Slow April May Not Have Hurt Cinemark

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

Cinemark (NYSE:CNK) Holdings will report Q1:13 results before the market open on Tuesday, May 7, and will host a conference call at 5:00am PT (dial-in: 888- 755-8910, webcast: Investor Relations section of www.cinemark.com).

Consensus of $550 million, for adjusted EBITDA of $112 million vs. consensus of $116 million and for EPS of $0.26 vs. consensus of $0.24. We expect consolidated revenue down 6.5 percent primarily attributable to lower domestic attendance and slightly lower consolidated average ticket. We expect consolidated film rental costs to decline 30bps in Q1, driven by fewer blockbusters in the domestic market and some benefit from new VPF agreements added in the international market. In Q1 we expect higher concession costs driven by a mix shift to higher-end concessions in the domestic market.

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Q1:13 domestic box office ended down 12.4 percent year-over-year due to a quiet release slate and a difficult comparison. Q1:13 was up against a strong +24 percent comp that became progressively more difficult throughout the quarter. January ended down 0.6 percent, led by late-December Oscar-nominated releases. February ended down 24.6 percent due to a quiet release slate. March ended down only 12.3 percent despite a difficult comparison of up 38.1 percent from last year’s release of The Hunger Games. Both March and Q1 were led by Oz: The Great and Powerful.

We estimate that international admissions revenue was up 7 percent in Q1.According to our estimates, Cinemark’s international circuit was up 10% in U.S. dollars year-over-year, while the circuit was up 3 percent year-over-year in local currency.

We recently adjusted the timing of slated transactions. The Rave purchase will occur in Q2 or later, and the Mexican theater sale will likely occur in Q3.

We expect Q2 consolidated revenue up 10 percent despite a slow April. Q2 domestic quarter-to-date box office is trending down 12.4 percent. However, May and June include several blockbuster releases. We expect the domestic box office to end up 5 percent, and we expect international admissions revenue to grow by 10 percent or more.

Maintaining our NEUTRAL rating and $29 price target. After accounting for Cinemark’s ownership stake in National CineMedia, we arrive at a $29 price target, which reflects a 6.3x EV/EBITDA multiple on 2014 estimates, in line with its historical multiple and peers. We maintain Cinemark’s multiple to reflect its growth opportunities domestically and internationally, balanced with increasing net debt and our caution given its dependence on economic growth in Latin America.

Michael Pachter is an analyst at Wedbush Securities. 

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