Weather patterns have been unusual in recent years, and the winter of 2017-2018 has proven to be no exception. Record cold in early winter hit the East Coast, but the West saw historically low snowfall, especially in areas like the Rockies. This has many worried about the potential for water management throughout the coming year.
That's also terrible news for Vail Resorts (NYSE:MTN), given that its ski resorts count on ample snow to lure skiers and snowboarders to the slopes. Still, this isn't the first time that Vail has had to deal with tough winter conditions, and it knows what levers to pull to make the most of tough situations.
Coming into Thursday's fiscal second-quarter financial report, Vail Resorts investors had an idea what to expect, anticipating slight declines in sales and earnings. Vail managed to boost its top and bottom lines, but investors still weren't entirely confident about what impact the results could have on the business going forward. Let's take a closer look at Vail Resorts and what its latest numbers say about its future.
Vail Resorts deals with a bad winter
Vail Resorts' fiscal second-quarter results held up better than most had expected. Total revenue climbed 1%, to $734.6 million, avoiding the nearly 1.5% decline that most of those following the company were looking to see. Net income soared 58%, to $235.7 million, and even after taking out the positive impacts of tax reform, adjusted earnings of $4.12 per share were well above the consensus forecast among investors for $3.58 per share.
Tax reform played a key role in helping the company endure a snowless winter. Net benefits from the Tax Cuts and Jobs Act amounted to $64.6 million, working out to $1.45 per share. Vail Resorts expects those benefits to continue, reducing taxes by about $40 million during calendar year 2018.
Vail had some successes operationally despite the tough conditions. Lift revenue was up almost 7% despite a 3% drop in overall visitation figures, with strong season-pass sales largely responsible for keeping numbers up. Price increases in lift tickets and season passes helped to push effective ticket prices higher by 10%, and ancillary spending on ski school managed to climb and offset, in part, lower sales from dining and the retail and rental segment.
Vail's geographical diversity also helped it avoid an even bigger disappointment. Whistler Blackcomb, in British Columbia, hit record visitation globally, with international skiers from the U.S., Mexico, the U.K., and Australia taking advantage of more favorable conditions to the north. Stowe, in Vermont, also benefited from better conditions on the East Coast.
Still, Vail suffered some setbacks. Lodging-related revenue fell 3% as average daily rates at Colorado properties hurt the company's overall results. The resort operator managed to keep adjusted resort pre-tax operating earnings on the rise, albeit with just a 1% gain.
CEO Rob Katz took the results in stride. "Given the historically low snowfall across the western U.S. this winter," Katz said, "we are pleased with our results for the quarter, which demonstrate the resiliency of our strategic business model and the network of resorts and loyal guests we have developed." The CEO noted the strong cash flow and balance sheet that Vail Resorts has produced.
What's next for Vail Resorts?
Looking ahead, Vail expects to spend about $150 million in calendar 2018 on capital expenditures, including key improvements at Whistler, Park City, and Heavenly. Katz said that some of the tax savings from the tax reform law will go toward providing the capital for these improvements, as well as investment in wages for employees and return of capital to shareholders.
Vail investors will immediately benefit from a dividend increase. The resort operator boosted its payout by 40%, with the company's dividend later this month coming in at $1.47 per share.
Yet Vail's changes in guidance were mixed. Pretax operating profit projections fell sharply by $40 million to $50 million, with a new range of $607 million to $627 million for fiscal 2018. Yet net income saw a roughly $90 million boost to a range of $357 million to $391 million, reflecting generally the huge upward influence of favorable tax impacts despite lower expectations for pre-tax income.
Vail Resorts investors weren't entirely happy about the news, and the stock sank 4% in after-hours trading following the announcement. Regardless of how the rest of the winter goes, Vail Resorts has proven that its business model can stand up to difficult weather conditions, and that bodes well for times when Mother Nature graces its resort properties with better snow in the future.