Churchill Downs tops Street forecasts in Q4; adjusted earnings fall short

February 23, 2023 9:25 PM
Photo: Shutterstock
  • Matthew Crowley, CDC Gaming Reports
February 23, 2023 9:25 PM
  • Matthew Crowley, CDC Gaming Reports
  • United States
  • Florida
  • Kentucky
  • New York
  • Virginia

Boosts from the Kentucky Derby, which set marks for virtually every material metric, and from properties acquired in its deal for Peninsula Pacific Entertainment helped Churchill Downs score record revenue in the fourth quarter, topping Wall Street forecasts. But adjusted earnings per share missed.

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In a statement Thursday, Louisville, Kentucky-based Churchill Downs said its net income was $1 million, or 3 cents per share, for the three months ended Dec. 31, down from net income of $43.3 million, or $1.11 per share, a year earlier.

Adjusted earnings per share, which exclude one-time costs, were $1.46, missing the $1.66 consensus forecast by analysts surveyed by Seeking Alpha.

Adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure that excludes one-time costs, rose 42.2% to $180.7 million from $127 million.

Revenue rose 31.6% to $480.1 million from $364.8 million and topped the $473.7 million consensus forecast of Seeking Alpha-polled analysts.

In the quarter, Churchill Downs closed its $2.75 billion purchase of Peninsula Pacific Entertainment LLC, as well as deals for the Chasers Poker Room in Salem, New Hampshire, and Ellis Park Racing & Gaming in Owensboro, Kentucky.

Churchill Downs’s $62.4 million in revenue attributable to the Virginia properties acquired in the Peninsula Pacific Entertainment transaction and $6.9 million attributable to the Ellis Park and Chasers deals buoyed fourth-quarter revenue.

During a conference call with analysts and journalists, Chief Executive Officer William Carstanjen said progress on improvements to Churchill Downs’ namesake Churchill Downs Racetrack are moving apace. The $90 million First Turn Club and grandstand will be ready for to the 149th running of the Kentucky Derby in May, he said.

“The scope of this complex is stunning,” Carsanjen said of the First Turn Club, “the first time you see it. And it forever changes the personality of this portion of our venue, which historically had been dominated by a series of temporary structures and backup house infrastructure.”

Ticket sales for the soon-to-come have been strong, Carstanjen said, adding that he expects a sellout by race day. Churchill Downs is also upgrading its paddock as part of a $185 million to $200 million project; it will debut in May 2024 for the Kentucky Derby’s 150th running.

The track’s $45 million Homestretch Club opened for the 2022 Kentucky Derby.

Carstanjen said his company will keep expanding its historical racing machine business over the next five to 10 years, spurred by opportunities from the Peninsula Pacific Entertainment deal, which brought the del Lago Hotel-Casino in Waterloo, New York; Colonial Downs Racetrack in New Kent, Virginia; and six Rosie’s Gaming Emporium locations in the six Virginia cities of Collinsville, Hampton, New Kent, Dumfries, Richmond, and Vinton.

He said Churchill Downs will build “a significantly larger historical racing machine facility” in Dumfries, without giving specifics, and is designing a historical racing machine facility in in Owensboro, Kentucky. In December, Churchill Downs bought the outstanding equity interests of Exacta Systems LLC, a Boynton Beach, Florida-based historical horse racing technology company, for $250 million in cash.

“Our overreaching objective is to pursue what we’ve demonstrated we’re good at, growing the Kentucky Derby, developing greenfield and organic opportunities, as well as executing acquisitions that fit our profile,” Carstanjen said, “all of which allow us to grow our company, while maintaining one of the best balance sheets in the industry.”

For the full year ended Dec. 31, Churchill Downs had net income of $439.4 million, or $11.42 per share, up from $249.1 million, or $6.35 per share, a year earlier. Twelve-month revenue rose 12.5% to $1.8 billion from $1.6 billion.

Also, a $59.1 million increase at the Churchill Downs Racetrack, thanks primarily to the 2022 Kentucky Derby running without capacity restrictions that were in place in 2021, helped the company to record full-year AEBITDA of $763.6 million, up 22% from $627 million a year earlier.

Churchill Downs shares rose $1.13, or 0.47%, Thursday to close at $243.82.