After taking Investors On A Wild Ride, Can Six Flags Redeem Itself?

Source: Six Flags. 

After announcing revenue and earnings results for the second quarter of its 2014 fiscal year on July 21, shares of Six Flags Entertainment (NYSE: SIX  ) dropped 4% before recovering a bit on Jul. 22. In spite of seeing a nice uptick in profits, the company suffered from a shortfall in revenue as price increases failed to compensate enough for declining traffic. With these thoughts in mind, is now the time to abandon Six Flags and opt for The Walt Disney Company (NYSE: DIS  ) or Comcast (NASDAQ: CMCSA  ) -owned Universal Studios, or is there some positive light to the company's results?

Six Flags just couldn't impress
For the quarter, Six Flags reported revenue of $376.6 million. Although this came in 3.5% higher than the $363.7 million management reported during the second quarter last year, the business's top line fell short of the $396.3 million analysts anticipated. According to the company's earnings release, this disappointing rise in sales is attributable to an 8% drop in traffic year over year, offset by increased prices.

  Last Year's Forecasted Actual
Revenue $363.7 million $396.3 million $376.6 million
Earnings per Share $0.47 $0.65 $0.67

Source: Yahoo! Finance and Six Flags.

Even though management was unable to please shareholders on the revenue front, the business did manage to outperform on the bottom line. For the quarter, the company reported earnings per share of $0.67, 3% higher than the $0.65 Mr. Market wanted to see, and 43% above the $0.47 the company reported in last year's quarter. Despite lackluster sales, Six Flags reported higher earnings because of a general decline in costs in relation to sales, but mostly because of a $10 million gain on the sale of an investee.

Six Flags is flying at half-mast
The past few years have been alright, but far from great for Six Flags. Between 2011 and 2013, sales at the company rose 9.5% from $1 billion to $1.1 billion. According to the company's most recent annual report, this rise in sales was driven largely by its theme park admissions, which, in turn, rose because of an almost 8% improvement in attendance from 24.3 million guests to 26.1 million. At first glance, this may seem impressive, but when you look at the parks and resorts owned by rivals Comcast and Disney, it's clear that Six Flags has a lot of ground to make up if it wants to stay relevant.

Source: Disney.

Over the same three-year period, Comcast's Theme Parks segment saw sales climb a whopping 12% from $1.99 billion to $2.24 billion. This jump in sales can be chalked up to higher attendance rates, but it must also be attributed to increased spending per capita. The attractions management touted in discussing what factors drew customers to Comcast's parks were The Wizarding World of Harry Potter and Transformers.

During this timeframe, Disney did even better. Between 2011 and 2013, Disney's Parks and Resorts segment reported a 19% leap in revenue from $11.8 billion to $14.1 billion. Most of this jump in sales was driven by the company's domestic parks, which saw sales shoot up more than 22% from $9.3 billion to $11.4 billion, while the company's international parks reported a more modest 8% top-line growth. Like Comcast, Disney's higher revenue was due to a combination of higher attendance and higher spending on a per capita basis.

Foolish takeaway
Right now, the picture doesn't look too pretty for Six Flags. Yes, the business has seen growth in recent years, but its performance has significantly lagged its larger peers. This, combined with lackluster quarterly performance showing declining attendance in the face of higher costs, implies that the business may not be an ideal play for the Foolish investor seeking growth prospects. Instead, Disney and Comcast, both of which have a larger footprint and have demonstrated an ability to grow more rapidly than Six Flags, may be nice, and possibly safer, alternatives.

Disney's next wild ride!
If you think Disney's (or anybody's) rides are wicked, wait until you hear about the next big trend that will open the door to a $2.2 trillion industry for the world's happiest company. Right now, cable has a big piece of it. That won't last. And when cable falters, three companies, one of them Disney, are poised to benefit. Click here for the other names.


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