Parking lots. Garages. Metered, on-street parking. Can you imagine a better business to be in? Every day, hundreds of thousands of motorists must come to you, must patronize your services, must give you their money. Because if they don't park, they don't get to work. As commuters, we hate this racket. But as investors, we should love it.
The problem is, we can't. Ever since Fool faveImperial Parking got taken private in a sweetheart deal (for the acquirers), investors have been left with just two big pure-play parking companies to choose from: Standard Parking (NASDAQ:STAN), which we discussed last week and which remains just over fairly valued, and Central Parking (NYSE:CPC), which reported last week and which we'll discuss today.
In Central's earnings report, released on Aug. 3, the company told a tale with which Fool readers are already sadly familiar. Through the first nine months of the company's fiscal 2005, revenues have grown 4% while profits (both firmwide and per diluted share) declined by 18%. Free cash flow, which amounted to $12.1 million over the first nine months of fiscal 2004, this year dried up entirely and then reversed course to trickle right back out the company's front door. So far, Central has seen a net $265,000 in cash flow out of its coffers this fiscal year.
Worse, this is not really news to Central investors. Over the past six years, they have watched their company generate all of $17.5 million in free cash flow -- an average of less than $3 million per year. For this $580 million market cap-company, that works out to a price-to-free cash flow ratio of 197.1 -- about 10 times more expensive than the run-of-the-mill S&P 500 company.
Because of its inability to generate significant free cash flow, Central Parking has been similarly unable to materially reduce its debt burden. And to make matters worse, declining margins are causing Central's interest coverage ratio (earnings before interest and taxes, divided by interest) to fall. This falling ratio indicates that the company is having a tougher time servicing its debt load, meaning in turn that it has fewer and fewer profits left over for its equity holders. Put it all together, and you can understand why shareholders in Central Parking haven't seen a penny in capital gains on their investment since 1996.
For more Foolish news on the exciting world of parking management, read:
- Central Parking Hires Financial Advisor
- Gridlock at Central Parking
- Has Central Parking Stalled?
- An Imperial Sellout
Fool contributor Rich Smith has no position in any of the companies mentioned in this article.
