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Why Six Flags Entertainment Stock Dropped Thursday

By Steve Symington – Feb 21, 2020 at 8:31AM

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After a difficult end to 2019, the amusement park operator expects more challenges in the year ahead.

What happened

Shares of Six Flags Entertainment (SIX -6.84%) fell 16.1% on Thursday after the theme park operator announced a surprise quarterly loss and worrisome forward guidance.

So what

Indeed, Six Flags' quarterly revenue declined 3.2% year over year to $261 million, driven by a 3% decrease in attendance and a 1% drop in revenue from sponsorship, international agreements, and accommodations. On the bottom line, that translated to a net loss of $11.2 million, or $0.13 per share, swinging from net income of $79.4 million, or $0.93 per share, in the same year-ago period.

Analysts, on average, were expecting the company to deliver net income of $0.15 per share on slightly lower revenue of $260 million.

Stock market chart and data with a red arrow indicating losses.

IMAGE SOURCE: GETTY IMAGES

To be fair, Six Flags explained in its earnings press release that after its partner in China defaulted on its payment obligations in 2019, the company opted to terminate its development agreements with that partner earlier this month. This quarter's losses included around $10 million in charges related to the termination of those agreements, as well as a related valuation allowance for foreign tax credits.

Still, recently appointed CEO Mike Spanos remained optimistic, saying his first three months at the post "only reinforced [his] belief that Six Flags is a beloved brand with loyal guests and dedicated employees."

Now what

"I also believe that the company has the ability to improve its performance," Spanos added, "We are working diligently to formulate a new strategic plan with the goal of restoring sustainable growth in attendance, revenue and profitability, and also to add directors with critical skills and experiences to our board."

Meanwhile, Six Flags told investors to expect adjusted EBITDA for 2020 in the range of $435 million to $465 million -- down from $527 million in 2019 -- given a combination of "soft organic revenue trends" and operating cost headwinds from higher wages.

Six Flags promised more details on its new strategic plan to overcome these challenges at an investor day on May 28, 2020. But in the meantime, it's hard to blame skittish investors for stepping off this stomach-churning ride.

Steve Symington 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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Six Flags Entertainment Corporation Stock Quote
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