On November 26, The Wall Street Transcript interviewed James Hardiman, a senior analyst for FTN Midwest Securities Corp. covering leisure and gaming. Key excerpts follow:
TWST: How about Cedar Fair (FUN)? What's the outlook there?
Mr. Hardiman: As much as possible we try to get a gauge for consumer trends and consumer sentiment on a geographic basis, and I think that helps us to see what's going on at Cedar Fair. Geographically, some of their bread and butter markets, their bellwether markets, are Cleveland and Detroit. Those are the two biggest markets for Cedar Point, which is their biggest park. If you look at the weakness that those two markets have seen over the last few years, it becomes pretty evident why Cedar Fair has struggled. When you talk about Detroit, the weakness of the automotive industry and the impact that that's had on not only consumer confidence but also employment and fears of unemployment, it should be no surprise that people are scaling back on a lot of their discretionary purchases, amusement park visits being one of those. Conversely, the Paramount Parks acquisition, which they made last year, was not a cheap acquisition. It did give them access to a number of markets that when you talk about the overall nationwide direction of the consumer as I just touched on, although Detroit and Cleveland are underperforming the rest of the nation, I think some of the markets such as Richmond, Virginia; Charlotte, North Carolina; and even Toronto, Canada, are outperforming the broader United States, and these are some of the markets that were acquired in the Paramount acquisition. At this stage of the game, a lot of this is wishful thinking, a lot of it is theoretical, but those are some markets that I think they will be targeting with all of their spending and improvement projects. If they can have some success there, it could to some degree offset the weakness that we've seen in their bellwether parks.
TWST: So they've got some things going for them longer term perhaps.
Mr. Hardiman: Longer term, and even shorter term, they have a couple of things going on. They recently closed down the Geauga Lake park, which is outside of Cleveland, Ohio, and that allows them to do a couple of things. There is a big plot of land there that, depending on how they dispose of that land, could either be a quick injection of cash into the company, or who knows — maybe they'll enter into a joint venture with some partner that would allow them to convert some of that land into some equity to use in another project. But what it also allows them to do is take some of the great rides at the Geauga Lake park and distribute them to some of their other parks around the United States at relatively low cost to them. Moving a ride costs Cedar Fair probably half of what it would cost them to build a new ride and so certainly that's a relatively cheap way to build up some excitement to some of these newly-acquired parks. I would expect a lot of those rides to go to some of those growth markets that we just talked about.