A tough comparison with 2017, when a provisional tax benefit from the Trump administration’s tax cut boosted earnings, made the fourth-quarter subdued for racetrack and casino operator Churchill Downs. The company’s net income fell from a year earlier and missed Wall Street forecasts.
In a statement issued after stock markets closed Wednesday, Churchill Downs, which owns five racetracks, six casinos and the Twinspires online betting platform, said its net income was $11.4 million, or 28 cents per diluted share for the three months ended Dec. 31, up from net income of $38.2 million, or 82 cents per diluted share, a year earlier.
Analysts surveyed by Zacks Investment Research had expected Churchill Downs to earn 19 cents per share in the quarter. Investors sold off Churchill Downs on the news; the stock closed at $93.80 on the Nasdaq, down $2.71, or 2.81 percent.
Churchill Downs said the Trump tax cut, which lowered corporate tax rates from 35 percent to 21 percent, yielded a $57.7 million provisional benefit in the 2017 fourth quarter.
Adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure that excludes nonrecurring costs, rose 13.8 percent to $43 million from $37.8 million.
Fourth-quarter revenue was $219 million, matching the forecast of Zacks-polled analysts. The figure is a 22.4 percent rise from $219 a year earlier, helped by a $2.2 million increase from hosting the Breeders’ Cup in November.
“In 2018 … we demonstrated our ability to grow organically on multiple fronts, acquire strategic assets and effectively manage our capital to drive total shareholder return,” CEO Bill Carstanjen said Thursday during a conference call with investors.
Like many gambling industry companies, Churchill Downs has positioned itself to capitalize on sports betting, which became legal nationwide when the U.S. Supreme Court struck down a ban on the practice in May.
On Feb. 8, the company said it launched the BetAmerica sports betting and online casino platform in New Jersey in partnership with the Golden Nugget Atlantic City. Churchill Downs has already been using BetAmerica technology at properties in Mississippi.
On Thursday, Churchill Downs said its interactive unit agreed to use keno-based games in online platforms and mobile apps. Financial terms weren’t disclosed for either deal.
“The largely in-line quarter reflects the continued operating performance that the company has delivered,” Jefferies gaming analyst David Katz told investors.
Wall Street has been bullish about Churchill Downs. The Motley Fool cited S&P Global Market Data Intelligence data showing that the company’s stock rose 13.1 percent in January.
As Motley Fool writer John Ballard pointed out, deals fostered optimism in the company. Churchill Downs closed its $178.9 million deal for Presque Isle Downs in Erie, Pennsylvania, on Jan. 11 and said it will acquire Lady Luck Nemacolin in Farmington, Pennsylvania, by the end of the first quarter. Financial terms of the Lady Luck deal haven’t been disclosed.
Ballard said Churchill Downs’ January 2018 sale of its Big Fish Games mobile games unit to Aristocrat Technologies for $990 million and the November acquisition of a 50.1 percent stake in Rivers Casino Des Plaines in Illinois were also positive.
On Thursday, Churchill Downs said it will boost its Rivers Casino stake to 62 percent in a recapitalization with Midwest Gaming. Through investment, Midwest will boost the stake in Rivers it’s selling to Churchill Downs.
Improvements at Churchill Downs’ namesake horse-racing track also have contributed to the optimism, Ballard suggested. The company built a new infield gate in an $8.3 million upgrade and spent $32 million to improve parking and transportation.
The Louisville Courier-Journal reported this month that the prize purse for this year’s race, set for May 4, is $3 million, up from $2 million in 2018.
“Our strategy for the long-term growth of the Derby is to invest in projects that help more of our guests feel a strong connection to the event and to experience as a participant, not just a spectator, the unique magic that is the Kentucky Derby,” “Carstanjen said during the call.
Churchill Downs’ revenue and operating income both grew 12 percent year over year through the 2018’s first three quarters, Ballard wrote, and analysts forecast the company’s revenue will increase by 25 percent in 2019 to $1.25 billion.
Churchill Downs faced controversy in December, when state regulators fined the company $91,000 for machines at the company’s Derby City gambling center that the state said improperly included replays of races where horses were scratched.
The Courier-Journal said the Kentucky Horse Racing Commission would keep the company under scrutiny until it was satisfied that no Derby City bettors lost money because of glitches.
For the 12 months ended Dec. 31, Churchill Downs had net income of income of $352.8 million, or $8.48 per diluted share, up from net income of $140.5 million, or $2.92 per share, a year earlier.
Net revenue rose 13.3 percent to $1 billion from $882.6 million.
Follow Matthew Crowley on Twitter @copyjockey
