There's a heavy load on Cedar Fair
- Can it justify last year's Paramount Parks acquisition when it has had a tough time swallowing down the smaller Geauga Lake park that it bought from Six Flags
(NYSE:SIX)a couple of years ago?
- Can the company justify extending CEO Dick Kinzel's contract by a few more years if the shopping spree doesn't prove to be accretive to the company's bottom line?
- Can it continue its streak of payout hikes if operations don't improve?
- Can the new Maverick coaster at Cedar Point pack a wallop despite its small footprint?
OK, so maybe that last query is only relevant to coaster enthusiasts like me. The other questions are more pressing. Buying the Paramount chain from CBS
You see that in this morning's income statement, where interest payments ballooned to $33.4 million during the period over the more manageable $7.2 million nibble a year earlier. Net loss more than doubled to $1.02 per share, though that was actually better than the $1.11-per-share deficit that analysts were willing to ride down.
Rock around the Spock
Wall Street was inexplicably off on the top line, though. Revenues grew to $30 million after a $23.9 million showing during last year's March quarter. The pros were looking for $42.3 million.
That's a real headscratcher. How did analysts expect revenues to nearly double this quarter? The only three attractions that the chain had open were Knott's Berry Farm in California, the Castaway Bay indoor waterpark resort in Ohio, and the Star Trek: The Experience attraction inside Hilton's
The only difference between this year and last year is the addition of the Vegas venue. Were most analysts tapping into their inner Trekkies in reaching so high on the top line, or did they set their brains to stun? This is a dependable attraction with modest traffic. It's not a tribbles factory! That last joke goes out to the Trekkers who I may have offended earlier. I've also got a really sweet "Enterprise value" reference that I will spare you this time.
So, get it right, Wall Street. While we're at it, get it right, Cedar Fair.
The telltale year
Cedar Fair has been given the nod in our Income Investor newsletter service because of the company's consistent performance and even more consistent hikes in its quarterly distributions. The company takes its payouts seriously.
Back in March, Cedar Fair nudged its cash distribution up by half a penny to $0.475 per unit. The regional park operator has now boosted its payout in each of the last 20 years. Income investors will no doubt appreciate the 6.6% yield, but this was a tough hike for Cedar Fair to dish out.
There's a big opportunity in the beefy Paramount Parks deal. If Cedar Fair can get the acquired parks to achieve the operating metrics of its flagship properties, the leverage will be worth it. If Cedar Fair can cash in on some of the kid magnet licenses at Paramount -- like Viacom's
However, the Paramount Parks had a rocky freshman year with Cedar Fair in 2006. To be fair, the company didn't take over the parks until the operating season was under way. This leads us to the importance of how the next few months play out.
A sloppy season may crush the faith of unit holders who have been spoiled by fatter distributions and on happy terms with Cedar Fair's CEO. They'll feel duped, tricked into buying a company that took a big gamble and lost. It would be a pity to see them cash out -- and possibly short -- the company if things go bad this summer.
Spock has the ideal scenario. Live long and prosper.
If Cedar Fair's juicy 6.6% yield is drawing you in, do check out the other picks in the Income Investor newsletter service.
Longtime Fool contributor Rick Munarriz enjoys taking his family on coaster treks over the summer. Yes, he's been on all of the Cedar Point coasters, except for Maverick. He owns units in Cedar Fair. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.