Canterbury Park Holding Corp. :CPHC-US: Earnings Analysis: Q2, 2017 By the Numbers : August 21, 2017

Canterbury Park Holding Corp. reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Canterbury Park Holding Corp. – Churchill Downs Incorporated, Dover Downs Gaming & Entertainment, Inc., Scientific Games Corporation Class A, Penn National Gaming, Inc., Eldorado Resorts Inc, Golden Entertainment, Inc., Full House Resorts, Inc. and International Speedway Corporation Class A (CHDN-US, DDE-US, SGMS-US, PENN-US, ERI-US, GDEN-US, FLL-US and ISCA-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 15.85 million, Net Earnings of USD 0.72 million.
  • Gross margins widened from 27.67% to 32.83% compared to the same period last year, operating (EBITDA) margins now 11.16% from 3.78%.
  • Year-on-year change in operating cash flow of 57.73% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from -0.67% to 7.52%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 15.85 11.44 11.6 16.63 13.89
Revenue Growth (%YOY) 14.12 10.1 8.57 -1.31 -6.48
Earnings (mil) 0.72 0.51 0.68 0.93 2.27
Earnings Growth (%YOY) -68.5 65.08 -28.23 13.87 297.95
Net Margin (%) 4.52 4.48 5.9 5.57 16.38
EPS 0.16 0.12 0.16 0.21 0.53
Return on Equity (%) 1.91 1.39 1.89 2.61 6.64
Return on Assets (%) 5.22 4.04 5.6 7.41 18.27

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Market Share Versus Profits

Revenues History
Earnings History

CPHC-US‘s change in revenue this period compared to the same period last year of 14.12% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that CPHC-US is holding onto its market share. Also, for comparison purposes, revenues changed by 38.48% and earnings by 39.68% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 27.67% to 32.83%, while operating margins improved from 3.78% to 11.16% over this period. For comparison, gross margins were 30.72% and EBITDA margins 13.17% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

CPHC-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 19.79, compared to last year’s level of 14.84 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

CPHC-US‘s change in operating cash flow of 57.73% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from -0.67% to 7.52%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 27.71% to 7.59%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Canterbury Park Holding Corp. hosts and manages pari-mutuel wagering activities. It operates through the following segments: Horse Racing, Card Casino, and Concessions. The Horse Racing segment includes simulcast and live horse racing operations. The Card Casino segment holds unbanked card games. The Concessions segment sells food and beverages in gaming events. The Company was founded by Curtis A. Samson, Randall D. Sampson, and Dale H. Schenian on March 24, 1994 and is headquartered in Shakopee, MN.

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