Churchill Revises Earnings Forecast: Stock Price Declines
by Ron Mitchell
Date Posted: 7/1/2004 11:50:57 AM
Last Updated: 7/1/2004 2:30:32 PM

Churchill Downs Inc. has revised its earnings estimates for the second quarter and current fiscal year, primarily as a result of costs associated with the company's efforts to seek legalized alternative gaming in California and Florida and its proposed acquisition of Fair Grounds in Louisiana.

To a lesser extent, the revised forecast is a result of the companys Customer Relationship Management program and softness in business at Arlington Park, Hollywood Park, and the companys flagship track, Churchill Downs in Louisville, Ky.

In a release issued late Wednesday, CDI reported it was lowering its annual per-share earnings estimate by 10%-15% from the previous estimate of $1.70. Per-share earnings for t he second quarter were estimated to be 3% lower than the previously estimated range of $2.10-$2.15 per share.

Churchill president and chief executive officer Tom Meeker said the Churchill Downs and Arlington Park race meets have been hampered by inclement weather. Additionally, Churchills meet has been adversely affected by the ongoing major construction project in which the grandstand and clubhouse are being rebuilt. "The revenue shortfalls we are experiencing at Arlington and Churchill are attributable to a number of things," Meeker said. "We have had terrible weather here (in Louisville) and in Chicago and the construction at Churchill has been difficult."

Due to the nature of the racetrack business, in which revenues are in a state of flux in line with ups and downs of business, Meeker said the company could have met those revenue changes by managing the company's "cost structure."

But CDI would be unable to adjust costs to accommodate the unanticipated costs associated with long-term growth initiatives, primarily ballot initiatives in Calfiornia and Florida. As a result, Churchill was led to amend its quarterly and annual revenue forecasts.

Despite opposition to the slots referendum in California by Gov. Arnold Schwarzenegger, who signed new agreements with five American Indian tribes June 21 that will allow a major expansion of tribal gambling in exchange for billions of dollars in payments to the state over the next 25 years, Churchill is continuing to support a ballot initiative in that state, Meeker said.

Although CDI's efforts in Florida have not been formalized, Meeker said it is likely the company would be part of an effort to get a statewide referendum on the ballot that would permit alternative gaming in Broward and Dade counties, subject to local approval.

With Churchill continuing to seek alternative gaming in other states in which it does business and as the costs associated with the current initiatives fluctuate, Meeker said the company would assess its earnings estimates and adjust them accordingly. "It becomes difficult for us to project," Meeker said. "But as these opportunities avail themselves, we will make the necessary expenditures."

In trading on the NASDAQ exchange, Churchills stock had fallen nearly 6% as of 11:00 Thursday, trading at $38.52. On Wednesday, the stock price rose to a 52-week high of $40.95 before closing at $40.89, according to the Reuters news service.

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