Thursday, April 16, 2020

Cedar Fair Posts Business Update + Reduces Capital Expenditures

© Cedar Fair
Much as we saw last week from Six Flags Entertainment, today we finally got an update from Cedar Fair about the status of their business and decisions that have been made in response to the parks being closed during the pandemic.

The company is working through many cost cutting measures in order to keep cash on hand to survive the parks being closed.  Right now they are maintaining staff at the parks only to keep them ready to open within a reasonable time should they be allowed.  Even at that rate the company estimates that they will need $25-$35 million per month.  Between cash on hand and their revolving credit, they have access to more than $200 million at this time.

So far, in order to conserve cash, Cedar Fair has:

• Reduced season labor and part time labor force to nearly zero
• Suspended all marketing costs and reduced costs administrative expenses
• Reduced the CEO's salary by 40%, reduced all other full time employee's salaries by 25%, and reduced hourly full time workers hours to 30 hours per week
• Suspended the quarterly dividend to unit holders until further notice

The company also noted that they have rescinded their earnings forecast, future aspirational goals, and noted that prior to the start of the pandemic their 1st quarter results were ahead of the prior year.

© Cedar Fair
As we saw with Six Flags, Cedar Fair has also decided to reduce their amount of capital expenditures for the year, but even more so than Six Flags.  Cedar Fair notes that they will suspend "at least $75-100 million of non-essential capital projects planned for the 2020 and 2021 operating seasons."  They expect to spend $85-$100 million on capital expenditures in 2020, and they average around $175 million per year going off the last 5 or so years.

© Cedar Fair
Unlike Six Flags, Cedar Fair usually has their new capital ready and open for the start of the season.  Orion has been standing at Kings Island for months, and we've seen updates of nearly all other new for 2020 projects well underway or nearly complete (maybe with the exception of Knott's).  

Not much cash to save on the big ticket items for 2020, however, the company has been spending significantly on special events and was again in 2020, so I'm going to guess that many most of those won't take place when the parks eventually do open.  There are also other smaller changes, such as to food and beverage, retail and operations in general that could be removed.

© Cedar Fair
The resort side of the business could see capital expenditure reductions as well.  The company was working on large renovations at their hotels by Knott's Berry Farm, their indoor water park near Cedar Point, and a large overhaul of their recently purchased Sawmill Creek Resort.  I would not be surprised to see many of those paused for the time being.  I can't imagine moving forward with the hotel in Canada anytime soon as well.

I think the big savings is going to come in capital expenditure payments that would come later in the year as the 2021 projects started.  Cedar Fair often starts the next season's projects in May or June of the prior year, and that means they're paying for them (incrementally) the year before as well.

What it sounds like to me, which is pure speculation, is that the 2021 season will be very quiet at the Cedar Fair parks in terms of new additions.  I'm not saying there will be nothing added, but I have a feeling it will be unlike any year we've seen in a long time from the company.  That said, if it means preserving the parks for the long term, then I say so be it.  2022 is just around the corner!