Cedar Fair Poised For Better Year

By Greg Sushinsky | May 10, 2011 AAA

Amusement park operator Cedar Fair LP (NYSE:FUN) reported its first quarter earnings, which are not a significant portion of the company's overall business results. The first quarter represents the preliminary activities as Cedar Fair and other park operators prepare for the heart of their season in the next six months. The question is, what can be gleaned for Cedar Fair and the other operators for the upcoming park season?

TUTORIAL: Ratio Analysis

Six Flags Up First
Post-bankruptcy emergent Six Flags (NYSE:SIX) just reported its first quarter results, which were regarded as better than expected. The park operator lost $2.94 per share versus the expected $3.54, with revenue increasing to $61 million. The first quarter is typically a losing quarter for park operators, and Cedar Fair followed suit. It recorded an operating loss of $67.3 million compared to $60.6 million in the year ago quarter. Operating expenses as well as SG&A along with legal costs contributed to the larger loss. Cedar Fair is in an ongoing battle with Q Funding, a hedge fund which wants to change the board and CEO of Cedar Fair.

Cedar Fair's Position
While it's admittedly impossible to know for sure how the amusement park season will go, Cedar Fair's pre sales and budget packaging are running ahead of last year's schedule. Last year was a rebound year for the operator after a disastrous 2009. With its emphasis on its world-famous roller coasters, Cedar Fair tries to unveil a new star attraction ride every year, so capital expenditures for that are a given. The park has raised some prices, modestly where appropriate for admissions to keep to its value approach, yet more where cap ex and expensive rides warrant cost recovery.

Tough Times Over?
The amusement park industry faced tough times during the recession. (To learn more, see The Impact Of Recession On Businesses.) Cedar Fair slashed, then eliminated its dividend due to debt overhang. Its shareholders beat back a hostile takeover attempt. Six Flags re-organized under bankruptcy protection. Although Six Flags Q1 results inched up, Great Wolf Resorts (Nasdaq:WOLF) has had a run of losses.

Blackstone (NYSE:BX) has successfully operated Universal Orlando, which is now in the hands of Comcast's (Nasdaq:CMCSA) NBC Universal, and Comcast's decision as to whether to buy or sell the park looms. So unlike the cruise industry, with Carnival Cruise Lines (NYSE:CCL) and Royal Caribbean Cruise Lines (NYSE:RCL) rebounding strongly, the park industry continues to struggle.

Cedar Fair's Financials
Given the glimmer of the pre sale as well as the improved 2010 Cedar Fair compared to 2009, it's reasonable to expect a better season as 2011 unfolds. The company continues to improve its capital structure also by refinancing its debt. Cedar Fair now has a revolving credit facility four years out and this has extended the maturities and reduced interest expense through the timeframe of carrying the roughly $1.5 billion in debt.

Dividend Increase, EBITDA Gains Next?
It previously resumed distribution, or dividend, payments with an 8 cent per unit quarterly payment which it announced it's increasing to 10 cents per quarter per unit - a 2% yield. Even more significantly, Cedar Fair intends to pay an annual distribution of $1.00 in 2011, and has a goal of $2.00 or more in 2013. This would yield roughly 10% at the current share price.

The Bottom Line
The key for whether Cedar Fair has a good year is if it can sustain its renewed momentum for EBITDA from a year ago, which looks probable unless gas prices skyrocket. This is, however, a real possibility - in which case Cedar Fair could be in for an unamusing year. (For related reading, see A Clear Look At EBITDA.)

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