Thoroughbred-horseracing operator Churchill Downs said higher-than-expected costs will boost the price of a planned Oak Grove, Kentucky, hotel-racino and a tough comparison with a year earlier prompted a drop in first-quarter net earnings. However, revenue and adjusted earnings topped Wall Street forecasts.
In a statement Wednesday, Louisville, Kentucky-based Churchill Downs said its net income was $11.6 million, or 26 cents per share, for the three months ended March 31, down from net income of $182 million, or $4.18 per share, a year earlier.
A $168.3 million gain skewed the year-earlier total. The gain was from the $990 million January 2018 sale of Churchill Downs’ Big Fish Games unit to Aristocrat Technologies.
Adjusted net income, which excludes nonrecurring costs, and one-time items, was $25.5 million, or 63 cents per share, topping the 23 cents per share analysts polled by Zacks Investment Research had forecast. A year earlier, adjusted net income was $15.8 million, or 36 cents per share.
Adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure that also excludes nonrecurring costs, rose 51.6 percent to $74.6 million from $49.2 million.
Churchill Downs said a $13.1 million increase related to a 61.3 percent investment in Midwest Gaming in March and the January closing of its $178.9 million acquisition of the Presque Isle Downs racetrack in Erie, Pennsylvania, boosted adjusted EBITDA.
Also during the quarter, Churchill Downs closed a deal for 61 percent of the Rivers Casino and Des Plaines, Illinois.
Quarterly revenue rose 40.2 percent to $265.4 million from $189.3 million and topped the $250.6 million forecast by Zacks-polled analysts.
The company said a $29.7 million increase related to the closure of the Presque Isle Downs deal and an $18.4 million revenue boost related to last August’s acquisition of an outstanding stake in Ocean Downs in Berlin, Maryland, figured in the overall revenue increase.
“The better-than-expected results from acquisitions and development projects should establish increased confidence in the forthcoming growth,” Jeffries & Co. analyst David Katz wrote in a note to investors. “With the forthcoming expectations for the 145th Kentucky Derby on May 4 remaining solid and the potential positive implications for TwinSpires (online gambling platform) and Derby City Gaming (historical racing machine center) also positive, we expect a positive reaction to the results.”
As it released earnings news, Churchill Downs said the aforementioned hotel-racino complex, in Oak Grove, Kentucky, will cost $200 million, or $50 million more than previously projected, because of higher-than-expected building costs and unspecified modifications.
The Louisville Courier-Journal earlier this month reported that Oak Grove will be built in two phases for an estimated $150 million. the first phase will include a harness-racing track, stables, and a paddock, is expected to be open for a 12-day meet in October, the newspaper said.
The second phase, featuring an amphitheater, grandstand and 1,500 historical racing machines, and a 128-room hotel, is expected to be finished by 2020’s first half.
“We are thrilled about the opportunity to build this facility about an hour north of Nashville, Tennessee, which was ranked by Forbes as the seventh-fastest-growing city in America in 2018,” CEO Bill Carstanjen said during a conference call with analysts. “Based on our research of the Nashville area, along with the very encouraging results from our Derby City project, we feel that this increase and investment will exceed our return requirements.”
During the quarter, Churchill Downs said it would institute several horseracing-related safety reforms, including building an $8 million equine medical center at its namesake Louisville thoroughbred track, hiring an equine medical director to oversee the company’s properties and pledging $100,000 toward scientific research on racing injuries.
“As the host of the Kentucky Derby and a key leader in the racing industry, Churchill Downs has a heightened responsibility to implement the world’s best practices for caring for racehorses at our facilities,” Carstanjen said in a statement announcing the changes. “We also have a responsibility to educate and advocate so that others do so as well.”
Churchill Downs shares rose $2.07, or 2.25 percent, Wednesday to close at $94.23 on the Nasdaq. The shares have risen 2.8 percent of the past 12 months.
Follow Matthew Crowley on Twitter @copyjockey
