SeaWorld Entertainment (NYSE:SEAS) keeps sinking. The chain of marine life-themed amusement parks posted another disappointing quarterly report on Wednesday. Revenue fell 8% to $495.8 million as a 5% drop in attendance was made worse by a 3% dip in revenue per guest. It's pretty bad when promotional discounts don't get turnstiles clicking. 

It's not cheap to run a park with killer whales, lavish landscapes, and thrill rides. A lot of the overhead is fixed, making this a very scalable model that thrives when the parks are magnetic but gets hammered when attendance slips. As if the 8% slide on the top line wasn't bad enough, adjusted EBITDA and net income plunged 18% and 27%, respectively.

SeaWorld's revenue actually clocked in just above Wall Street's target of $495.4 million for the seasonally potent summer quarter. However, the adjusted profit of $1.01 a share fell well short of both the $1.34 a share the company rang up a year earlier and the $1.14 a share that analysts were settling for this time around. 

If this was merely an earnings miss the market wouldn't really be surprised. This was the third consecutive quarter in which SeaWorld fell short of market expectations on the bottom line. But now, income investors who approached this slumping stock as a way to lock in a juicy yield might get cold feet -- and not just because they accidentally slipped into one of the chilly marine life habitats. SeaWorld warned it will likely have to bump the declaration of its next dividend from late December to early January in order to avoid violating its debt covenants. 

Investors will still receive their quarterly dividend checks in January. That's not so bad. What is problematic is that SeaWorld's diminishing state has limited its restricted payments for dividends and stock buybacks to $120 million in 2014. After shelling out $104.9 million in payouts and stock purchases from sellers in a springtime secondary offering it just doesn't have enough to declare a fourth quarterly dividend in 2014. Keep an eye on this situation: If fundamentals continue to deteriorate, the seemingly juicy 4.6% yield isn't likely to stick around. 

Living in denial
SeaWorld has a long list of reasons explaining the slowdown. It detailed them in Wednesday morning's earnings release.  

  • Negative media attention in California surrounding a lawmaker proposing a bill that would ban killer whales from being held in captivity. The bill was eventually put on hold, but the publicity lingers.
  • Falcon's Fury -- a new 335-foot-tall drop ride -- failed to open on time at Busch Gardens Tampa. It opened several months late, just as the key summer season was coming to a close.
  • Rival theme park operators in central Florida opened with tourist-drawing attractions themed to Harry Potter and Snow White, while SeaWorld Orlando failed to invest in major additions. 

Blackfish is oddly, if not conveniently, left off the list. Yes, it played a role in what happened in California, but it's naive to think that Disney's (NYSE:DIS) mine coaster and Universal Orlando's ambitious Diagon Alley expansion held back visitors to SeaWorld Orlando. If anything, Disney and Universal helped attract even more people to central Florida this summer. 

I made a few visits of my own to SeaWorld over the summer to check things out. I saw the protesters by the entrance. The negative media attention is not limited to the West Coast. 

SeaWorld is trying to make things right. The company announced over the summer that it would update its killer whale habitats. Activists naturally want SeaWorld to set the orcas free, but providing larger and more inviting habitats should at least soften concerns that the company is not willing to compromise. The continuing attendance declines seem to suggest this isn't enough, and if delayed dividend declarations become reduced or nixed declarations in the coming quarters, the stock will continue to fall. Every step back that SeaWorld takes will make it that much harder to claw its way back. SeaWorld is in a bad spot, and we're not talking about the first few "splash zone" rows of a killer whale show.

Source: SeaWorld.