Heard On... Cedar Fair's Q2 2018 Conference Call

This week Cedar Fair released their results for the second quarter of 2018, and for the first time in recent memory the results were what you would categorize as less than impressive.  The press release can be found at this link, but the company's conference call was where all the good information was.  Here are some notes from the call:

•  Looking at quarter two alone, revenues were down $12m or 3%, with attendance down 363,000 visits or 5%.  There was a 1% increase in per cap revenues, and a $2m or 4% increase in out-of-park revenues.  This led to an overall decrease in EBITDA of $23 million, which both the company and investors pay close attention to.

•  At the end the second quarter, the company did see deferred revenue up $18m, which comes from season pass and all-season dining (and other product) revenues - this at least is healthy growth.  The poor quarter was mostly blamed on weather and record rain in the Mid-Atlantic, much lower season pass sales at Kings Island, and construction and regulatory delays on RailBlazer at California's Great America.

•  Cedar Fair also gave a year-to-date update through the end of July 29th, and the results did not show much improvement.  Revenue was down 2% or $15m, attendance was down 3% or 408,000, showing more slipping in July instead of gains.  Per cap revenue was still up 1% and out-of-park revenues had climbed 4% or $3m.  This has led the company to warn that they may not reach the low end of their earlier guidance for the full 2018 year, which was $1.34b to $1.38b in revenues, and $475m to $495m in EBITDA.

•  The company is looking to reduce costs in light of the results.  Some tactics mentioned were to adjust the parks operating calendars based on demand, investing in technology to schedule the tens of thousands of seasonal workers the parks employ, and to "eliminate rides and attractions that have run their course and are no longer popular."  So watch for more announcements of older rides being retired for the 2019 season.

•  The Cedar Point Sports Center is performing beyond their expectations, and leading to higher hotel occupancy rates in the Spring and Fall.  They still want to build more of these but getting a private/public funding package together is proving tough.  The entire resort sold out the past couple weekends.  The destination resort marketing for Cedar Point is working, and they are seeing guests coming from further away and staying overnight.

•  Kings Island had a "very slow start" to their year, with bad and cold weather in the Spring that hurt attendance and also brought season pass sales down significantly.  However, that is compared to 2017 which was an outstanding year for the park, so even with the declines 2018 is on track to be the second highest season pass program in the park's history.

•  Cedar Fair did not go into much detail into what caused RailBlazer at California's Great America to open late, but they did say that it hurt the park's season pass sales as well.  Since the ride opened, and they noted it has received glowing reviews, the park has performed "largely as expected."

•  One bright spot was the performance of Knott's Berry Farm, which is on pace to have a record year of season pass sales, overall attendance and per cap revenues.  The park opened Hangtime this year, and has also been a smash success at creating 'four seasons of fun' and being responsive to what their audience wants via festivals and events.

•  The overall percentage of season pass holders renewing each year has continued to rise.  This fall the company will debut a 12 month payment installment for season passes versus the 9 month schedule they have now to see how each market reacts.

•  One analyst asked if the company believes there has been a change in what consumers want, implying that it is no longer amusement parks.  Cedar Fair replied that they have seen "nothing to suggest wholesale changes in our guests' attitudes toward the unique entertainment we provide."  Cedar Fair is continuing to research what guests want at each park to achieve successful brand positioning (as was done with Knott's), and they're using more focus groups and surveys to do this.  This effort has already led to increased special events, parks having executive chefs, upgrades to catering areas, the "seasons of fun" marketing program to drive urgency, and chain-wide resort improvements.

•  Cedar Point is having a very tough year from how it sounds.  The improvements in the resort's hotels and accommodations are on track to create a record year for out-of-park revenues.  Steel Vengeance has led to higher purchase rates of Fast Lane passes, but not much else about the ride was said - very odd.  Overall, more investments for the property are coming soon, and it sounds like they meant especially on the resort side of things.  Attendance is down this year, which is rough considering Steel Vengeance just opened.  They cited examples of rainy weeks in July where attendance was down high single digits to low double digits, but then on a nice week attendance was only up low single digits - meaning the good days are no where near enough to make up for the bad ones.

•  A question was posed about acquiring new parks, and the company noted that they are built on mergers and acquisitions in their history, but haven't done one since 2006.  They are however "constantly engaged in dialogue on opportunities that maybe are out there."  They also gained international park management experience with their new COO, so conversations on global expansion are on the table.

•  As for 2019, the parks will "soon" announce "additional world class coasters, immersive and interactive areas for families" and enhancements to in park locations especially food and beverage.  In the second half of 2019 the new indoor sports center at Cedar Point will open, and SpringHill Suites will open at Carowinds.  Executives have challenged teams to create incremental revenue with less reliance on capital expenditures (like the new Sunset Wine tours that CP is starting).  Going forward it sounds like they might try to reign in capital spending, especially since many big projects like current resort expansions and wifi are done.  There will be a continued push to try to find a way to boost early season attendance at all the parks.