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PJ Pahygiannis
PJ Pahygiannis
Articles (149) 

What Is in Store for Cedar Fair?

The market was not very receptive to its 2nd-quarter performance

August 16, 2016 | About:

The market was not very receptive to the Aug. 3 second-quarter performance by Cedar Fair (NYSE:FUN). This report was right in the middle of amusement park season and the best time of the year for business. Cedar Fair CEO Matthew Ouimet noted that the company had the second-best July in its history.

Still, the market responded by doing exactly nothing after earnings were reported. The stock ticked up the days following the report.

Let's dive head first into this impressive quarter. The company posted $1.04 a share in earnings on a 2% increase in year to date revenue. It has $596 million in debt and just $68 million in cash. As is to be expected, weather played a role in negatively impacting the company with a heat wave and storms toward the end of July.

But rival Six Flags (NYSE:SIX) also missed its earnings in the same quarter whiile beating on revenue. Ouimet knew he was going to have to battle tough year-over-year comps. Ouimet's confidence comes from the data he is receiving and is backed up by revenue and record levels of attendance.

I see a few things taking place for Cedar Fair and Ouimet. A few are concerning, but a few of them show just how strong this business is.

A focus on value

Ouimet is focused on value and attracting value-oriented customers. During the second quarter conference call, Ouimet made it a point to say that management is committed to creating urgency for its growing base of season pass holders. The data back that up with season pass revenue up 15%. Currently there is a deferred revenue balance of $173 million, up $25 million from a year ago.

The increase in season pass holders can be credited to a new season dining program along with a new all-season beverage program.

Attendance will only get stronger

The company is seeing record levels of attendance along with an increase in room reservations. The business saw a 4% increase in attendance, or roughly an increase of 337,000 visitors, up to 9 million guests.

But with that attendance increase also comes increased guest spending. In the second quarter in-park guest spending increased 59 cents per per guest while out-of-park revenue increased 7% to $3 million.

To improve the guest experience Cedar Fair has put fresh paint on its attractions and buildings, built new areas for guests to relax, provided parkwide WiFi and introduced new food and beverages available for sale.

But looking at the rest of the year the focus is on family experiences around events such as the 50th anniversary of "It’s The Great Pumpkin, Charlie Brown." Virtual reality will also become an important factor as it is tested in several of the parks.

The fall season will drive revenue to greater heights

On the conference call Ouimet mentioned that October weekends are the most profitable weekends of the year for Cedar Fair.

But the entertainment factor also comes into play with new skeleton key rooms in the parks along with mazes and parades for the entire family.

Disclosure: No position in the stock mentioned.

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