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Cedar Fair, L.P. (FUN), Six Flags Entertainment Corp (SIX): Are These Stocks a Thrill Ride?

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Attendance at theme parks suffered during the recession. Market research firm IBISWorld reported that revenue at U.S. theme parks dropped 9% in 2009. A rebound occurred over the next several years as consumers gained more confident footing. Today, let’s look at three companies that are definitely benefiting from consumers’ increased spending on entertainment.

Cedar Fair, L.P. (NYSE:FUN)

Is it risky to raise prices?

SeaWorld Entertainment’s theme is giving visitors the opportunity to learn about and interact with the natural world. The company’s signature attraction at its parks is its collection of nearly 70,000 marine and terrestrial animals. Well-known brands include SeaWorld, Busch Gardens and Shamu, the famous “killer” whale. The company operates 11 parks.

For the first half of the year, revenue increased 2% — and set a record — compared to the year-ago period. The key indicator, total revenue per capita, rose a robust 8% to nearly $65 per person, although total attendance showed a decline of 6%. This was part of the company’s strategy to reduce attendance but increase total revenue per capita by increasing prices — which were raised 9%.

SG&A expenses were up 11% for the first two quarters. This bears watching in upcoming quarters. The company’s operating loss of almost $5 million compared to income of $45 million last year — a $50 million negative variance — seems strange given the higher revenue and strong per capita metrics. But looking closely, we see a $50 million hit to the income statement due to the termination of an advisory agreement. With the interest expense of $51.5 million added, the net loss for the first half was $56 million.

But as the company points out in its earnings release, adjusted free cash flow was $56 million, up nearly 82% over 2012; and adjusted EBIDTA of $138 million was up 3% year-over-year. These companies really like expressing their results as EBITDA rather than boring old net income. SeaWorld made progress in reducing long-term debt; it was down $180 million from year-end 2012 to approximately $1.7 billion.

Four straight years of growth — and the economy still isn’t that great

Cedar Fair, L.P. (NYSE:FUN)’s  properties include 11 amusement parks, five water parks and five hotels. Polls taken by the Amusement Today newspaper have named Cedar Fair, L.P. (NYSE:FUN)’s flagship park Cedar Point the “Best Amusement Park in the World.” Knott’s Berry Farm is another one of its well-known parks.

The company also reported record net revenue for the first half — $403 million, a 5% increase over 2012. Management stated its confidence that the company will achieve record full-year revenue for the fourth consecutive year. Company officials cited a positive guest response to new rides and entertainment attractions as a key driver of the strong revenue performance.

Cedar Fair, L.P. (NYSE:FUN) CEO Matt Ouimet, however, was quick to give credit to the “quality of service our employees provide.” The company’s “wow the guests” strategy included new attractions, such as a winged roller coaster called GateKeeper, incentivising the group business sales force, and an enhanced e-commerce platform. Per capita spending was up 5% to $42.17. Attendance declined less than 1% compared to the first half of 2012.

Cedar Fair, L.P. (NYSE:FUN) demonstrated excellent cost management. Operating expenses as a percent of net revenue decreased, and EBITDA increased a healthy 19% to $86.8 million. It’s an accounting thrill ride to see how the company arrives at this number after starting with a $62 million net loss. The main attractions are: add back $52 million of interest expense, $51 million in depreciation, and a $35 million loss on early extinguishment of debt. Cedar Point’s long-term debt was $1.6 billion at the end of the second quarter, down $64 million compared to the year-ago quarter.

Sharing with shareholders is always good

Six Flags Entertainment Corp (NYSE:SIX), operator of 18 parks, joined the chorus of record-setting revenue announcements for the first half, reporting a $10 million, or 2%, increase over the prior year to $451 million.

Guest spending per capita grew just 1% through the second quarter to $39.74. Six Flags Entertainment Corp (NYSE:SIX) was able to show an attendance increase, although it was a modest 1%.

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