SeaWorld Entertainment Tanks 4% on Whale of an Earnings Miss

Shares of SeaWorld Entertainment (SEAS) have dropped 3.6% to $35.02 today after the company missed profit and revenue forecasts.

REUTERS

The operator of SeaWorld and Busch Gardens reported a profit of 41 cents a share, below forecasts of 47 cents. Sales fell 3% to $411.3 million, below estimates for $435.5 million. The company blamed bad weather and the “unfavorable timing of Easter” for the miss.

Maquarie’s Tim Nollen and Sunny Kwak also note that this is SeaWorld, new to the earnings game, isn’t managing its numbers for quarterly reports:

We believe this management team knows its company and industry and doesn't necessarily manage to the quarter, so while Q2 looks disappointing we look to a recovery in H2. Based on the numbers then, SEAS trading down ~11% after-hours looks overdone to us, rendering this a good entry point. SEAS at 10.1x 2014 EV/EBITDA trades below peers like SIX at 10.6x.

Lazard Capital Market’s Barton Crockett also sees the rest a pickup during the second half of 2013:

Weather so far in 3Q13 seems fine, and SeaWorld will have a full quarter of the new Antarctica: Empire of the Penguin exhibit that opened May 24. So there appears to be upside potential in the seasonally small 4Q13, with guidance implying a 21% decline in adj. EBITDA to $51M… SeaWorld is up 36% from the $27 IPO, trading at 10.9x 2013E adj. EBITDA and a free cash flow yield near 7%. The potential for lowered expectations and valuation Wednesday could make the shares more interesting.

JPMorgan’s Alexia Quadrani and team agree that the second half “looks more promising.” They are, however, worried about valuation. They write:

Management indicated that it's willing to push through price increases at the expense of some deterioration in attendance to help drive per cap revenues. The 2H,13 is positioned to benefit from these earlier price lifts and a potential uplift in attendance from Antarctica in Orlando and Aquatica San Diego, which both opened late in Q2, as well as holiday programming…We continue to like SeaWorld's story longer term, with its strong brands and ramping free cash flow. However, valuation keeps us on the sidelines.

Competitor Six Flags Entertainment (SIX) has dropped 0.5% today. The SPDR S&P 500 ETF (SPY) has fallen 0.4%.