In a previous article that was written one month ago, I noted that Cedar Fair, LP (FUN) reported record first quarter revenue and that it was continuing to show strong results as the second quarter progressed.
Looking at results for the end of April for a moment, which evens out the calendar shift associated with the earlier timing of Easter and Spring Break, net revenues remain strong, up $12.5 million on the continued solid momentum in both attendance and guest spending.
And it wasn't just the recorded revenues that were showing gains. The deferred revenues associated with installment sales, season passes and hotel bookings showed a significant gain over 2012. It ended the quarter at $66.2 million compared to $50.8 million one year ago, an increase of 30%. This bodes well for future revenue and attendance.
Further confirmation of the strong revenue trends was given in a press release from the company issued on June 27th:
- Net revenues through June 23, 2013, up 5% compared with prior-year period
- Year-to-date average in-park guest per capita spending and attendance up 4% and 1%, respectively
- Company remains on track to meet 2013 net revenue guidance of $1.090 billion to $1.115 billion, and Adjusted EBITDA guidance of $400 million to $410 million
So, with the second quarter nearly completed, the company was on its way to another record year in attendance and revenue. There should be very little in the way of surprises with the second quarter revenue or attendance when the company releases its results before the market opens on August 8th. However, later in the day when the company hosts its conference call, there could be some surprises.
Cedar Fair is an operator of 11 amusement parks, four outdoor water parks, one indoor water park and five hotels. It is dependent on good weather for much of its revenue, although the company stresses that the weather tends to even out over the long summer season. It has also taken steps to mitigate some of the weather spikes by encouraging advanced ticket sales that include group sales and installment payment plans.
The company also has its parks spread out over 8 states and Canada, so adverse weather is unlikely to impact all of its parks at the same time. Why bring this up? Because the weather has been making headlines across the country recently. In Southern California, where Cedar Fair has several parks, the temperature hit 105 degrees. In the Midwest and Northeast, the temperature has been in the upper 90's with high humidity.
One might think that would be great for a company with so many water parks. Maybe it is. It's great if you're having some fun with the family in a Wave Pool. However, having stood in long lines at Cedar Fair's Dorney Park Wild Water Kingdom in Allentown, PA, waiting to ride down one of those long water slides... well temperatures in the 90's with oppressive humidity can just be too hot, even for a water park. And much of Dorney Park is more about traditional thrill rides, areas that cater to young children and a Dinosaurs Alive exhibit. Even if the heat wave blanketing much of the area where Cedar Fair has many of its parks finally breaks, there are forecasts that severe thunderstorms will follow.
While the humidity isn't as big an issue at Knott's Berry Farm and other venues in southern California, temperatures above 100 degrees can discourage the family originally planning a day trip. There are other options - like watching "Pacific Rim" in an air conditioned environment.
Cedar Fair has implemented installment sale programs and has increased season pass sales, both of which make the revenue much more predictable. Even with these changes, the company is still dependent to a very large extent on customers that pay at the gate and can cancel their plans if the weather is uncooperative.
Although there should be no negative surprises for the second quarter when it is reported, the August 8th conference call may reveal some attendance weakness at the start of the third quarter. The unit price is down 4.4% since reaching an all-time high of $44.29 in mid-May and the yield of the distribution is currently just under 6%. And, even if the attendance comes in weaker than expected, at this time I see no reason to think that the $2.50 distribution is in jeopardy.
Additional disclosure: I have sold December $40 calls against a portion of my long position.