Zacks_Analysts' Blog : Marcus Reports In line - Analyst Blog

The Marcus Corporation (MCS) recorded second quarter 2011 earnings of 7 cents per share, compared with a loss of a penny in the year-ago quarter, but in line with the Zacks Consensus Estimate.

The entertainment and lodging company’s revenues upped 4.0% year over year to $86.7 million and surpassed the Zacks Consensus Estimate of $85 million. The upside in revenues was driven by a solid performance of the company’s lodging division, Marcus Hotels and Resorts, offsetting the weak performance of the movie theater division, Marcus Theater.

The Milwaukee-based company’s lodging division posted a 13.0% hike in revenues and revenue per available room (RevPAR) increased 14.5% in the quarter as it experienced an increase in occupancy levels in all eight of its company-owned properties due to the economic recovery resulting in a return of business travelers with leisure demand picking up as well. 

Marcus’ theater division reported a drop of 4.0% in revenues, given fewer strong-performing films. The company is receiving encouraging responses from customers for 3D movies and expects the holiday season to be strong as three to four 3D films releases are in the pipeline.

Operating income of Marcus spiked up 174.8% to $5.4 million in the reported quarter. Operating margin expanded 380 basis points (bps) to 6.2% driven by upside in revenue and drop in theater operation cost.

Interest expense fell from $2.6 million to $2.7 million, primarily due to reduced borrowings.

 

Financial Position

At the end of the quarter, the company had cash and cash equivalents of $9.5 million, long- term debt of $187.5 million and shareholders' equity of $341.0 million. The company’s debt to capitalization ratio was 40% at the end of the second quarter.

Our Take

The company’s earnings were stronger than the prior-year quarter and it is making efforts to improve results at its theater division. In the second quarter of 2010, Marcus’ theater purchased a 16-screen theatre in Appleton and recently bought 10 acres to construct a movie theater in GreenOaks, Ill., a northern Chicago suburb.

The estimates have not budged in the last 60 days, so we do not expect much movement in estimates. The Zacks Consensus Estimate for the third quarter of 2011, fiscal 2011 and 2012 is 6 cents, 58 cents and 61 cents, respectively.

Marcus’ primary competitor - Choice Hotel International Inc. (CHH) will release its fourth quarter earnings results on February 7 and the other - Orient Express Hotels Ltd (OEH) will release its fourth quarter earnings results on February 16.

Marcus currently retains a Zacks #3 Rank, which translates into a short-term Neutral rating.