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SeaWorld: Dividend Cut?

Summary

SeaWorld may have more one-time charges related to orca whales as the theatrical shows are ending and it may be forced to put the whales in sea pens.

Small weaknesses from lapping a discount last year and the recession in Brazil have pushed down EBITDA. They are able to do so because the business is weak.

If the trend in the business continues the dividend may be cut as early as this year. I'm saying within 18 months to be conservative.

I have been following SeaWorld (NYSE:SEAS) for over a year. I had previously invested in the company because I believed in the turnaround story. I ended up selling the stock for a small loss after realizing that the turnaround was all "smoke and mirrors." In my last article I was fairly bearish on the stock because I expected poor earnings results to come out. Since then the stock has fallen 10% mostly on the bad earnings I had expected. I am going to review my thoughts on the quarter in this article. The results were not good and I expect a dividend cut within the next 18 months. This could send the stock to a new all-time low.

One Time Charge?

What stands out the most from the quarter was the jump in the net loss from Q1 2015 to Q1 2016. The firm lost $43.6 million in Q1 2015 and $84 million in Q1 2016. The main reason why it this net loss almost doubled was because of accelerated depreciation related to the disposal of the deep-water lifting floors which were removed from each of the orca habitats in the first quarter of 2016. While the firm gets rid of this in the adjusted number, it is important. The deep lifting floors became superfluous after Cal/OSHA, the agency that oversees occupational safety and health in California, dismissed all citations related to the firm's orca safety and training program. This allowed the trainers to continue to conduct in-water desensitization training. Since it has been done in shallower pools, the deep water floors are no longer needed.

The reason why this one-time charge perks my interest is because I would imagine there are going to be other one-time charges related to similar items used to care for the whales , since SeaWorld will no longer have whales in the future. I'm not familiar with every machine used to care for the whales and what each part costs, but I think it's reasonable to wonder what rigs will lose their use as SeaWorld shifts away from the theatrical shows and eventually shifts away from having orcas at its parks at all. For example, if the tanks themselves no longer are used, there will have to be accelerated depreciation on them.

There was also a $6.4 million write-off from the Blue World project being canceled. Imagine the losses which could occur if SeaWorld had to create a sea pen sanctuary for the orcas like the activists who comment on my articles suggest they should do.

Sea Pens Could Be Coming

When I believed in the SeaWorld turnaround and spoke to the head scientists at the firm last year, the possibility of a sea pen seemed like hogwash. However, sales declines along with the banning of orca breeding by the California Coastal Commission has caused SeaWorld to shift its positioning. It announced earlier this year it is ending the orca breeding program. It announced last year that it would end its theatrical orca whale shows, in place having the orcas in a more natural setting.

The logic to each decision is interesting. At first the firm thought it could end the negativity surrounding the treatment of...


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