Carmike Cinemas Fills Seats Ahead of the Industry

Source: Thinkstock

Source: Thinkstock

Revenue beat from both concessions and admissions revenue, but EPS miss from higher-than-expected “other” theatre expenses. Revenue was $159 million, compared with our and the consensus estimates of $152 million. Adjusted EBITDA was $21 million, compared with our estimate of $26 million. Adjusted EPS was $(0.12) (excluding $0.02 per share in one-time charges), compared with our estimate of $0.08, and the consensus estimate of $0.01.

National CineMedia’s purchase of Screenvision for $375 million ($225 million cash and $150 million NCMI common stock), will increase Carmike’s liquidity. We had previously valued Carmike’s Screenvision stake at roughly $40 million, but today’s transaction values Carmike’s (NASDAQ:CKEC) 19 percent stake in Screenvision at roughly $71 million. We believe Carmike will use the cash to make accretive exhibitor acquisitions.

Carmike’s Q1:14 metrics were ahead of the industry across the board driven by a family friendly release slate, and the Muvico acquisition. Admissions revenue per screen increased 12 percent year-over-year compared to the domestic industry box office increase of roughly 6 percent. Attendance per screen increased 9 percent compared to the industry attendance growth of approximately 5 percent. Concessions and other sales per patron increased over 8 percent to $4.52.

We are decreasing our FY:14 estimates for revenue to $741 million from $747 million, for adjusted EBITDA to $136 million from $146 million, and for EPS to $1.03 from $1.34 to reflect the higher operating expenses and a lower screen count than we had modeled previously. We are initiating FY:15 estimates for revenue of $820 million, adjusted EBITDA of $157 million, and EPS of $1.45. The company once again did not provide forward guidance.

We are maintaining our OUTPERFORM rating, but lowering price target to $34 from $35.50. Our price target reflects 7.5x EV/EBITDA multiple applied to our 2014 estimate plus roughly $71 million for its Screenvision stake. The multiple is slight premium to its historical multiple, which we believe is justified given improving operating results and revenue growth from recent M&A. There is upside to our price target given the potential for substantial earnings upside should revenue surpass expectations. Acquisitions would be incremental to our estimates.

Michael Pachter is an analyst at Wedbush Securities. 

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