Skift Take

Six Flags' big ambitions for international expansion are meeting economic reality. The theme park operator still finds potential in partnerships outside the United States, but expectations have to be adjusted.

Texas-based Six Flags Entertainment has been boasting about its international growth opportunities for years. Thursday, the topic was more of a downer.

Earlier this month, a partner announced plans to halt the company’s move into a theme park complex in Dubai. And several projects in the works in China will be delayed roughly a year, set to open now in 2020, 2021, and 2022.

“Although the timing of these revenue adjustments is unfortunate, our partner in China remains fully committed to developing and opening these parks, and construction is continuing,” CEO Jim Reid-Anderson said during a call with analysts.

The delay in China openings resulted in a $15 million revenue reversal for the fourth quarter, the regional theme park operator said Thursday.

Revenue for the quarter that ended Dec. 31 increased 5 percent year-over-year to $270 million, with attendance up 3 percent and per-person spending up 6 percent. But net income fell by $19 million to $79 million. Shares fell 13 percent to close at $54.87 Thursday; the company’s stock took a dive after its third-quarter earnings call as well.

“Another Quarterly Report, Another Massive Sell-Off,” wrote Stifel analyst Steven Wieczynski in a note to investors. “Feels Like Groundhog Day.”

Executives said they believe that reaching a 2020 target of $750 million in modified earnings before interest, taxes, depreciation, and amortization is “highly unlikely;” instead, they hope to reach that goal by 2021.

Part of the reason for that anticipated miss is “a potential lumpiness of our international development assets” in the near future, Reid-Anderson said.

“Challenges continue to plague SIX’s international ‘asset light’ park management business,” Wieczynski wrote in his investor note. “Although the international opportunity does not introduce any balance sheet risk into the story, as SIX is not required to bring capital to the table, we have long believed it introduced an element of risk to the stock that was largely underappreciated by investors as they rushed to add the incremental revenue/EBITDA tied to the management contracts into their models.”

Reid-Anderson said the China delays are due to the economy falling into a “general malaise due to global trade tensions and the lowest pace of GDP growth in almost 30 years” as well as lending restrictions, new policies around real estate transactions, and government turnover that is slowing down development. The company is working with partners to open 11 parks in different parts of China.

In Dubai, the situation is very much up in the air, with developer DXB Entertainments struggling financially and failing to draw as many visitors as expected. Reid-Anderson said Six Flags has no say in the outcome or timing of a decision about how to move forward.

“It’s a fairly major project they are working through that we have very little ability to impact one way or the other,” he said.

Reid-Anderson sounded much more optimistic about a project in Saudi Arabia that is expected to open in 2022.

“There is so much going on there that is positive. And there is a lot of money behind this that comes straight from the Royal family,” he said. “And so we feel very confident about the opening of the park in Saudi Arabia and our ability to continue to work with our partner there to not only build this park, but potentially other parks.”

International agreements added nearly $42 million to revenue in 2018 — a “significant contributor,” Reid-Anderson said. And he said the company is having conversations with multiple partners about new potential parks outside of China.

“It’s still incremental to our core business and it’s a strategic advantage to any other player in the industry,” he said. “We have not only a national plan, but we have this international growth plan that has been very, very successful.”

Despite the challenges globally, and despite Thursday’s mixed results, Wieczynski wrote that he still saw a case to buy shares. The stock is trading at the same price level it was at the start of the year.

“Though we have our reservations about several of the underlying trends within the core park operations, we largely view the business as resilient and remain confident in management’s ability to profitably grow the company from here,” he wrote.


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Tags: china, dubai, earnings, six flags, theme parks

Photo credit: A roller coaster at Six Flags New England is pictured in this photo from 2017. Pjedro22 / Flickr

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