The SeaWorld ‘Death Spiral’

Deciphering the 2013 SeaWorld year-end earnings report

When declining customer counts are further accelerated by raising prices to compensate for lost revenue, a company enters the ‘Death Spiral’.  Jim Smith
 

Some Animal advocates are business people, stock traders, and lawyers and have the time, knowledge, and ability to look past the headlines and dissect the details of an earnings report.  For everyone else, I have prepared this report and graphics to show what kind of year SeaWorld had financially in 2013 and get beyond the percentages and hyperbole used by the executives to ‘spin’ the information.

Top 10 theme parks worldwideMost people may not know that as a theme park company, SeaWorld isn’t a huge player.  In fact, based on sales they are not in the top 5 as an entity, and their flagship Orlando park on its own barely makes the top 20 worldwide.  This perspective is important to keep in mind as it is easy to assume that the ‘Deep Pockets’ of a ‘Billion Dollar Company’ can withstand any amount of political, public and legal pressure that comes its way.  This is certainly not the case, and certainly bigger Goliaths have fallen.

There are a variety of ways to interpret and communicate sales data.  Like everything else, it’s all about messaging.  SeaWorld sticks very close to the script when reporting earnings, and seldom do executives editorialize on the subject.  The ‘canned’ statements from each announcement are nearly identical to the preceding quarter.  I break down some leading Wall Street indicators on the strength of their viability as a company in the following narrative, charts and graphs.

 Business can be drilled down very simply

 Customer Count (X) Average Spend = Gross Revenue

If customer count is declining, then raising prices must support revenue.  This is exactly what SeaWorld did to inflate GROSS earnings in the 4th Quarter. (Emphasis on gross earnings there as we will look deeper into that later on.)  A ‘Death Spiral’ begins when higher prices begin to turn away customers and adds to the negative counts influenced by other factors.  In an industry that has seen several years of admissions GROWTH, SeaWorld continues to see a decline at the turnstiles.  Remember that these sales figures and income statements are compared to 2012, which was not a great year for SeaWorld and in some Quarters was very bad. So ‘UP’ isn’t really ‘UP’ if compared to a bad year. (Graph of growth comparison here)

SeaWorld Sluggish Growth

SeaWorld Sluggish growth, (In blue) vs. Leaders 2010-2012

In sum for the year, as a Company SeaWorld was down 1 million visitors in 2013.  One could argue that some of its properties were up, but an investor doesn’t buy stock in just a few of the parks, his money is in the company as a whole. Gross revenue was up a mere 3% based on pricing strategies.  They accomplished that by charging more at the ticket window and then getting more from each customer in spending inside the park.  The increase in one of it’s branded parks was attributed to a new Penguin exhibit.

In what was clearly a win for activists, the Busch Gardens Park was the biggest loser in admissions for the year

SeaWorld Orlando ranks 24th overallBased on calls from activists pleading with announced performers not to play concerts there, many high profile bands pulled out and some vocally supported the Blackfish movie while condemning SeaWorld.  Weather was blamed for the decline in admissions, however as you can see clearly from the attached chart, the weather if anything was seasonably great.  Long, dry and warm periods prevailed with few exceptions of very hot, or very cold days.  In business, one of the quickest ways to get fired is to blame performance on weather.  If the management team is not talented enough to find ways to attract customers, they usually don’t last long.Orlando Temperature Chart

So what’s the deal really with admissions?

The news is actually pretty big.  2013 total admissions were down 4%, Screen Shot 2014-03-14 at 4.00.54 PMwhich means 1 Million fewer visitors to the portfolio of parks.  Yet they generated net income of $50.5 million, which is 35%, or $27 million less than 2012It would only take another decrease of 3% in 2014 to critically wound profits and or just over 800,000 visitors in 2015 to nullify any net profit and put them in the red.  So as much as SeaWorld makes light of any claims that Blackfish is affecting them, 2014 may be the year that proves devastating to them.

 

Screen Shot 2014-03-15 at 9.56.10 AM

SeaWorld has failing Report Card on Wall Street

Market experts and gurus also have a problem with SeaWorld performance, citing their income struggles and other factors. It should be noted that in the chart above, the criteria for a ‘Pass’ on earnings is only that the Revenue did not decrease; it isn’t a reflection on anticipated growth.   Chief among the complaints regarding the SeaWorld Stock are these troubling indicators:

  • Debt/Equity ratio (223.44%) is too high
  • Long-term debt for SEAS is $1,629.5 million, while the net current assets are $44.6 million
  • Revenue Growth is sluggish compared to the industry

The Blackfish effect

Everything has a beginning, and in this evolution of humanity reacting to the movie Blackfish by voting with their feet, it appears that 2013 set the stage and 2014 is in fact the year of action.  Wall Street experts believe that the first real hit to admissions based on the movie will be seen in 1st Quarter 2014.  The movie was available on Netflix and aired on CNN in December, 2013, and is expected to heavily effect attendance.  On the heels of hiring a top Lobbyist to combat the ‘BlackFishBill’ proposed in California by Senator Richard Bloom, a V.P. from the San Diego park posted a piece on U-T.  The article was a wordier version of the script that all communications from the entity stick closely too.  “We love the Whales, we take care of the Whales, and the Whales take care of educating the people“, and always ”Without us, no one would know an Orca from a honey bee”.  That will be $94.00 please.

Screen Shot 2014-03-15 at 11.19.12 AM

Exit Plan or Vertical Market

SeaWorld’s CEO confirmed that expansion overseas is imminent.  Sources tell me that the deal is inked already, and it is just a matter of time until the location is revealed.  Some might call that an exit plan, some might call it a normal expansion to a vertical market.  What it does highlight is that there is no magic pill for sluggish growth in the U.S., and that perhaps the cap has been reached in available customer base.  Without acknowledging the ‘Blackfish’ effect, it certainly seems that an adaptation of sorts is taking place.  It remains to be seen if the U.S. based parks will look at ways to alter their business model and introduce different attractions to replace the Shamu show, should public, legal, or governmental pressure win out.

Read the Transcript of conference call with CEO

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