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Six Flags Cuts Dividend After a Tough Year for Theme Parks

By Demitri Kalogeropoulos - Feb 20, 2020 at 8:48AM

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The cut came as a surprise to investors, given that the theme park operator had consistently raised its dividend over the past nine years.

Six Flags (SIX -2.17%) on Thursday announced weak growth and earnings metrics for the fourth quarter of 2019 while projecting a difficult year ahead for the theme park business.

Riders on a roller coaster.

Image source: Getty Images.

What happened?

The leading regional theme park operator had plenty of bad news for investors in this latest report, including the confirmation that its partner in China has defaulted on its payments, which all but ensures no revenue or income from that market in 2020. But investors were more focused on the fact that attendance and cost trends are both moving in the wrong direction in the core U.S. business. Guest spending ticked lower, attendance fell 3%, and costs increased in the fourth quarter. These factors combined to push pre-tax earnings down to $10 million from $116 million a year ago.

What's next?

Citing "challenges related to its base business," Six Flags' management team has decided to ramp up its investments into its parks so that it can boost attendance levels and spur higher guest spending. The investments should also give it room to raise ticket prices to more fully offset higher variable costs like wages. This rebound strategy might begin lifting results as early as 2021, but until then investors can expect more sluggish growth and spiking capital spending. That's why, to help protect cash, Six Flags slashed its dividend to $0.25 per share from $0.83 per share.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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