The company is focusing on screen expansion and is planning to open 125 new international screens this year. It has further opportunity to open 100-150 screens per year in in next few years. With this screen growth, international revenue will rise to $776.7 million this year compared to $740.8 million last year.
The company’s free cash flow will significantly increase next year due to reduction in spending. However, this year capital expenditure will increase as a result of international digital projector conversion, higher new screen growth, and conversion of existing theaters with XD format.
Capital spending will normalize next year to $200 million-$225 million compared to $325million-$350 million projected this year. It expects the free cash flow to improve from $74 million this year to $225 million next year, after completion of this technology update. With this, the free cash flow yield will rise to 5.2% next year compared to the current year’s expected yield of 3.6%.
Hollywood Theaters acquisition will boost earnings
In April 2013, Regal Entertainment Group (NYSE:RGC) completed acquisition of Hollywood Theaters for $191 million cash and $47 million of lease obligation. The acquisition will result in the addition of 43 theaters with 513 screens, and it will enhance the company’s presence in 16 states and three U.S territories.
It reported revenue of $842.3 million in the second quarter compared to $723.3 million in same quarter a year ago. The additional screens acquired from this acquisition propelled revenue growth. The company also plans to open a new theater with 12 screens in the third quarter of 2013. With the increase in screens, total revenue will rise to $3.11 billion this year and $3.24 billion next year compared to $2.82 billion last year. The acquisition will boost the company’s earnings, and the EPS will rise to $1.10 this year and $1.20 next year compared to $1 last year.
On June 13, the company completed issuance of $250 million senior notes with interest rate of 5.75% due in 2023. It will use the proceeds from this issuance to fund a cash tender offer of approximately $213.6 million outstanding principal amount of its 9.125% senior notes due in 2018. After funding the cash tender offer, it will use the remaining proceeds for general corporate purposes. This refinancing will push the company’s debt maturity profile and will result in lowering the annual interest expense around $5 million.
Conclusion
The companies in the media and entertainment industry will witness growth through new releases, technological advancements, and expansion initiatives. Lions Gate Entertainment Corp. (USA) (NYSE:LGF)’s expansion of its TV production business and the release of new films will drive the revenue. Cinemark Holdings, Inc. (NYSE:CNK)’s International expansion with new screens and significant spending reduction in 2014, after the hike this year due various technology updates, provides better future prospects. Regal Entertainment Group (NYSE:RGC)’s acquisition of Hollywood Theaters will boost earnings and debt refinancing will result in lower interest expense. I recommend buying all of these stocks.
Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Shweta is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Media and Entertainment Companies Ready to Roll Out the Red Carpet originally appeared on Fool.com is written by Shweta Dubey.
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