Turnaround Letter Buy-rated SeaWorld Entertainment (SEAS) reported 1Q19 earnings and revenues that were ahead of the market’s expectations, and reiterated their 2020 guidance for EBITDA of $475 million to $500 million. The company’s turnaround continues to make good progress.
SEAS shares are down about 3% in mid-day trading in a weak overall stock market.
Revenue growth in the first quarter was positive +1.6% compared to a year ago, even as Easter and many schools’ spring breaks fell in the second quarter this year compared to falling in the first quarter last year.
Attendance increased a healthy 3.6%, although some of the increase was driven by lower-priced season passes which reduced average admission prices. As along as attendance continues to increase, it validates the company’s strategy to re-brand and broaden the appeal of SeaWorld.
SeaWorld’s improving pricing strategies, marketing approach and steady roll-out of attractive new rides and events, including Sesame Street, as well as a return of the Sesame Parade, Summer Nights at Busch Gardens and the Electric Ocean events, should help build further consumer interest during the upcoming and critical summer months.
Better operating efficiency is helping bring more of the revenue to the bottom line. Adjusted EBITDA of $16.4 million compared to $2.3 million a year ago. The first quarter is a seasonally light quarter for SeaWorld.
The company’s balance sheet remains leveraged with $1.6 billion in total debt. However, as Adjusted EBITDA improves, this debt becomes less onerous.
Unrelated to the results, last month SeaWorld’s largest shareholder (23% stake), China-based Zhonghong Zhuoye Group, defaulted on loans from unnamed creditors, forcing it to turn over its entire SeaWorld stake to the lenders. Also, a Zhonghong representative left SeaWorld’s board although the chairman (a Zhonghong representative) remains. We have no information on who the lenders are or their intentions for their newly-acquired SeaWorld shares. We don’t expect this to have any operational or financial effect on SeaWorld, although it could create selling pressure on SEAS shares if they are sold into the open market or result in a new large shareholder.
SeaWorld has more work ahead, led by its new CEO Gus Antorcha. The company reiterated its guidance of earning $475 million to $500 million in EBITDA in 2020. We remain confident in the company’s turnaround and continue to rate SEAS shares a BUY.
- Earnings before interest, taxes, depreciation and amortization, which is a measure of cash operating profits.
We continue to rate SeaWorld Entertainment (SEAS) shares a BUY with a $35 price target.
Disclosure Note: An employee of the Publisher owns SEAS shares.