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Feb. 22, 2020, 10:26 a.m. EST

Six Flags stock hammered after surprise loss, downbeat guidance and dividend cut

‘We didn’t think it could get worse … but it just did,’ says one analyst

By Ciara Linnane, MarketWatch


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Flagging performance at theme parks slam Six Flags stock

Shares of theme park operator Six Flags Entertainment Corp. slid 18% Thursday to put them on track for a seven-year low, after the company swung to a surprise fourth-quarter loss, offered downbeat guidance and cut its dividend.

More than 7 million shares (NYS:SIX)  had changed hands by early afternoon, about 4.6 times the 65-day average volume, as investors responded to weak attendance numbers, falling admissions spending and other weak metrics.

“We didn’t think it could get worse … but it just did,” is how Janney analyst Tyler Batory summed it up in a note to clients. Batory rates the stock as neutral.

The Grand Praire, Texas-based company posted a net loss of $11.16 million, or 13 cents a share, after a profit of $79.4 million, or 93 cents a share, in the year-ago period. The FactSet consensus was for EPS of 14 cents.

Revenue fell to $261.0 million from $269.5 million, but topped the FactSet consensus of $260.1 million, as attendance declined 3%. Admissions spending per capita fell 2% and in-park spending per capita rose 3%.

The numbers include charges relating to development agreements in China that were terminated after a Chinese partner defaulted, but the company acknowledged problems at its U.S. base business which excludes international operations and six U.S. parks that began operating since 2018.

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“We are working diligently to formulate a new strategic plan with the goal of restoring sustainable growth in attendance, revenue and profitability, and also to add directors with critical skills and experiences to our board,” the company’s new Chief Executive Mike Spanos, who joined in November, said in a statement.

On the company’s earnings call with analysts, Spanos, who came to Six Flags from PepsiCo, said the company needs to improve single-day visitor attendance and reduce operating costs that have increased at an average 2% rate in the same period as base revenue growth has grown less than 1%.

“Our park teams have worked hard to offset cost headwinds from minimum and competitive wage increases through other cost savings,” he told analysts, according to a FactSet transcript. “However, this has had an adverse effect on the guest experience and created downward pressure in certain areas of our guest satisfaction scores.”

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Interim CFO Leonard Russ, who is replacing Marshall Barber whose retirement was announced in the earnings release, said the attendance decline was due to weakness at parks in Mexico and at Six Flags’ Magic Mountain in Los Angeles. Austerity measures implemented by Mexican President Andrés Manuel López Obrador reduced government-sanctioned school group visits, while an accident at a nearby theme park deterred other visitors, he said.

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“At Magic Mountain, we experienced poor weather, nearby fires and a delay in introducing our major new ride, West Coast Racers, which did not open, until after Christmas,” he said.

The outlook for 2020 remains gloomy, too.

“Soft organic revenue trends, and increasing operating cost headwinds, primarily related to higher minimum and market wages, will be difficult to overcome in 2020,” the company said in a statement.

Six Flags said it’s cutting its quarterly dividend to 25 cents a share from 83 cents, a 70% reduction. However, the implied yield of 2.63% remains above the S&P 500s 1.79%, according to FactSet data.

Oppenheimer analysts Ian Zaffino and Mark Zhang stuck with their bullish outperform rating on the stock and said the numbers were in line with guidance.

“The outlook is mixed as the company will see headwinds in growing organic business and managing costs in FY2020,” they wrote in a note to clients. “However, the dividend reduction helps to de-risk the stock and improve financial flexibility. We will look for details of new management’s strategic plans during its investor day on 5/28.”

Jefferies analysts said they are sticking with a hold rating, welcoming that guidance appears to be “comfortably low.”

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“Changes to management, board, go-forward strategy and ultimately shareholder complexion are still forthcoming, all of which will be key factors in where valuation is re-established,” they wrote in a note. “Weakness in shares should continue.”

Six Flags stock has fallen 45% in the last 12 months, while the S&P 500 (S&P:SPX)  has gained 20%.

Additional reporting by Tomi Kilgore

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