The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Cinemark’s (NYSE:CNK) international attendance growth a surprise, leading to Q2 upside. Revenue was $650 million vs. our estimate of $627 million and consensus of $631 million. U.S. revenue was $441 million vs. our estimate of $443 million, while international revenue was $208 million, vs. our estimate of $184 million. EPS was $0.45compared to our estimate of $0.38, and consensus of $0.38.
Growth in the international segment outpaced our expectations. International revenue increased 17% y-o-y, vs. our expectation for a 3% increase in U.S. dollars. Growth in attendance per average screen in Latin American was up 6% vs. our down 8% estimate, despite a difficult comparison of up 14% last year, accounting for the upside. Unfavorable exchange rates negatively impacted international average ticket, down 5% in Q2 compared to our down 4% estimate. International concessions revenue per attendee was flat y-o-y vs. our up 4% estimate, but with higher attendance in the region, Q2 concessions revenues were up 21%.
Organic growth internationally will likely be augmented by domestic acquisitions in the coming quarters. Given the rapid changes in the exhibition industry, we expect many smaller theater chains to be acquired by the larger chains as the shift to digital has become cost prohibitive. Cinemark expects to continue M&A activity domestically, and does not expect it borrow further for acquisitions as it continues to grow EBTIDA and pay down its debt.
Domestic box office is tracking down 4.7% in Q3. While The Dark Knight Rises is performing well under the circumstances of the shooting incident on opening night, we suspect the Olympics has had a more substantial impact on recent attendance. Altogether, we remain optimistic about Q3 box office, given easier comparisons in August and September, a longer theater run for TDKR than previously expected, and a relatively strong upcoming release slate.
We increased our FY:12 estimate for revenue to $2.47 billion from $2.45 billion and our estimate for EPS to $1.61 from $1.54 to reflect the Q2 beat. We are maintaining FY:13 estimates for revenue of $2.55 billion and EPS of $1.75.
Maintaining our NEUTRAL rating and $24 price target. After accounting for Cinemark’s (NYSE:CNK) ownership stake in National CineMedia, we arrive at a $24 price target, which reflects a 6.2x EV/EBITDA multiple on 2013 estimates. Cinemark’s multiple reflects its growing international footprint and lower debt ratios, while maintaining caution given its dependence on economic growth in Latin America.
Michael Pachter is an analyst at Wedbush Securities.
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