480,000 Fewer Screams

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Scream! It's OK. The scary, mostly downhill ride for regional theme-park operator Six Flags (NYSE: PKS) continues. The stock is down 15% today to a new 52-week low.

The latest earnings report fuels speculation that the downhill ride has not bottomed. Attendance fell 4%. That's 480,000 fewer people.

The good news, if it can be called that, was the smaller net loss. The other good news (ready?) was the company reduced its debt by downsizing from 39 to 31 theme parks. Debt is still approximately two times sales -- that's scary.

The company blamed a poor economy and weather for the downbeat results. Competitor Cedar Fair (NYSE: FUN) confirmed this with a less-than-FUN decrease in revenue for its latest quarter.

There were bright spots. Destination parks did well. This strength might bode well for Disney's (NYSE: DIS) parks when the Mouse reports results after today's close. Six Flags also saw improved results where it made capital investments.

After a thrill-ride plunge in capital spending from $334 million in 2000 to $130 million in 2003, the company spent only $75 million in 2004. Guess what? Where new rides were installed, attendance was up. (Who would have guessed that'd happen?)

So, debt-heavy Six Flags plans to increase attendance in 2005 by ramping up capital spending to $125 million. Ah, was that a bottoming out? Are operating results ready to bottom out, too?

Consider that Six Flags is not Anheuser-Busch (NYSE: BUD). There is no other revenue stream to cover shortfalls at theme parks. Remember, too, that Six Flags is guiding expectations down for 2004, and it will be 2006 before it becomes free cash flow positive.

The reality at Six Flags, besides there being no clear view of 2006, is that debt is holding it hostage. A terrorist attack, a gas shortage, or a significant economic downturn would significantly hurt this company, especially if it happened during the third quarter, when the company makes money. Learning that there were 480,000 fewer screamers was bad news. When your interest payment is $73.8 million for a quarter, bad news is not what you can afford.

Do you see good news or bad news ahead for Six Flags? Share your thoughts on the Fool discussion board for Six Flags. Or spend your time exploring the many Fun & Games alternatives.

Fool contributor W.D. Crotty owns stock in Disney.