Investing.com — Cinemark Holdings (NYSE:CNK) Inc.’s outlook has been revised from stable to positive due to strong box office expectations. The company’s S&P Global Ratings-adjusted leverage stood at 3.2x as of September 30, 2024, slightly above the 3x upgrade threshold. However, with a robust lineup of films set to release in 2025, the company is expected to see significant growth and leverage reduction over the next year.
Despite the ‘BB-‘ rating remaining unchanged, the positive outlook signifies expectations of Cinemark reducing its S&P Global Ratings-adjusted leverage to the mid-2x area within the next 12 months. This information was released by S&P Global Ratings on January 23, 2025.
Following a challenging first half of 2024 due to the impact of Hollywood strikes in 2023, the second half saw a stabilization in production and release schedules. This positive trend is anticipated to continue into 2025, with numerous major films set to premiere. The domestic box office is projected to reach around $9.5 billion in 2025, a growth of over 10% compared to 2024.
Although Cinemark is expected to benefit from these industry tailwinds, growth is predicted to be slightly lower than the industry average due to the company’s relative outperformance in 2024. It’s anticipated that Cinemark will boost its revenue by 8%-10% in 2025, aided by increased theater utilization leading to a modest improvement in EBITDA margin.
The company is projected to lower its S&P Global Ratings adjusted leverage to below 3x within the next year. As of the third quarter of 2024, Cinemark’s leverage was 3.2x, just above the ‘BB-‘ rating’s 3.0x upgrade threshold. With strong box office releases and significant earnings growth expected, the company’s leverage is forecasted to reduce to the mid-2x area in 2025. Despite an anticipated increase in capital expenditure to about $225 million in 2025, operations are expected to support deleveraging and a rise in reported free cash flow to over $300 million.
However, potential macroeconomic volatility could impact theatrical performance. Although cinema attendance has generally remained resilient during economic downturns, the current state of the industry presents unique challenges. With average ticket prices at record highs and consumers having more in-home viewing options, an economic recession could lead to consumers opting for lower-cost in-home viewing options. This could result in exhibitors having to adjust their pricing strategies for tickets and concessions, potentially leading to lower total revenue than currently planned.
The positive outlook is based on the expectation that Cinemark will reduce its S&P Global Ratings-adjusted leverage to the mid-2x area over the next 12 months. However, fluctuations in theatrical attendance could potentially delay this leverage reduction.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
