Regional amusement-park operator Cedar Fair
Fourth quarters are typically sleepy periods in the amusement-park industry. Most gated attractions open only on weekends in October, before closing down completely for the season after the Halloween mazes empty out. So maybe one shouldn't read too much into the revenue dip, or the widened operating losses, that Cedar Fair posted during the seasonally forgettable quarter.
However, when you look at 2007 as a whole -- and more importantly, at the company's outlook for 2008 -- it's hard to get too excited.
Attendance at Cedar Fair's combined parks fell by 2% to around 22 million last year. Guests did spend more, similar to trends at rival Six Flags
Revenue shot up with the midsummer 2006 addition of CBS's
Ode to EBITDA
Cedar Fair prefers to color its performance in terms of adjusted EBITDA, and I can't say that I blame it. If you were taking on gobs of debt to acquire additional parks, you'd prefer to paper over the I, D, and A too. On that basis, adjusted EBITDA climbed nearly 10% higher, to $340.7 million.
So where do we go from here? It's not much of a climb, my fellow coaster enthusiasts. The year 2008 was supposed to be a special one for Cedar Fair. It would be the company's third season watching over the Paramount Parks, realizing the synergies it spelled out at the time of the acquisition. Alas, going by the company's prediction that adjusted EBITDA will clock in between $340 million and $355 million this year, those parks will provide just a 0% to 4% improvement from last year's uninspiring showing.
To be fair, Cedar Fair has raised the Paramount parks' margins to its own higher standards. Cedar Fair's $1.24 billion purchase seemed pricey at 9.1 times EBITDA, but at the time, the company argued that Paramount's 2005 EBITDA margin of 26.1% considerably lagged Cedar Fair's 34.1% showing that year.
On an adjusted basis, Cedar Fair is delivering on that vision. Adjusted EBITDA margins were 34.5% last year, and should inch slightly higher in 2008. The problem isn't the denominator -- it's the numerator.
Topping out on the top line
Cedar Fair has suffered from stagnant turnstiles. The year before Cedar Fair and Paramount Parks united, they respectively generated $569 million and $423 million as stand-alone companies. That adds up to $992 million in 2005, more than the $987 million they collectively collected in 2007.
This year won't be a whole lot better. The company expects the top line to inch maybe 3% higher. True, Geauga Lake's revenue will plummet, as it becomes a half-day watery escape with a shorter operating season -- but it was never much of a contributor anyway. Meanwhile, Cedar Fair has spent the past three years building new rides and expanding resort lodgings.
Where's the growth? The low end of Cedar Fair's revenue range for 2008 -- $990 million -- is actually less than what Cedar Fair and Paramount Parks rang up on their own three years earlier.
I realize that these are difficult times. Disney's
As it struggles to regain its footing, Cedar Fair is doing its best to keep its payout-chasing investors happy. The company upped its overly generous dividend earlier this week, maintaining its 21-year streak of distribution hikes.
I don't see why it's still hiking its payouts at this stage in the company's life cycle, even if those meaty yields made the stock initially irresistible to Motley Fool Income Investor subscribers. Cedar Fair's units have fallen precipitously over the past year, despite the stability of beefy quarterly disbursements. The 8.6% current yield will hardly help the company run any better, especially with the $1.8 billion in debt it's lugging around.
Cedar Fair has been a shrewd operator in the past, making the most of its leverage, but there comes a point when those distributions would be better off paying down debt or concocting ways to get the turnstiles clicking again.
Watch your back, Cedar Fair, or someone will dismantle your dry rides, strip you of your legacy, and make a water park out of you, too.
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