The Devil Is in Six's Details

Even if the economy throws more curves than its signature coasters, Six Flags (NYSE: SIX) is positioning itself to weather the storm this year.

This morning's quarterly report out of the regional amusement park operator is encouraging, with momentum carrying over after a robust finish to 2007, and a 42% surge in EBITDA (adjusted earnings before interest, taxes, depreciation, and amortization) projected for 2008.

Investors normally should not read too much into the final quarter of a company that relies on the summer season to drive the bulk of its performance, but the abridged results bear pointing out.  

Thanks to a healthy December, Six Flags' revenue climbed 7% to $112.1 million. With a 4% spike in per-capita spending, stacked on top of a 4% increase in turnstile clicks, the company's top-line results topped Wall Street's expectations. It missed on the bottom line, though. The net loss from continuing operations widened -- from $1.12 a share to $1.43 a share -- but the deficit is padded by non-cash charges like accounting for the removal of poorly performing rides as well as additional stock-based compensation.

Perhaps the biggest news out of this morning's conference call is the upbeat outlook and improved recent performance. A strong December has carried over into year-over-year improvement so far during the first quarter. Sure, most of the parks are still closed, but it's encouraging to see Six Flags improving despite higher gasoline prices and an iffy economy. Those factors may actually be helping the company as locals spring for attractively priced season passes as a substitute for costlier getaways further away.

The company's guidance calls for $270 million in adjusted EBITDA this year, well ahead of the $189.5 million it generated last year. That is based on flat attendance and a modest 1% rise in guest spending. If admissions climb by 3% during the year instead, Six Flags would post its first year of positive free cash flow in recent history.

The cheery outlook was enough to send battered shares of the company soaring 12% at the open, but that's what the market gets for assuming that Six Flags was just going to keel over and file for bankruptcy.

Six Flags is a speculative enigma. Despite the puny market cap, its enterprise value is padded by a whopping $2.2 billion in long-term debt. That is the kind of leverage that will kill you in bad times but pay off handsomely on the other end of a turnaround.

The jury is still out as to how 2008 will play itself out for the amusement park industry. High-end players like Disney (NYSE: DIS) and Great Wolf Resorts (Nasdaq: WOLF) are seeing patrons willing to spend more than they did a year ago. It's now a mixed bag with the regional operators like Six Flags and Cedar Fair (NYSE: FUN).

Last month found Cedar Fair projecting just a 0% to 4% improvement in adjusted EBITDA for 2008. Six Flags is obviously expecting more. Granted, there are some company-specific factors weighing in the improvement at Six Flags.

Despite losing Home Depot (NYSE: HD) as a corporate partner, new partnerships and initial contributions from the company's licensing deal in Dubai, along with lower debt payments and operating improvements, give Six Flags more ground to make up this year.

With so much at stake, especially if Six Flags is able to turn it up a notch to quiet the critics by generating positive free cash flow, this ride may be as surprising as some of the chain's new enclosed coasters.   

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