A $42.3 million after-tax gain in 2018’s third quarter skewed year-to-year earnings comparisons for Churchill Downs. But the racetrack company said it plans to spend $300 million renovating its namesake track, the home of the Kentucky Derby.
The Louisville, Kentucky-based gaming operator posted cash flow and revenue that topped Wall Street forecasts.
In a statement, Churchill Downs said its net income was $14.8 million, or 36 cents per diluted share, for the three months ended Sept. 30, down from net income of $56.3 million, or $1.38 per diluted share, a year earlier.
Adjusted earnings per share, which exclude one-time costs, were 55 cents per share in the latest quarter, topping the 50 cents per share forecast of analysts surveyed by Zacks Investment Research.
Adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure that also excludes nonrecurring costs, rose 41.7 percent to $88 million from $62.1 million.
Quarterly revenue rose 38.4 percent to $306.3 million from $221.3 million, topping the $299.7 million forecast of Zacks-polled analysts. A $20.2 million increase from Derby City Gaming bolstered overall revenue.
In a statement separate from the earnings release, Churchill Downs said the major Churchill Downs racetrack renovation will start in December and finish in December 2021. The project will feature a new seven-story, 156-room hotel; its rooms will have trackside suites with private balconies and covered panoramic track views. The hotel will also have a party deck, penthouse banquet room, a 27,000-square-foot ballroom and meeting rooms.
The company said it will also spend $11 million for a new upscale outlet on the Churchill Downs racetrack’s sixth floor to replace the current Millionaires Row. The new space will offer a curated culinary menu and bourbon, wine and champagne service for 350 guests. Renovation will begin in December and finish in time for the May 2 running of the Kentucky Derby, the company said.
“Creating unique experiences for our guests has been the hallmark of the Kentucky Derby,” said Kevin Flanery, president of Churchill Downs Racetrack said in the statement. “This investment will provide another opportunity for us to deliver a luxurious and truly once-in-a-lifetime experience for our guests.”
Jefferies gaming analyst David Katz said the expansion at the historic racetrack “could be among the most compelling” announcement for the company.
“The incremental updates for the Churchill Downs projects and expansion of existing properties should approximately offset any perceived weakness from the quarter,” Katz told investors.
Churchill Downs also moved to expand. On Oct. 3, the company said it will acquire the Turfway Park horse track in Florence, Kentucky, for $46 million. Churchill Downs’ wholly owned subsidiary, NKYRG, is buying the park from Jack Ohio, an affiliate of Jack Entertainment and Hard Rock International.
Following the deal’s expected close, Churchill Downs will demolish the Turfway Park’s existing grandstand and pave the way for a $150 million development.
As it reported third-quarter earnings, Churchill Downs also announced a $100 million expansion of Miami Valley, a greater Cincinnati joint-venture racino with Delaware North Gaming & Entertainment. The project, set for completion in 2021’s second quarter, will add a 192-room hotel, 1,000 parking spaces, up to 250 gaming machines and more than 10,000 square feet of casino floor space.
On Sept. 6, Churchill Downs said it will apply with the Kentucky Horse Racing Commission to host a 2020 winter thoroughbred racing meet at the Churchill Downs racetrack in Louisville.
The company noted it’s building the New Latonia Racing & Gaming training track in northern Kentucky to host thoroughbred racing in future years.
Churchill Downs shares fell $3.38, or 2.53 percent, to close at $129.99 in regular trading on the Nasdaq but rose after hours climbing 67 cents or 0.52 percent to reach $130.66 at 4 p.m. PDT. The share price has risen 60.8 percent in 2019.
Follow Matthew Crowley on Twitter @copyjockey
