Cedar Fair, L.P. (FUN-NYSE)
April 27, 2012 Issue
The Most Powerful Name In Corporate News and Information
Focused on Being the Entertainment of Choice, the Employer of Choice and the Investment of Choice, Cedar Fair, LP. with their 11 Owned and Operated Amusement Parks, 6 Outdoor Water Parks, 1 Indoor Water Park and 5 Hotels - Entertaining more than 23 Million Guest Annually is One of the Largest and Leading Amusement-Resort Operators in the World
Cedar Fair is a publicly traded partnership
headquartered in Sandusky, Ohio, and one of the largest regional
amusement-resort operators in the world. The Company owns and operates 11
amusement parks, six outdoor water parks, one indoor water park and five
hotels. Its parks, which entertain more than 23 million guests annually, are
located in Ohio, California, North Carolina, South Carolina, Virginia,
Pennsylvania, Minnesota, Missouri, Michigan and Toronto, Ontario. Cedar Fair
also operates the Gilroy Gardens Family Theme Park in California under a
management contract. Cedar Fair’s flagship park, Cedar Point, has been
consistently voted the “Best Amusement Park in the World” in a prestigious
annual poll conducted by Amusement Today newspaper.
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFO Magazine, Published - April 27, 2012
Mr. Ouimet: There are four things that attracted me to Cedar Fair. The first was the quality of the product and their reputation as great operators. I had been with Disney almost twenty years and during this time I studied Cedar Fair. They were known in the regional amusement park business to be the best at what they do and operated at very high margins. The second reason is I thought this was an appealing opportunity as the Company had a very effective business model. It has high margins and continues to produce a lot of cash, which we can use to the benefit of all of our shareholders. The third reason is even during this economic recession, the decline in Adjusted EBITDA was only 11% in our worst year. In fact, the last two years we have continued to set record results, both of which demonstrated to me that the consumers saw our parks as a great value during this recession. Finally, as good as we were at operations, we had not taken advantage of what I would call more modern marketing techniques and approaches.
Mr. Ouimet: What is special is our parks are designed to be the “Best-Day-Of-The-Year Experience” for our guests – and many of our consumers describe it as exactly that. It is also because of the scale. All of our parks are relatively big, which allows us to provide a number of experiences that appeal to the full breadth of the family. We certainly have our thrill rider population, who love our roller coasters, but we also have the young children who are entertained by the more traditional amusement park rides as well as Snoopy and the PEANUTS© characters. On top of that, there are water parks and live entertainment, which includes ice shows, music and dance shows, children’s shows and nighttime entertainment such as fireworks and pyrotechnics. This variety allows everyone in the park to have the “Best-Day-Of-The-Year Experience,” not just designed toward teenagers as a point of view.
Mr. Ouimet: Most of our parks are regional draws, so most of our visitors come from within a 150-mile radius. Our largest park, Cedar Point, has been the number-one amusement park in the world for 14 consecutive years and draws from a larger radius. Our competition is anything else that competes for your discretionary time or discretionary entertainment dollar. Fortunately, we have a strong repeat visitation base – our parks become the summer ritual for most families. If you grew up within 150 to 200 miles of any one of our parks, you probably visited at least once a year if not more, and it becomes a ritualistic part of your summer.
Mr. Ouimet: One of the reasons I came here is for the reputation of the high quality guest experience, which really is predominantly dependent on how our employees perform. I get a lot of letters on how great our coasters are, but the best letters I get are about how great our employees are. The service side of this is fundamental. This world is just more complicated than it should be, so our obligation is to give you the best day of summer. If we get you laughing and smiling, we have done our job. And we probably have created value for you as well as value for our unit holders.
Mr. Ouimet: Traditionally, Cedar Fair has grown by the acquisition of other parks, including independent, family-owned parks such as Knott’s Berry Farm. The number of independent amusement parks today is a very small number. We will continue to look at high-quality parks as they become available. Currently, our focus is primarily on the eleven major amusement parks we own today and growing attendance and revenues at those parks. There are still many opportunities for organic growth that we need to take advantage of.
Mr. Ouimet: There are two primary levers that you use to grow attendance. One is by adding new rides and attractions. With a high-repeat customer base you need to keep your parks fresh and remind people why they come back year after year. New capital investments also help to attract new audiences. The other big lever is marketing, sales and PR, which is designed to go out and remind consumers that we provide both great value and great experiences. We have hired a new advertising agency out of Chicago who has created a campaign called “Thrills Connect”. The essence of the campaign is to remind people that even if you do not want to be the one on the 420-foot-tall roller coaster, you would want to watch your son or daughter do what is an incredibly fun experience. Therefore, we think we have a compelling proposition for the consumer from a value standpoint, but also from an experience standpoint.
Mr. Ouimet: Safety is the number-one issue. I always remind our people that you have to act as if it was your son or daughter, mother or father, niece or nephew, riding on these rides. It is our number-one priority, bar none. As an example, we start every call with our general managers talking first and foremost about safety.
