I must admit, I'm really surprised that no one has mentioned the probable reason for the sudden drop in the stock price, as it seems remarkably obvious to me. But, then, perhaps the obviousness of it comes from the fact that I work in the automotive industry.
Three Cedar Fair parks are significantly impacted by crowds from the auto industry: Cedar Point, Geauga Lake, and Michigan's Adventure. Because of the relation between the steel industry and the auto industry, Dorney Park has an impact, too.
When Delphi declared bankruptcy, it caused many speculators (at least in Michigan) to wonder if it is the beginning of the end for the U.S. auto industry. Because of some provisions relating to the spin off of Delphi from General Motors, there are quite a few people wondering if the Delphi bankruptcy could sink GM. Also, Visteon has nearly identical situations to Delphi, and Ford would suffer similar impacts if Visteon were to declare bankruptcy. Many suppliers to these companies are also worried -- I know that, first hand, as my company supplies quite a few services to GM, Ford, Delphi, and Visteon. Delphi is also trying to cut the unionized labor's wages by more than 60%, and many auto workers are very concerned that they might have severe pay cuts, as well.
With so many large companies affected, it's not surprising that investors could wonder if it'll have a significant impact to attendance at 3 or 4 of the Cedar Fair parks in the short term. I'd share the same concern, and I think it will have a short term impact. Long term impact will be determined by the success of Michigan to diversify its economy -- something I was writing to the governor and newspapers about 10 years ago, but, sadly, it has taken Delphi's bankruptcy to finally get Michigan serious about making such an effort.
Cedar Fair cannot control the economy around their parks, but they can control their park operations. So far, they are continuing to do a great job in that regard, and, in my opinion, are still the best in the industry. (Having visited 179 amusement parks in the past 6 years, I've got quite a basis for comparison!) As long as they retain their focus, don't panic, and don't become short-sighted, I think they'll still come out on top over the long haul. I recently had the pleasure of meeting the General Manager of Cedar Point, and, while he wouldn't give out any secrets, he made me feel that this company cares about the thing that, in my opinion, is most important for a service-oriented company -- its customers.
I would still like to see them purchase some more properties in diverse economies -- something I think they are continually watching to do. Such a strategy would help them weather downturns in any one industry (such as what's happening with automotive).
While the ride could be a little rough in the short term, I still believe Cedar Fair is a good investment for the long term. Since my goal is for saving for retirement in about 30 years, and having some income for entertainment expenses, I believe Cedar Fair is still a good investment for me.
The economy is the worst I have seen it here in Ohio...so many out of work or working in lower wage jobs just to have a job. I heard that unionized construction unemployment is pushing 30% around here.
What is going to bring Ohio back? That is the question...I just don't see much of a future right now economically around here...Thoughts?
I don't know enough about Ohio's specific problems, but I've heard many theories of what's in store for Michigan, where about 50% of Cedar Point's business originates.
An economist I talked to predicts that Michigan will hit bottom in 2 to 5 years. Some of the things he recommends (and which a Global Economics class I recently took also recommends) are things Michigan is unlikely to do. These two independent sources think that taxes need to be cut in order to encourage more businesses and residents to move into the state, rather than leaving the state. Meanwhile, Michigan keeps increasing "fees," which is the equivalent of tax increases. Also, to avoid going deeper into debt, state spending needs to be cut. Not a popular thing to do, and politicians generally hate to cut spending.
Michigan is the least popular choice of the continental U.S. for manufacturing. The reason is because of something that is unlikely to change anytime soon: Michigan is a closed-shop state. The state could probably bring in more jobs if it became a right-to-work state.
Additionally, Michigan is highly dependent on one industry. Most of the people in the state make their livings, either directly or indirectly, on the auto industry. The state desperately needs more diversity. But, with the tax situation and the closed-shop condition, Michigan has a tough time convincing new companies to move in.
These conditions are far from affecting just the blue collar workers. I've got two degrees in electrical engineering, and the auto industry situations definitely impact me. With the Delphi troubles, I've seen a couple of coworkers who were recently released to save expenses. My company has already taken quite a few hits due to other corporate bankruptcies, and many layoffs resulted, even in areas which were not directly affected by the bankruptcies, just to counter the losses from uncollectable debts.
Since Michigan and Ohio have a lot of similarities, I suspect many of the same situations are true for Ohio, but I can't say for certain.
Allow me to offer my "top 7" list of reasons for the stock drop. BTW, these all appear remarkably obvious to me too.
7. Ride reliability. Why spend $300 to bring a family to the park when it's a 50/50 chance the ride everyone wants to experience will be down...again? Has any recent "premier" ride been "reliably operational"? Hint: when you have to put something on your website telling everyone whether a ride will be running that day or not, it's not "reliably operational".
6. Loss of customer focus: From recorded spiels, to reduced staffing (leading to poor cycle times,) to high in-park pricing on food/drinks, to unreasonable safety protocol for popular rides, (even "unpopular" rides like Corkscrew,) they apparently have a new policy to put "guest experience" near the bottom of the "importance list".
5. Poor excuses: The "weather excuse", used to explain poor performance for 5+ years, is wearing thin. Who wouldn't be skeptical when they roll out the next "nebulous" excuse (economy?) Why are other amusement parks, in equally troublesome "blue collar" areas, reporting record attendance and profits? Fool me once, ...
4. Distribution mismatch: With distributions exceeding income for several years now, the inevitable reduction in payout could be approaching. You can't expect them to keep borrowing money to pay these high distributions forever. Best to be out of your position BEFORE the announcement, not after.
3. Six Flags. FUN actually publicly expressed an interest in throwing money down ANOTHER "money pit". Have they not learned their lesson from Geauga Lake?
2. Geauga Lake: After the second year of operation, and immense effort and money, Geauga Lake is still unprofitable. It's now roughly $200M from "break even" and that number grows each day. Is Kinzel losing it? No telling what he might do next...
1. Financials: For the last 5 years, FUN's financials have gone nowhere. They're not growing "organically," only through acquisition. This can be a sign of serious trouble / desperation (see "Enron" and "WorldCom" for other companies who went on acquiring sprees as the wheels were coming off their core business.) FUN's bottom line is poor, and getting poorer. That's the bottom line (literally and figuratively) for why the stock is going down.