Deep Six for Mr. Six?

Going downhill is great on a coaster, but terrifying for investors. Shares of regional amusement park operator Six Flags (NYSE: SIX  ) fell by as much as 21% this morning, hitting a new all-time low after the company posted disappointing third-quarter results. (To revisit last quarter, board the time machine here.)

Revenue fell by 2% to $465.2 million, as gains in per capita revenue weren't enough to offset a 3% turndown at the turnstiles. A net profit of $0.61 per share from continuing operations is below the $0.85 per share it earned a year ago, and well below Wall Street's expectations.

The park-level performance is similar to what we saw out of Cedar Fair (NYSE: FUN  ) earlier this week. The difference here is that Cedar Fair had a cruel August. Six Flags came undone in July, as unfavorable weather led to a 9% dip in attendance. The crowds stabilized in August before coming through with an 8% uptick in the seasonally softer September.

The market's reaction is understandable. Even though Six Flags has a firm strategy in place to turn cash flow positive next year, investors know they have to sit through three lame quarterly reports between now and next November. That's how it goes in the regional amusement park industry. The results are strong in the summer but forgettable during the off-season.

Shareholders have had it rough with Six Flags lately. Since peaking in February of 2006, the stock has surrendered more than 80% of its value. This doesn't mean the market believes Six Flags is worth 80% less as a company. Market cap is a small part of the story, as the chain's enterprise value is padded by $2.2 billion in debt.

Yes, that's a troublesome amount of leverage for a company hoping to simply turn cash flow positive next year, but Six Flags has another three years before it has to tackle that monster.

It isn't cotton candy sweet, of course. The company is turning its thrill havens into more well-rounded family-friendly entertainment at the worst possible time, with gas prices booming and homeowners defaulting on their subprime mortgages. Disney (NYSE: DIS  ) is doing just fine, but Cedar Fair and Six Flags are no Disney. 

However, Six Flags is starting to think a lot more like Disney. It has acquired entertainment properties that it will be able to package into unique -- yet cheaper to produce -- in-park entertainment next year. It's aligning itself with quality brand sponsors like Papa John's (Nasdaq: PZZA  ) , Nintendo, and Home Depot (NYSE: HD  ) . It's reaching out with licensed attractions themed to kid magnets like The Wiggles and Thomas the Tank Engine.

As a recent investor in Six Flags, I'm disappointed with this morning's numbers, but I'm not entirely surprised. It takes years to reposition a brand that was neglected by the previous regime. And even though the market may not like certain line items in this morning's report like upticks in marketing and in-park labor expenses, I see that as a commitment from Six Flags to make sure it hammered home its emphasis on refashioning itself as a place where rides stay open and families leave happy.

Happy people on the way out will mean happy people on the way in, early in the 2008 season. That can be contagious. Let's hope so, because shareholders long to party with the happy people.         

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