SeaWorld Entertainment (SEAS -0.39%) announced this week that it will be cutting its dividend in half, from $0.21 to $0.10, for the next payout and will be suspending it altogether after that. The company says that this move is "opportunistic" and part of its turnaround strategy. Citi analysts agree, bumping the stock to a buy rating Thursday morning.
SeaWorld has had a rough year that has pushed its stock price down more than 30% year to date following lowered attendance and declining sales and earnings. Is it worth betting on this turnaround, or are there better plays in this industry?
"Opportunistic" -- or shortsighted?
SeaWorld CEO Joel Manby said in the announcement that the company is being "opportunistic about SeaWorld's long-term future" by buying back shares, and that the move will also give SeaWorld the "greatest flexibility to deploy capital to the opportunities that offer the greatest long-term returns to our shareholders." In total, the company plans to buy back $250 million worth of shares total, as approved by the board in 2014, and has approximately $190 million available to do so now.
Manby took over as SeaWorld CEO in April 2015, after the former CEO stepped down amid the business faltering and visitation slowing in the wake of the Blackfish documentary that portrayed SeaWorld as an animal rights violator and increased public pressure on the company to do away with its flagship animal-training attractions. Manby quickly instituted a five-point plan to right the ship, including increased development of non-animal entertainment and attractions.
So why is SeaWorld stating that it will use the money to buy back shares? The idea that the money is being used to bolster short-term earnings per share instead of doubling down on long-term development shows that management is still missing the point, a point that companies like Walt Disney (DIS 0.85%) and Comcast's (CMCSA -1.16%) Universal Studios get: that constant redevelopment and increased entertainment value is what drives theme park growth and long-term shareholder value.
The turnaround plan looks uncertain
Last year, Dennis Speigel, president of leisure-industry consulting company International Theme Park Services, said that SeaWorld will need a complete "reconstitution of their parks" to have a shot at renewed long-term growth. During SeaWorld's most recent earnings call, Manby said that "we are seeing improved results driven by the capital investments we have made in new rides and attractions," citing that one particular new ride, Mako and Cobra's Curse, has received positive reviews in Florida. Still, attendance in the most recent quarter was down nearly 8% from a year ago.
While SeaWorld struggles to regain lost visitors, its stock is not cheap, trading around 55 times earnings. Compare that to Disney, a much-better-performing company that has steadily increased total visitation, successfully raised ticket prices without backlash, increased in-park sales, and recently opened another park in China that is estimated to be one of the most attended parks in the world in its first year open. All of that comes for a price tag less than 17 times earnings.
SeaWorld's move to slash its dividend -- though not surprising, considering that the 6% yield was one of the highest in the industry regardless of the company's performance in the last few years -- doesn't inspire confidence that long-term investment is being prioritized, given that the money will be used for buybacks instead. Could this dividend cut be the start to SeaWorld's turnaround? It could be, but investors should wait to see how management actually uses the money and if it prioritizes long-term development to upgrade the company's parks with modern appeal over shortsighted financial bolstering.