After trading at a $20.70 52-week high, AMC Entertainment (NYSE:AMC) started falling in May after its last earnings report. Business data aggregators picked up AMC’s new approach in accounting for leases, which grossly exaggerated its debt leverage.
Tough year-on-year attendance at theatres also spooked investors. That all changed when the company reported Q2/2019 results.
AMC reported a 6.3% increase in attendance in the second quarter, to 97 million. The 10% increase in beverage revenue and a record $5.58 in food and beverage sales per patron was a record.
Stronger movie releases and the success of its a-List program drove revenue growth in the quarter. With even bigger movie hits getting released throughout the second half of the year, AMC’s revenue will at least meet guidance.
On its conference call, management explained that financial data provider services wrongly interpreted the impact of its ASC 842 on lease accounting:
Even though there was no corresponding adjustment to our cash flows, no change in our interest obligations and no change to our adjusted EBITDA. But the services made it appear that our leverage ratio increased again literally overnight from about five times to over 12 times.
Source: SA Transcript
Now that markets are recognizing the error, AMC stock will keep bouncing back. The stock faces resistance in the $14 range or the 200-day simple moving average. After that, a stock price at $16 - $18 is possible.
Disclosure: Author owns shares of AMC.
