Cedar Fair Provides Positive Surprises At Investor Conference

Jan.20.12 | About: Cedar Fair, (FUN)

Cedar Fair L.P. (NYSE:FUN) hosted an investor conference on Thursday, January 19. The timing seemed a bit odd since the fourth-quarter earnings will be announced in a few weeks and investors had already been given a good deal of significant information in Q4.

On December 6, the company issued a press release concerning the failed sale of its Great America amusement park in Santa Clara, California. On the bright side,Cedar Fair also noted in the release that:

...the termination of this sale does not alter the Company's expectations of achieving record adjusted EBITDA between $365 million and $375 million in 2011.

and,

...we expect to be at the higher end of our original distribution guidance of $1.35 to $1.65 per limited partner unit in 2012...

The re-affirmation of the earnings and projected cash distribution for 2012 was certainly good news for investors. So was the news that the company reached an agreement with the San Francisco '49ers on the construction of a new stadium and parking-related issues.

Cedar Fair's business is highly seasonal with only one of its 17 parks - Knott's Berry Farm in Buena Park, CA - remaining open after Halloween. And, when the company held the third-quarter conference call on November 3, it disclosed that full-year revenue would be at the upper end of guidance. And if that wasn't enough, the company issued a press release on January 5, announcing the parks had record attendance in 2011. So with so much good news already released, could Cedar Fair provide additional positive information for investors?

There were a few surprises with respect to the company's future plans, and at the end of the presentation I felt much more comfortable with my investment. I had invested in Cedar Fair because of the expectation of a sizable distribution (since the company is a limited partnership, one buys units as opposed to shares and receives distributions rather than dividends). I recommended Cedar Fair in a Seeking Alpha article last June, when the units were trading at about $19. Management was in the process of restoring the cash distributions to prior levels, targeting $1 for 2011, $1.35 -$1.60 for 2012, and $2 or more for 2013.

Well, it made the $1 distribution for 2011 by paying out $0.70 in December. At the conference the company announced that it would be paying regular quarterly distributions of $0.40 for 2012. On January 19, the company reached a 52-week high of $24.77 before closing at $24.53 and continued trading higher on Friday. Those who missed out on some of the appreciation in the unit price can still buy units for the $1.60 annual payout that will generate a yield of of 6.5% in 2012. In addition, with management increasing its projection to "a record 2013 annual distribution rate of more than $2.00 per unit," the yield would be over 8%.

As noted above, Cedar Fair had record attendance in 2011, improving on the record set in 2010. Investors should be impressed by the company's ability to perform so well during a weak economy, and it should bode well for the future. And it's not just that the number of visitors to the parks is increasing, but the company is increasing the revenue from each customer. Will this continue and what can investors expect beyond 2013?

The investor presentation was extremely professional, although cautious investors could still be skeptical about the company's ability to deliver on the projections. And, although the parks are geographically dispersed (providing some measure of protection from regional weather or economic disruptions), rising gas prices forecast to reach $4/gallon by Memorial Day will put a dent in discretionary spending and families might think twice about driving several hours to and from the parks.

Cedar Fair is using about 18% of revenue on capital projects, evenly split between maintaining the parks and investing in new thrill rides and expansion. The company has significant debt, remains highly leveraged at 4.2x and uses a combination of fixed rate, floating rate and interest rate swaps. But even here there are positives.

The debt maturities are staggered with the earliest coming due in 2015. Interest rates are projected to decline to 6.3% from 9.5% in 2011. And, the company finished 2011 with $35 million in cash vs. owing $23 million on its revolving debt at year-end 2010.

Summary
The company has had back-to-back record years in 2010, and 2011. For the next two years cash distributions yielding 6.5 percent - 8 percent are something to get excited about. And, Matthew Ouimet, the new CEO, is predicting record cash distributions and continued revenue growth. (Note: There was a great deal of discussion on innovative programs for revenue growth, which will be addressed in a future article.)

Disclosure: I am long FUN.