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International Speedway Taps The Brakes

Posted: Jul 10, 2008 12:15 PM by Glenn Curtis

Tickers in this Article: ISCA, TRK

Unless you've been holed up in a cave somewhere, you likely realize that auto racing, and more specifically Nascar, has become outrageously popular. It's been labeled America's fastest growing sport, and I think there is plenty of room for that popularity to grow.

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Even America's fastest growing sport is not immune to the economic slowdown, however. We can see this clearly when we explore the latest results for racetrack operator International Speedway (Nasdaq:ISCA). The company failed to hit estimates, and then put the brakes on the rest of 2008.

Q2 Overview
In the second quarter ended May 31, the company, which is based out of Daytona Beach, Florida, earned $26 million, or 52 cents per share. That's a nice jump from the $18.4 million, or 35 cents per share, it earned in the comparable period last year. If you exclude special items, the company earned 54 cents a share, which sounds even better. The trouble is that Wall Street analysts were expecting 55 cents per share.

Meanwhile, total revenue came in at $174.9 million, which is south of the $182.8 million analysts had been forecasting. (For further reading on analyst expectations, read Analyst Forecasts Spell Disaster For Some Stocks.)

Admission Revenue Dips
There was one line in International Speedway's earnings release that stood out: "During the 2008 second quarter, lower attendance-related revenues contributed to total revenue results that were below expectations." Fact is, admission revenue came in at roughly $53.4 million versus $57.2 million in the comparable period last year. This is a big problem.

It's going to be very difficult to turn around this number. The cost of gas and food is killing the company's blue-collar fan base. This means they are less willing to drive for more than a few hours to see a race, and even if they were willing to drive that far, they likely wouldn't have the money for a ticket once they got to the track.

Another problem is that revenue sources such as food and beverage and merchandise other motor sports revenue, while impressive, could have trouble picking up the slack. Putting people in the seats and making sure they spend heavily while at an event is key. (For related reading, check out Consumer Confidence: A Killer Statistic and Using Consumer Spending As A Market Indicator.)

International Speedway isn't alone here. Speedway Motorsports (NYSE:TRK), which operates popular tracks such as Bristol and Atlanta had some admission issues of its own in the first quarter. Total admission revenue in Speedway Motorsports' Q1 was $53.6 million versus $56.5 million in the comparable period last year.

Bad Guidance
According to the outlook section of the earnings release, International Speedway expects fiscal 2008 non-GAAP earnings guidance of $3.05-3.10 per diluted share. This is a problem. The company had previously forecast earnings of $3.05-3.15 per share, and reducing the high end might turn off a lot of fence sitting investors. In this market, companies can't afford to lower the bar, and it also makes me wonder if there could be more trouble down the road. (To explore the controversies forward looking guidance, read Can Earnings Guidance Accurately Predict The Future?)

The second problem with the lowered guidance is that the sell side had been expecting International Speedway to earn $3.09 per share. Hold the email International Speedway bulls, I realize that's still inline with the forecast, but might this more conservative outlook cause analysts to ratchet down their expectations? If they do, it will further punish the stock.

Final Lap
A slowing economy has hampered International Speedway's ability to put butts in the seats - plain and simple. Investors should always be concerned when they watch a company downgrade earning expectations, and International Speedway is no exception. I expect there will be a better entry point down the road.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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