No Great Thrill

Summer is just over the next rise, but Six Flags (NYSE: PKS), the world's largest operator of regional theme parks, is posting financial results that are just plain scary.

Last night, the company reported first-quarter revenue up 2.2%, accompanied by an 8% jump in costs and expenses. Six Flags also took a $70 million write-off for the sale of its Cleveland theme park to Cedar Fair (NYSE: FUN), and a $220 million write-off for seven parks sold in Europe. The result was a gut-wrenching net loss of $404 million.

On the bright side, after two years of falling attendance, Six Flags hopes to see things improve as they have for competitors Disney (NYSE: DIS) and Anheuser-Busch (NYSE: BUD). Meanwhile, Six Flags can reduce its debt using the $345 million received from the theme park sales. The bad news is that total debt stands at two times revenue -- a frightening level.

Perhaps most troubling is that the company has cut capital spending from $334 million in 2000 to $75 million this year. It's generally acknowledged that new rides drive attendance, and after multiple years of both declining attendance and capital spending, investors have to wonder if the strategy isn't more flawed than fiscally prudent.

"It's Playtime," declares Six Flags' first national ad campaign in seven years. Maybe, but more than clever ads, management needs to deliver on its promise to increase spending for repair and maintenance. Favorable word-of-mouth about how the actual parks look and run may have more to do with 2004 attendance and results than many realize.

Analysts, for whatever reason, are expecting improvements. To be sure, the economy looks better, and other park operators are doing well. The argument must be that the Six Flags ship will rise with the tide. But it'll be a red tide: Analysts expect losses of $0.49 per share in 2004 and $0.32 in 2005.

As for the stock, it's up a rather anemic 6% over the past year. So far, investors aren't buying the "lower losses are good" pitch. Things are going to have to change for Six Flags to reward shareholders for sticking with a company that has produced years of less-than-entertaining results.

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Fool contributor W.D. Crotty owns Disney.