SeaWorld's stock sinks in an ocean of woe

Shares of SeaWorld Entertainment (SEAS), which operates 11 theme parks, plummeted more than 33 percent on Wednesday, hitting an all-time low. The problem: Worries about claims of mistreatment of killer whales at its SeaWorld locations hurt attendance, and it slashed its earnings outlook.

SeaWorld, which is based in Orlando, Fla., fell $9.44 to $18.71 in late afternoon trading. The shares have plunged 34 percent since the start of the year.

Net income in the three months ended June 30 was $37.3 million, or 43 cents per share, reversing a year-earlier loss of $15.9 million, or 18 cents. Revenue dropped 1 percent to $405.2 million during what's considered the company's peak season.

Those results are far worse than the 59-cent profit and $445 million in revenues expected by Wall Street analysts. Overall attendance fell 4.3 percent through June 30, according to the company.

"I was definitely surprised by how bad there quarter was," said Tim Nollen, an analyst with Macquarie Securities, who rates the shares as outperform, in an interview. "I have to say it surprised everyone."

In its earnings release, SeaWorld cited "recent media attention" surrounding a proposed California law that would outlaw killer whale shows as one of the reasons for its attendance drop. The legislation was inspired by a 2013 CNN documentary called "Blackfish" that accused the theme park operator of mistreating orcas.

Two members of Congress from California have introduced a bill calling for a federal study of how confinement affects large marine animals. SeaWorld, which has vehemently denied the film's accusations, acknowledged for the first time that the controversy has hurt sales.

"Suffice to say we're disappointed in the quarter's results and performance," said CEO Jim Atchinson during the earnings conference call, noting that SeaWorld expected to have a "decent summer" and wasn't sure if it suffered a temporary setback.

"But I think if there's one thing that's going to be enduring for us," he added, "it's really maybe trying to reposition our destination parks ... for a more competitive offering versus what else is happening in town."

Tourists also stayed away from SeaWorld's parks, according to the company, because of a late start to summer vacations in some schools, new offerings from rival parks and a delay in opening a new attraction.

Wells Fargo analyst Tim Conder noted on the earnings conference call that neither Walt Disney (DIS) nor Comcast's (CMCSA) Universal resorts noted similar problems with delayed summer vacations. In response, Atchinson noted that SeaWorld is much smaller than its rivals. He added: "For us as an enterprise, we definitely saw some effects from these delayed school breaks for sure."

As a result, SeaWorld is "undertaking a number of initiatives, including a detailed review of our cost structure" so that it could generate "significant" savings in 2014 and 2015, which it plans to reinvest in its attractions. The company is working with an external adviser, which it declined to name. A SeaWorld spokesman declined to comment beyond what was in the earnings release.

SeaWorld doesn't expect business to improve anytime soon. It sees 2014 revenue declining between 6 percent and 7 percent and for profits, excluding some items, to plunge by 14 percent to 16 percent. That's worse than its earlier guidance, which had forecast revenue growth of 2.1 percent.

It tried to cushion the blow of the earnings report by announcing a $250 million share repurchase agreement. But investors were clearly focusing only on the bad news.

  • Jonathan Berr

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