and maintenance supplies, and additional expenses as the Company continues to invest in technology and the overall guest experience. Depreciation and amortization was up $2 million due to growth in capital improvements over the past several years. Loss on impairment/retirement of fixed assets was up $3 million, reflecting the retirement of assets in the normal course of business at several of the Company's properties.

Interest expense for the first six months of 2018 was comparable to the same period in the prior year. We recognized a $1 million loss on early debt extinguishment during the first quarter of 2018 in connection with amending our 2017 Credit Agreement, as compared to a $23 million loss on early debt extinguishment related to our refinancing in the first half of 2017. The net effect of our swaps resulted in a benefit to earnings of $5 million for the first six months of 2018 compared with a $5 million charge to earnings for the comparable period in 2017. The difference reflects the change in fair market value movements in our swap portfolio offset by the amortization of amounts in OCI for our de-designated swaps. During the current period, we also recognized a $25 million net charge to earnings for foreign currency gains and losses compared with a $6 million net benefit to earnings for the comparable period in 2017. Both amounts primarily represent re-measurement of the U.S.-dollar denominated debt held at our Canadian property from the applicable currency to the legal entity's functional currency.

A benefit for taxes of $5 million was recorded during the first half of 2018 to account for the tax attributes of the Company's corporate subsidiaries and publicly traded partnership taxes, compared with a benefit of $10 million in the same period a year ago.

The net loss through June 24, 2018, totaled $64 million, or $1.14 per diluted LP unit. This compares with a net loss of $33 million, or $0.60 per diluted LP unit, for the same period a year ago. The increase in net loss is primarily a result of the 1% decrease in net revenues, combined with planned increases in operating costs and expenses.

Adjusted EBITDA, which management believes is a meaningful measure of the Company's park-level operating results, for the six months ended June 24, 2018, was $62 million, down $23 million when compared with the six months ended June 25, 2017. This is the result of the attendance shortfall through the first six months of 2018, combined with planned increases in operating costs and expenses. See the attached table for a reconciliation of net income to Adjusted EBITDA.

July Operations

Based on preliminary July results, net revenues through the seven-month period ended July 29, 2018, were approximately $752 million, down $15 million, or 2%, when compared with the similar period last year. The decrease in revenues is attributable to a 3%, or 480,000-visit, decrease in attendance to 14.6 million guests. This was somewhat offset by a 1% increase in average in-park guest per capita spending and a 4%, or $3 million, increase in out-of-park revenues compared with the similar period last year.

Distribution Declaration

The Company also announced the declaration of a cash distribution of $0.89 per LP unit, which is consistent with its targeted annualized distribution rate of $3.56 per LP unit. The distribution will be paid on Sept. 17, 2018, to unitholders of record as of Sept. 5, 2018.

Read the entire press release from Cedar Fair.

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