It was another hard winter, American paychecks are finally growing and a sequel to the most beloved theme-park movie of all time will hit theaters in late July. So it makes sense that this summer stands to be a strong one for amusement-park attendance.
Cedar Fair LP (FUN) -- operator of 14 North American theme parks, including Cedar Point in Ohio, Carowinds in North Carolina and Knott’s Berry Farm in California – is among the companies expecting a good vacation season.
“We had one of the strongest Memorial Day weekends we’ve had in a long time,” Cedar Fair CEO Matt Ouimet says in the attached video. As for the outlook for the overall season, he says, “The best indication, I would say, is season-pass sales, which are ahead of our plans and ahead of last year.”
Along with other operators of regional parks such as Six Flags Entertainment Inc. (SIX), Cedar Fair has emphasized marketing of season-long family passes, which increase frequency of visits, smooth out attendance across weekends and weekdays and cement customer loyalty.
The majority of visitors to Cedar Fair parks come from driving distance away for a day or weekend.
Ouimet, who helped run Walt Disney Co.’s (DIS) theme parks at one of his career stops before joining Cedar Fair four years ago, says lower gasoline prices don’t increase attendance much.
“But what it does influence is how much money [customers] have in their pocket when they get to the park. So we expect to see an increase in in-park spending.”
Analysts of the theme-park sector at Credit Suisse agree. Joel Simkins is forecasting in-park spending on such things as food and souvenirs will rise 8.3% and 5.3%, respectively, this quarter and next for Cedar Fair. In-park spending was more than $45.50 per guest last year, up 13.7% from 2011 levels.
In general, Simkins says Cedar Fair is well positioned to continue its strong fundamental performance, in part thanks to a just-completed renovation of its Breakers Hotel complex at the flagship Cedar Point park on Lake Erie.
New ride attractions are also a big part of the story, with the Fury 325, “the word’s tallest and fastest giga coaster” debuting this year at Carowinds.
The arms race for bigger and more extreme roller coasters have been an important part of the industry in recent years, though there seem to be enough thrills to go around. Ouimet says the theme-park business is “in the best financial health I’ve seen in my 30-year career.”
Zoning and other regulatory restrictions mean that building a new theme park is extremely difficult. Ouimet doesn’t think we’ll see another major one constructed from the ground up. This leaves the parks largely insulated from direct competition, as they tend to be spaced out in a way that insulates most operators from head-to-head attendance wars.
As such, Cedar Fair tends not to be hurt by Disney parks’ strong attendance, nor has it benefited noticeably from Sea World Entertainment Inc.’s (SEAS) bad press over animal treatment and declining visitation.
This is pretty good news for Cedar Fair’s shareholders, many of which rely on it for steady and generous cash distributions. The company is structured as a publicly traded limited partnership, and as such is required to hand to shareholders most of its cash earnings.
Cedar Fair's share price is up 24% year-to-date, while SeaWorld is 21% higher and Six Flags' shares have climbed 14% in the same period. Cedar shares now yield 5.3%. Ouimet says that is “very sustainable,” and the payout should grow as adjusted cash flow grows. Cedar Fair’s stated guidance is for adjusted cash flow to rise to $500 million by 2018, up 16% from 2014 levels.