SeaWorld Entertainment, Inc. SEAS is set to report third-quarter 2015 results on Nov 5, before market opens. Last quarter, the company posted a negative earnings surprise of 45%. In fact, the company has posted negative earnings surprises in three of the trailing four quarters. Let’s see how things are shaping up for this announcement.
Factors at Play
A decline in total revenue per capita due to an increase in promotional offerings and lower attendance have been affecting results consistently over the past few quarters. The negative publicity associated with the treatment of captive whales and the prolonged scrutiny of its employee safety practices are expected to adversely impact revenues in the soon-to-be reported quarter. In fact, the promotional offerings have not been able to boost declining traffic trends.
In Aug 2015, Hagens Berman Sobol Shapiro LLP, a consumer-rights class-action law firm, filed a consolidated complaint against the company that highlighted the misrepresentations and material omissions concerning the treatment and conditions of its captive killer whales. This is expected to dampen revenues in the third quarter.
However, SeaWorld Entertainment is making all efforts to regain customers’ confidence. In order to clear its stance, this amusement and theme park company has come up with a new advertising campaign that stresses on its efficiency and contribution toward the protection and care of killer whales. Moreover, it continues to organize consumer event programs like Food & Wine Festivals, Wild Days and Praise Waves to drive attendance. These initiatives would offset the negatives to some extent and attract customers, thereby improving attendance.
However, we would like to remind investors that though cost related to marketing and reputation campaigns would continue to hurt profits.
Earnings Whispers
Our proven model does not conclusively show that SeaWorld Entertainment is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The company’s Earnings ESP stands at -0.86%. This is because the Most Accurate estimate is pegged at $1.16 while the Zacks Consensus Estimate stands higher at $1.17.
Zacks Rank: SeaWorld Entertainment has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement.
Stocks to Consider
Here are some companies in the leisure and recreational services industry and broader consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Cedar Fair, L.P. FUN with an Earnings ESP of +13.88% and a Zacks Rank #2 (Buy).
Mohawk Industries Inc. MHK with an Earnings ESP of +1.33% and a Zacks Rank #2 (Buy).
Melco Crown Entertainment Limited MPEL with an Earnings ESP of +10.00% and a Zacks Rank #3.
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