Churchill Downs rode a blockbuster deal into its fourth-quarter earnings call: the $2.49 billion acquisition of Peninsula Pacific Entertainment LLC. It also received a key legislative approval to proceed with a new $240 million to $260 million casino in Indiana.
Then the parent company of the famous Kentucky Derby-hosting thoroughbred horse track dropped the head-turning news that it is exiting the online sports betting business.
Amid the excitement, Churchill Downs posted Wall Street forecast-topping earnings per share and revenue, sending the company’s stock up nearly 12% in regular trading.
In a statement Thursday, Louisville, Kentucky-based Churchill Downs said its net income was $43.3 million, or $1.11 per share, for the three months ended Dec. 31, up from net income of $17.1 million, or 43 cents per share, a year earlier. The result topped the $1.05-per-share consensus forecast of analysts surveyed by Seeking Alpha.
Adjusted earnings before interest, taxes, depreciation, and amortization, a cash-flow measure that excludes one-time costs, rose 60.3% to $127 million from $79.2 million.
Revenue rose 24.7% to $364.8 million from $278.2 million and topped the $362.5 million consensus forecast of Seeking Alpha-polled analysts.
Churchill Downs shares rose $25.65, or 11.73%, to close at $244.26 on the Nasdaq.
By acquiring Peninsula Pacific Entertainment, Churchill Downs will own the del Lago Resort & Casino in Waterloo, New York; Colonial Downs Racetrack in New Kent, Virginia; and six Rosie’s Gaming Emporium locations in the Virginia cities of Collinsville, Hampton, New Kent, Dumfries, Richmond, and Vinton. Churchill Downs will also acquire the rights to build the Dumfries Hotel-Casino in Northern Virginia.
Also under the deal, Churchill Downs will sell the property associated with Hard Rock Sioux City in Sioux City, Iowa, to an unnamed third party and lease it back to run the casino. Churchill Downs will also acquire the rights to a partnership with Urban One to develop ONE Hotel-Casino, a $565 million project in Richmond, Virginia.
The companies expect the deal to close by year’s end.
On Tuesday, Jeffries reiterated a “buy” rating on Churchill Downs stock and analyst David Katz said the deal positions Churchill Downs to grow in specific areas where it has demonstrated operating strength in the past: racing and historical-racing-machine casino operations.
“And it provides growth into a new, underpenetrated Virginia market,” he told Seeking Alpha. “Notwithstanding time to closing, property ramp-up, and future development, the deal adds to the heft of the already robust, unique, growth pipeline for CHDN. We consider any potential near-term weakness as an opportunity to accumulate shares.”
Meanwhile, the Indiana Gaming Commission’s awarding of Indiana’s open casino license for Vigo County means Churchill Downs can proceed on its Queen of Terre Haute project, which will go up on 50 acres off Interstate 70 and draw visitors from metropolitan Indianapolis. The company expects to start building in May and open
in late 2023.
During the conference call with analysts and journalists, Churchill Downs CEO Bill Carstenjen said that although his company will keep its TwinSpires web-based horse betting operations and had profitable sports books in four casinos, it will exit sports betting within the next six months.
“The online sports betting and online casino space is highly competitive with an ever-increasing number of participants that the states have licensed,” he said.
“Many are pursuing maximum market share in every state with limited regard for short-term or potentially even long-term profitability. … We do not see for us a path in which this business model delivers predictable and acceptable margins for at least several years, if ever.”
For the full year, Churchill Downs had net income of $249.1 million, reversing a loss of $81.9 million. Twelve-month revenue rose 45.5% to $1.6 billion from $1.1 billion.
Follow Matthew Crowley on Twitter @copyjockey
