Cedar Fair LP (FUN) is a limited partnership that trades "units" instead of shares and pays owners "distributions" rather than dividends. For those holding the equity in tax advantaged accounts like IRAs, there is little difference. For others, taxes can be slightly more complicated with filers receiving K1's instead of a 1099-DIV. And, for those wishing to participate in its 5% yield, the record date for the next distribution will be September 5th.
More importantly, if the company holds to past practices, investors can expect to see a press release around the same time announcing revenue and attendance figures. I expect that both these figures will be at record levels, driven by hot, dry weather, reasonable fuel prices and new premium packages. And, since Cedar Fair owns and operates 17 amusement parks in the US and Canada with the overwhelming majority of its revenue generated in the traditional summer season - Memorial Day through Labor Day - this period is vital to the continued growth of the distribution. (Management has stated that the majority of its revenue is generated during July and August.) Cedar Fair's Knott's Berry Farm near Anaheim competes with Disney's (DIS) Disneyland and other parks draw from the same population as HersheyPark and parks run by Six Flags Entertainment (SIX).
On the company's conference call earlier this month, CFO Brian Witherow once again discussed the company's plans "to pay a record distribution of more than $2 per limited partner unit in 2013." Based on Friday's closing price of $32, the yield would be more than 6.25%, a level that is quite attractive in the current low interest rate environment.
Containing Near-Term Expectations
The company had a stellar second quarter, driven by improved attendance and greater per capita spending by those attendees. It also had the benefit of an additional week during the fiscal quarter, making direct year over year comparisons difficult. Regardless, the company reiterated its full year and adjusted EBITDA and revenue guidance for the year. Those figures are net revenues between $1.055 billion and $1.075 billion and adjusted EBITDA between $385 million and $395 million.
As far as longer term growth expectations, the company continues to provide a long range view. It reiterated the guidance for 2016 given at the beginning of the year. CEO Matt Ouimet said:
...we expect to grow adjusted EBITDA to $450 million by 2016. While we are only a little more than three months into the operational execution of this plan, we remain confident in our ability to meet these expectations.
There is a lot to like about the recent performance of Cedar Fair. It is on its way to a third consecutive year of record revenue and attendance. New premium priced programs have gained traction. The distribution provides a current yield of 5% and management continues to repeat its intent to grow that distribution by more than 25% next year.
There are also risks. Although the company appears recession resistant, it remains highly leveraged and subject to the unpredictability of weather patterns. In a prior article in early June, I noted that its price weakness (it was then trading at $25.55) had provided an attractive buying opportunity. With the unit price up more than 25% since that time, the investment is obviously not nearly as attractive.
From a personal perspective, I will be receiving a lump sum pension distribution in the next few weeks. At the moment I remain uncertain about whether or not I should devote some of this windfall to Cedar Fair. In the end, I expect that I will succumb to the allure of the projected 6.25% payout in 2013 and allocate a portion of those proceeds (3%-5%) to Cedar Fair.
Additional disclosure: I have no positions in other companies mentioned in this article and may add to my position of FUN at any time.