Is downsized and downtrodden regional theme-park operator Six Flags
I'll be honest. I didn't like the company's last earnings report, and I thought the attendance miss last August was just another milestone in back-to-back years of declining attendance. The latest report, in my opinion, is no cause for excitement.
The 23% jump in revenue over last year's first quarter sounds great. Heck, even saying that revenue increased $9.6 million and expenses increased $8.8 million sounds A-OK. Ah, but when you say that revenue increased to $54.4 million and expenses rose to $133.7 million (and that excludes $37.5 million in non-cash depreciation and amortization), you wince and realize the company lost money.
Fans of the stock will scream that it is not the prime summer season and that no one should have expected a profit. After all, this is a highly seasonal stock. Let's grant that, but let's also acknowledge that the timing of the Easter holiday increased the number of operating days this quarter and that a new roller coaster stimulated strong demand in Mexico City. Still, in my opinion, the results are no cause for excitement.
The loss from operations decreased 0.1% (yes, that's one tenth of 1%). The company's favorite measures (but not statistics favored by the Fool) were, in a word, unfavorable. Modified EBITDA (earnings before interest, taxes, depreciation, and amortization) and adjusted EBITDA (which excludes the interests of third parties in EBITDA from non-wholly owned parks) both improved less than 1%.
Hopes for 2005 are based on firm footing. The company has added new attractions in 13 of its 18 domestic theme parks and three of its water parks -- and this capital spending has been concentrated in the major markets. After four years of cutting capital spending (to boost EBITDA) and two years of falling attendance, the Mexico City results prove one thing: New rides attract customers. So, overall, Six Flags should experience rising revenue.
The company expects attendance to grow by 4.75% and per-capita spending to increase 2.5%. Adjusted EBITDA is expected to finish the fiscal year at $300 million -- a 16% increase over 2004. That sounds great (as do other numbers), until you realize that $300 million is only 2.5% more than the company earned in 2003. Now, there's a trip to the fun house!
It gets even worse if you consider that interest expense in the first quarter was $44.8 million. Annualize that (which may be a crude assumption), and you have $179.2 million in interest expense (on $2.3 billion in debt) and only $300 million in adjusted EBITDA. That's pretty poor debt coverage -- not great for a company facing a summer with potential tourist turnoffs like high gasoline prices and potentially lower disposable income to spend on Coca-Cola
Investors who find Six Flags' debt and growth prospects unexciting -- and the thought of stepped-down capital spending in 2006 unbelievable -- should take a look at regional competitor Cedar Fair
Fool contributor W.D. Crotty does not own shares of any of the companies mentioned in this article, though he does like waterslides and roller coasters. Click here to see the Fool's disclosure policy.
