Cedar Fair Fares Well

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Investors are often told to think outside the box. For regional amusement park operator Cedar Fair (NYSE: FUN), the more appropriate mantra seems to be to think outside the park. The company completed a respectable third quarter, coupling a 1% uptick in attendance with a 2% hike in per-capita guest spending. However, the real reason for the company's 4% top-line growth was a 10% spike in revenues beyond its gated thrill parks.

It seems that Cedar Fair's development of its adjacent resort properties is paying off. The company's flagship Cedar Point park always seems to be adding capacity to its peninsular lodging facilities. It also transformed a hotel property just outside the park's causeway entrance into Castaway Bay, an indoor waterpark resort.

Cedar Fair isn't the only one taking to the combination of upscale lodging and massive indoor water play areas. Six Flags (NYSE: PKS) is building an indoor waterpark hotel in upstate New York, and Viacom (NYSE: VIA) has teamed up with Great Wolf Resorts (Nasdaq: WOLF) to build a gargantuan complex by Viacom's Kings Island amusement park in Ohio.

The amusement park industry has also benefited from the popularity of Halloween-themed events, which extends their operating calendar deeper into the typically moribund autumn season. Though Cedar Fair's third quarter ended in September, the company announced that attendance climbed 10% higher in October, with out-of-park revenues soaring 20% higher.

Halloween will save Cedar Fair this year; through the first nine months of the year, attendance was off by 1%. Other favorable factors have helped offset the slower turnstile clicks, but a strong October may have been the tonic to at least get Cedar Fair's attendance even with last year's. Either way, it will be an improvement over last year's 3% drop in attendance (excluding the acquisition of Geauga Lake in Ohio).

The company now expects to close out 2005 at the high end of its most recent guidance. Those projections called for net revenues between $555 million and $565 million for all of 2005, with adjusted EBITDA coming in closer to $180 million. The sums will improve nicely on the $542 million and $173 million, respectively, that the company generated last year.

That will give the company the fiscal leeway to inch its distributions higher. The units (Cedar Fair is set up as a limited partnership in which investors buy units -- not shares) yield a whopping 6.9%. The company's consistency also earned it a recommendation in Mathew Emmert's Motley Fool Income Investor newsletter earlier this year. (You can take advantage of a free 30-day trial subscription if you want to read the full buy report).

The key here will be the company's Cedar Point park. Attendance at Cedar Fair's original and most recognized park has been falling for a couple of years now. Perhaps that's why the company is taking to the drastic measure of reducing ticket prices next year -- its first such move in 35 years. Conveying value throughout the park, Cedar Point will be reducing some of the food prices as well, such as selling cotton candy on the midway for a mere quarter per stick. Let's hope the maintenance staff is getting beefed up to wipe down the sticky attractions.

The price reductions may seem like a humbling move, but it's what Cedar Fair's home park needs to do to win back the locals. With Six Flags Great Adventure adding more top-shelf thrill rides than Cedar Point has been serving up, Cedar Fair appears to be repositioning its flagship park as a traditional community destination. It's hoping that superior value will help get its turnstiles clicking faster for the first time since 2002. Most parkgoers are there on some form of discount, so the lower ticket prices won't necessarily sting the top line. If Cedar Fair can inch attendance higher while lengthening guests' stays, it could well enjoy some addition through subtraction.

You must be this tall to read further Foolishness:

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Longtime Fool contributor Rick Munarriz loves to take his family to visit new and old amusement parks over the summer. He owns shares in Great Wolf and units in Cedar Fair. The Fool has a disclosure policy. He is also part of the Rule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.