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<\/p>\nTheme park operator warns of revenue miss and China partner default could put the stock\u2019s high dividend at risk <\/p>\n
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Published: Jan. 10, 2020 at 2:35 p.m. ET, By Tomi Kilgore<\/p>\n
Shares of Six Flags Entertainment Corp. plummeted Friday toward their biggest-ever one-day decline after the theme park operator warned of a fourth-quarter revenue shortfall and said its partner in China has defaulted on its agreements.<\/p>\n
The news prompted Janney Montgomery Scott analyst Tyler Batory to abandon his bullish stance on Six Flags\u2019 stock, saying the announcements may put the relatively high dividend at risk.<\/p>\n
The company disclosed in an 8-K filing with the Securities and Exchange Commission<\/a> that it expects fourth-quarter revenue to be $8 million to $10 million less than the year-ago period<\/a>, when the company recorded revenue of $269.5 million. The FactSet consensus, at the time of the filing, was for 6.0% increase to $285.8 million.<\/p>\n \u201cThe company\u2019s North America\u2019s parks experienced lower attendance in the fourth quarter of 2019 versus the same period in 2018 due to softer-than-expected season pass membership sales, primarily during the holiday sales period,\u201d the company stated in the 8-K.<\/p>\n Six Flags said it will provide additional details about the results when it reveals its quarterly results, which currently expected to be on or about Feb. 18, according to FactSet. Read more about Six Flags\u2019 third-quarter earnings miss<\/a> and the naming of its new chief executive<\/a> in October.<\/p>\n The stock dropped 18% in active afternoon trading, as it headed for the lowest close since October 2014. The selloff could be the biggest since the stock went public in May 2010, as it is on track to surpass the previous record decline of 16.0% on Oct. 24, 2018.<\/p>\n Trading volume climbed to 13.4 million shares, compared with the full-day average through Thursday of 1.1 million shares.<\/p>\n The company also disclosed in the 8-K that the development of the Six Flags-branded parks in China has faced \u201ccontinued challenges,\u201d and has not progressed as expected. The company said its partner in China, Riverside Investment, has faced \u201csevere challenges\u201d due to the macroeconomic environment and China\u2019s declining real estate market.<\/p>\n \u201cThis has led Riverside to default on its payment obligations to the company and, as such, the Company has delivered formal notices of default under its agreements,\u201d Six Flags stated in the filing. \u201cWhile the Company continues to work with Riverside and each of Riverside\u2019s governmental partners, the eventual outcome is unknown and could range from the continuation of one or more projects to the termination of all the Six Flags-branded projects in China.\u201d<\/p>\n Six Flags said it will not realize any revenue from the China agreements. However, it expects a negative $1 million revenue adjustment related to the China agreements, and one-time charges of $10 million.<\/p>\n In the company\u2019s annual report filed last February<\/a>, the company had disclosed that in the fourth quarter of 2018, some of the China parks\u2019 opening schedules were delayed because of \u201crecent macroeconomic events.\u201d China was not mentioned in the company\u2019s quarterly filings since.<\/p>\n Janney\u2019s Batory downgraded Six Flags on Friday to neutral from buy, with a new stock fair value estimate of $38, saying the \u201cdisappointing\u201d guidance is a clear indicator that trends in the core business continue to deteriorate. He said the China news added to the uncertainty.<\/p>\n \u201cGiven these issues, we think it\u2019s difficult to defend the stock at current levels,\u201d Batory wrote in a note to clients. \u201cWe think also the dividend could be at risk, which could create further downside.\u201d<\/p>\n![\"Six](\"\/blog\/wp-content\/uploads\/2020\/04\/six-flags-pic02-1200x785.png\")
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