Beginning in 2010, the amusement park industry snapped back from the recession with revenue growth driven by increased leisure travel and consumer spending. Although in the U.S. amusement park attendance has been growing slowly in relative terms, successful operators can grow per-capita spending by providing more exciting and technologically advanced attractions.
Today we will focus on Cedar Fair Entertainment Company (NYSE:FUN), one of the world's largest regional amusement park operators. Then we will see how another large amusement park company, Six Flags Entertainment (NYSE:SIX), has been performing. Finally, we will look at a different form of entertainment -- movies -- and see how a major motion-picture theater operator, Cinemark Holdings (NYSE:CNK) is doing in comparison with the amusement park operators.
Keeping loyal customers coming back
Cedar Fair's properties include 11 amusement parks, four water parks, and five hotels.
Keys to the company's success according to CEO Matt Ouimet include "significant barriers to entry and a loyal, high-repeat customer base." Another key is a "balanced mix of thrill rides and family attractions."
In 2012, the company launched its FUNforward initiative, which was designed to drive further increases in revenue, guest satisfaction, and of course profit. Key elements of the initiative include enhancing the guest experience by adding new, innovative rides and attractions and promoting more evening events to encourage guests to spend more time in the parks -- which means additional in-park expenditures.
Cedar Fair seeks to improve its customer relationship management by refining the way it segments its customer base and designing marketing messages that more effectively resonate with each segment.
The company strives to increase its advance purchase commitments, which includes growing the percentage of guests who purchase season passes. These advance purchases mean immediate cash flow for the company.
Cedar Fair is also providing more premium products and services in its parks, such as enhanced dining experiences.
How has Cedar Fair fared?
The company reported very strong results for 2013 -- a record performance, actually. Net revenue for the year came in at $1.135 billion, a 6.2% increase over 2012.http://cf.wddnsweb2.wddonline.net/_upload/pressreleases/022014%20-%204q%202013%20earnings%20release.pdf
Cedar Fair attributed most of the gain to a 5% increase in in-park guest per-capita spending. Attendance saw only a marginal increase of 1%, although on a comparable-park basis the increase was 2%, as the company sold two stand-alone water parks so they left the system. Attendance did reach record levels.
The company maintained excellent cost discipline. The three major cost categories of cost of goods sold, operating expenses, and selling, general, and administrative expenses declined a full 90 basis points year-over-year as a percentage of revenue.
The bottom line for Cedar Fair increased by $6.3 million over the previous year, or 6.2%, to $108 million.
Cedar Fair's management also views EBITDA as "a meaningful measure of the Company's park-level operating results." This measure showed an 8.8% increase to $425.4 million -- yet another record.
That important element of surprise
Cedar Fair's positive performance for 2013 came in part because of the popularity of its new world-class rides. These rides include GateKeeper, a winged coaster attraction at the Cedar Point park that achieved one of the best openings seen by any ride in the park's history.
As CEO Matt Ouimet expressed in the earnings release, "our teams are working harder than ever to find new ways to surprise our guests as they walk through our gates."
In 2014, Cedar Fair anticipates that it will make significant capital investments -- $145 million -- to deliver more "thrills, screams and smiles."
Six Flags flies high
Six Flags Entertainment operates 18 parks in the U.S., Mexico, and Canada.
For 2013, Six Flags reported its fourth consecutive year of record financial performance. Revenue grew 4% to $1.1 billion as annual attendance went up 2% and per capita guest spending went up 2% as well. Admissions revenue per capita was up 3% to $23.03 and each guest spent an average of $17.15 on food, merchandise, and other in-park spending.
Six Flags also improved its operating efficiency year-over-year. Operating expenses as a percentage of revenue dropped 90 basis points.
Adjusted EBITDA for the year grew a very healthy 5.6%.
Cinemark is the picture of success
As of December 31, 2013, Cinemark Holdings operates nearly 500 theaters in 40 U.S. states, Brazil, Argentina, and 10 other Latin American countries.
Cinemark had a terrific year in 2013 as it reported an 8.5% revenue increase to a record total of its own of $2.7 billion.
Admissions rose 8% and concession revenue grew nearly 10%. All key metrics were robust: attendance rose nearly 5%, average ticket prices went up 3%, and concession revenue per patron rose 4.4%.
Cinemark was on the mark with cost management, as it held operating costs as a percentage of sales to the same level as last year. As a result the company reported an 8.3% increase in operating income year-over-year. Adjusted EBITDA reached a record high of $625 million.
What we learned
It's impressive how amusement park companies have been able to increase their admissions totals and the per-capita spending of their guests, given that the economic recovery (arguably) began nearly five years ago. Also, Cedar Fair's management expects the good times to keep rolling, with revenue and adjusted EBITDA projected to reach new heights in 2014.
In one way, theater operators have an advantage over amusement park operators because new attractions roll out from Hollywood each week. Changing a ride or another attraction at a theme park is an expensive undertaking. If the ride turns out to be less popular than hoped, you can't just pull it as a theater can do with a film that bombs.
On the other hand, if the slate of upcoming movies looks weak, theatergoers may just stay home. An amusement park visit is more of an event and something family members really look forward to doing.
The amusement park industry definitely has momentum these days and as research firm IBISWorld notes, when demand rises as it is now, park operators are able to increase prices and boost profits.
So Cedar Fair and Six Flags will continue to entertain both guests and investors. But Cinemark Holdings' performance in 2013 was particularly outstanding given that total domestic box office receipts grew by less than 1% -- making it a splendid choice for investors as well.