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Racing, gaming, and entertainment company Churchill Downs (NASDAQ:CHDN) reported Q2 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 15.9% year on year to $890.7 million. It made a non-GAAP profit of $2.89 per share, improving from its profit of $2.24 per share in the same quarter last year.
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Churchill Downs (CHDN) Q2 CY2024 Highlights:
- Revenue: $890.7 million vs analyst estimates of $858.7 million (3.7% beat)
- EPS (non-GAAP): $2.89 vs analyst estimates of $2.70 (6.8% beat)
- Gross Margin (GAAP): 43.6%, up from 38.9% in the same quarter last year
- Free Cash Flow of $214.5 million, up 115% from the previous quarter
- Market Capitalization: $10.41 billion
Gaming SolutionsGaming solution companies operate in a dynamic and evolving market, and the digital transformation of the gaming industry presents significant opportunities for innovation and growth, whether it be immersive slot machine terminals or mobile sports betting. However, the gaming solution industry is not without its challenges. Regulatory compliance is a crucial consideration as companies must navigate a complex and often fragmented regulatory landscape across different jurisdictions. Changes in regulations can impact product offerings, operational practices, and market access, requiring companies to maintain flexibility and adaptability in their business strategies. Additionally, the competitive nature of the industry necessitates continuous investment in research and development to stay ahead of competitors and meet evolving consumer demands.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Thankfully, Churchill Downs's 17.2% annualized revenue growth over the last five years was decent. This shows it was successful in expanding, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Churchill Downs's annualized revenue growth of 23.9% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
We can dig further into the company's revenue dynamics by analyzing its most important segments, Horse Racing and Gaming, which are 55% and 30.8% of revenue. Over the last two years, Churchill Downs's Horse Racing revenue (live and historical) averaged 64.6% year-on-year growth while its Gaming revenue (casino games) averaged 18.1% growth.
This quarter, Churchill Downs reported robust year-on-year revenue growth of 15.9%, and its $890.7 million of revenue exceeded Wall Street's estimates by 3.7%. Looking ahead, Wall Street expects sales to grow 11.7% over the next 12 months, a deceleration from this quarter.
Cash Is KingRead MoreIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Churchill Downs has shown poor cash profitability over the last two years, putting it in a pinch as it gave the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin averaged 2.4%, lousy for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Churchill Downs to make cash investments in working capital (i.e., stocking inventories) and capital expenditures (i.e., building new facilities).
Churchill Downs's free cash flow clocked in at $214.5 million in Q2, equivalent to a 24.1% margin. This quarter's result was good as its margin was 22.9 percentage points higher than in the same quarter last year, but we wouldn't read too much into it because working capital and capital expenditure needs can be seasonal, leading to quarter-to-quarter swings. Long-term trends carry greater meaning.
Key Takeaways from Churchill Downs's Q2 ResultsIt was good to see Churchill Downs beat analysts' revenue expectations this quarter. We were also glad its Horse Racing revenue outperformed Wall Street's estimates. Overall, we think this was a strong quarter that should satisfy shareholders. The stock traded up 4.2% to $143 immediately after reporting.