Mr. Ouimet: Every year across eleven parks, we add new rides and attractions. We typically will add a major ride in one, two, or three parks one year and the following year we will rotate the major investment to different parks. This year, as just a small example, we have added a major coaster at our Canada’s Wonderland amusement park outside of Toronto. It is the largest and most expensive coaster we have ever built, but we have also added elements to each of our other parks. Here at Cedar Point, we have added what we call Dinosaurs Alive!, which is a major walk-through attraction with full-size dinosaurs. We are also adding a new light show here called Luminosity. It is a music and light show that is sponsored by Pepsi. At Kings Dominion, near Richmond, Virginia, and Carowinds, in Charlotte, North Carolina, we are building 300-foot-tall swing rides, WindSeeker, which was introduced at four properties last year. We like to test a ride or attraction at a park and if it is successful we look to roll them out to other parks in the following years.
Mr. Ouimet: It is basically the same across the country. Our guests have different experiences depending on where they are in their life cycle. Many families with young kids come to see Snoopy and ride our smaller rides. It is a great day for you to just walk around with a stroller and have a good time with your children. As the children grow older and taller different things attract them. Certainly, as soon as they can -- and we see this every time people visit – the kids run up to one of our front gate entrance signs to see if they are tall enough for the next big ride. That is what you would expect to happen from a thrill standpoint. There are the teenagers that come on date nights, particularly around our Halloween event. Then as they grow up and have a family of their own, they come back to the park with their children/grandchildren to experience the thrill of the park through their children’s eyes. It continues in that cycle, but it is more dependent on where the family is in their lifecycle than any particular element. It is important for us to invest in both thrill and family rides on a regular basis. We need to remind our guests of their childhood while offering new experiences to create new memories with their families.
Mr. Ouimet: We structurally changed our business model. What I mean by this is that most major amusement parks closed their doors after Labor Day and we did this for decades. However, forty years ago, Knott’s Berry Farm in California started a Halloween event that continued to grow and ultimately got the attention of the industry. Therefore, we basically make a meaningful amount of profit during a season where we used to not even be open. Halloween itself is second commercially only to Christmas in terms of what it means for US consumer spending. It is a story-based event that drives Halloween and the mass market. Consumers are obviously aware of Halloween and want to participate. Therefore, we use our parks as a stage and platform for large-scale entertainment surrounding Halloween, particularly in the fright category or genre. It has worked very successfully for us. For our seasonal parks, it defines the end of the season. There is a structural urgency to visit. If you come, not only do you get all the rides and attractions, but you get all the Halloween entertainment. And by the way, get here now because the snow is going to start flying pretty soon and we are going to be closed.
Mr. Ouimet: The two parks with hotels that we own are Cedar Point and Knott’s Berry Farm. The way I think about them is it’s the best way to enjoy our parks because you do not have to drive home. You can walk from most of our hotels directly into the park, and, if you have young children you can go back and take that afternoon nap. The hotels are complimentary to the amusement park experience. They are not the reason you visit. Our hotels are very busy during the season and it makes the experience a little bit less stressful.
Mr. Ouimet: Cedar Fair has had two consecutive record years of performance in the deepest economic recession this country has seen. One of the things that this does for me is validate the consumer value proposition. In a time when you know the consumer is stressed in terms of their budgets, they are still choosing to come to us in record numbers. I feel really good about that. As it relates to this calendar year, we are excited. There is every sense that the momentum we have had over the last couple of years is continuing, because we have a very good ride and attractions menu. There does seem to be some optimistic, if not enduring, sentiment trend that consumers are feeling a little bit better and loosening their wallets a little bit more.
Mr. Ouimet: Yes, FUNforward. This is a long-term strategy we introduced to our investors in January. Our approach to this strategy is centered on the fact that people have choices. We need to ensure we are the entertainment of choice, the employer of choice and the investment of choice. We believe this perspective provides greater discipline in our decision making process and generates the appropriate amount of managerial restlessness.
There are six components to our FUNforward strategy: enhanced guest experience; improved consumer messaging; dynamic pricing and advanced purchase commitments; premium product offerings; strategic alliance fees and promotional leverage; and capital and expense productivity. Some of these are what I would call foundational and some of these are a little bit new to us -- but we believe all of these will provide greater value to Cedar Fair from both a guest experience and as an investment.
We are what we call a total return investment. We are a master limited
partnership and are anchored by an attractive distribution yield. This year
for example, our board is committed to paying an annual distribution of
$1.60 per unit, and next year we are committed to paying more than $2.00,
which will be a record distribution for us. We will also get unit price
appreciation as we drive earnings growth, and we have the opportunity to
drive high margin revenue growth with some of the initiatives I mentioned
earlier. This is a company that generates a great deal of cash and we have a
balanced approach to its allocation. We want to make sure we continue to
allocate this cash on a rational basis, where we have choices. “How much is
the distribution?” is always one choice -- which we want to continue to
grow. There is also the degree of leverage we have in the company and how we
continue to pay down debt on a moderate basis. And certainly there are
reinvestment opportunities at the existing parks, and other growth
opportunities that would allow us to expand our portfolio.
Our approach to this strategy is centered on the fact that people have choices. We need to ensure we are the entertainment of choice, the employer of choice and the investment of choice. We believe this perspective provides greater discipline in our decision making process and generates the appropriate amount of managerial restlessness. - Matthew A. Ouimet
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