Shareholders of Cinemark (NYSE:CNK) weren't exactly excited to hear the pessimism from executives regarding a potential decline in box office receipts for Latin America. The 2014 World Cup is a widely watched event that normally causes empty theaters in many areas of South America. With Brazil hosting the event, Cinemark had projected lower fiscal-year revenue. However, new reports from the company show strength in Brazil, and this should have shareholders cheering and chanting along with soccer fans around the world.
Cinemark is the largest theater company in the world in terms of attendance as 277 million people watch movies at Cinemark locations. By theater count, Cinemark is the second-largest company with 486 theaters worldwide, including 153 in Latin America. Cinemark is the largest movie theater company in Brazil, where it has 69 theater locations.
A successful World Cup
The 2014 World Cup has brought an estimated 3.7 million people into the country to watch their favorite teams compete in the quadrennial tournament. With strong movies like "How to Train Your Dragon 2" and "The Fault in Our Stars", Brazil saw its box-office receipts increase 25% during the first portion of the World Cup. This came as a big surprise to Cinemark and movie experts around the world. The increase especially came as a surprise since the 2006 World Cup held in Germany caused box-office receipts to decline 40% in the European nation.
During the first-quarter earnings call, Cinemark said, "During the period that the World Cup is on, it does impact our attendance numbers." That doesn't seem like it was the case. Cinemark has seen increased attendance and revenue from box-office receipts and also aired games on the big screen to capture additional revenue during normal slow periods.
Cinemark theaters showed live broadcasts of World Cup games in Brazil, Bolivia, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Honduras, Panama, and Peru. Several of these countries had teams in the tournament. Instead of having a slow time in the international markets, Cinemark turned this into possibly one of its best years for international growth once again.
Expansion is coming in Brazil for Cinemark as well. The company signed two partnerships with mall operators that will increase the company's presence in small-market cities. Up to 14 new theaters will be built before 2017 under the agreement. Brazil has 2,600 screens for its 200 million residents. This ratio is small considering that the US has 35,000 screens for its 320 million residents. Mexico has 5,500 screens for 100 million people. To reach the level of Mexico, Brazil would have to double or triple its screen count.
Aside from the United States and Mexico, Cinemark continues to expand and increase its share in other parts of Latin America. The company also entered Bolivia with a new 13-screen complex that marked its first entry into the nation. In 2015, Cinemark will expand to Paraguay. It has a focus on expansion in Chile, Colombia, and other parts of Central America.
International growth will remain key for Cinemark as the domestic market has seen slow growth. From 1970 to 2013, Cinemark's admissions and ticket prices have offered compound annual growth of 0.9% and 3.9%, respectively. The last five years have seen Cinemark's international screen count and revenue increase 29% and 103%, respectively.
Cinemark is number one in both Brazil and Colombia with shares of 30% and 39% respectively. In Chile, Colombia, and Peru, Cinemark maintains the number two market share position. Cinemark has been in Latin America for more than 20 years, with growth coming each year in terms of additional countries and additional screens. Cinemark has movie theaters in 13 of the 15 largest metro areas of Latin America.
In the first quarter, Cinemark saw record quarterly revenue of $602.3 million. The domestic segment saw its highest ever first-quarter attendance figures. International revenue was up 5.7% for the quarter, or 16% when taking out Mexico sales.
Shares of Cinemark trade at all-time highs, after a poor start to the 2014 year. It appears that analysts aren't factoring in a strong fiscal 2014. Analysts see Cinemark posting a revenue increase of 1.8% to $2.7 billion. In fiscal 2015 analysts expect a strong year for blockbuster movies so they see Cinemark's revenue growing 8.6% to $3.0 billion.
Through the first half of the 2014 year, the North American box office is down 15% despite several blockbuster movies. International growth remains the hot spot for movie theater companies. With its dominant position in Latin America, Cinemark is the way to capture the most growth in the segment. Strong 2015 and 2016 lineups of blockbuster movies should power the shares.
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