Churchill Downs stacked enough records in the second quarter to stock a small jukebox: record net revenue and adjusted cash flow at four hotel-casinos, including Rivers Des Plaines in Illinois; record revenue at its Derby City, its high-performing historical racing center; record overall cash flow and net revenue, both topping Wall Street forecasts.
The company, which owns five racetracks, six casinos, and the Twinspires online betting platform, also announced more than $200 million investments in Derby City and its key areas of Churchill Downs racetrack.
The company said it had net income of $108.3 million, or $2.76 per share, for the three months ended June 30, reversing a net loss of $118.8 million, or $3 per share, a year earlier. The latest result topped the $2.62 consensus average forecast of analysts surveyed by Seeking Alpha.
Adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure that excludes one-time costs, were $233.3 million, a more than sevenfold increase from $30.1 million a year earlier.
Revenue surged to $515.1 million from $185.1 million, topping the $483.1 million forecast of Seeking Alpha-polled analysts.
In a statement, Churchill Downs said it will spend $45 million to renovate its Homestretch Club in time for next year’s 148th Kentucky Derby in May. The project will convert outdoor bleachers near the Winner’s Circle into new seating with better views of the starting gate, Big Board, and homestretch.
The company will also spend $90 million on its Turn 1 Experience, which will add 7,100 seats, 5,100 of which are covered, and two concourses. The project is scheduled for completion by the 2023 Derby. In addition, a redesign of Churchill Downs’ Paddock and Plaza areas is in the early stages will finish by Derby Day 2024.
Churchill Downs said it will spend $76 million to upgrade to Derby City Gaming, its 3-year-old historical racing center, adding a five-story, 123-room, hotel tower and 41,000 square feet of new casino floor space.
“Derby City Gaming is even more of a juggernaut than we ever thought,” CEO Bill Carstanjen said in a conference call with journalists and analysts. “And generally in business, it doesn’t have to be complicated; when you have something working well, invest more in what’s working. So Derby City Gaming really powered right through the pandemic and we need to respect that and invest around that.”
Analysts have been positive about Churchill Downs. Bank of America rates it “buy” and Macquarie rates it “outperform.”
In an investors note highlighted by Seeking Alpha, Macquarie analyst Jordan Bender called the Churchill Downs Racetrack an “irreplaceable asset” and said the company should draw a premium valuation multiple.
“An underappreciated part of the investment story, in our view, is the growth through the historical racing machines in Kentucky,” Bender said, referring to Derby City.
Carstanjen said his company has received multiple offers for the Arlington Park racetrack in Illinois, but named no suitors and didn’t elaborate. He added that Churchill Downs will sell excess land around its Calder Casino in Miami Gardens, Florida, and has received multiple unsolicited bids.
Churchill Downs shares fell 68 cents, or 0.36 percent, Friday to close at $185.80 on the Nasdaq. The shares have fallen 1.4 percent in 2021.
Follow Matthew Crowley on Twitter @copyjockey.
