SeaWorld Is Sinking, and Cost-Cutting Is Not the Solution

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SeaWorld Entertainment (SEAS) can't seem to catch a break. Shares of the marine life theme park operator were gutted on Wednesday after posting abysmal quarterly results.

Revenue declined 1 percent to $405.2 million on flat attendance growth. Net income checked in at $0.43 a share. Wall Street was holding out for a profit of $0.51 a share with a healthy increase in revenue.

From Bad to Worse

As maligned as SeaWorld has been since going public at $27 a share last year, this was supposed to be its turnaround quarter. Everything seemed to be going its way. The bad weather and price hikes that resulted in a 9 percent slide in attendance during the second quarter of last year should have been a springboard this time around. The shift of the Easter holiday this year -- going from March in 2013 to April in 2014 -- should have provided the school holidays that boost turnstile clicks. After all, SeaWorld blamed the timing of Easter for the 13 percent plunge in attendance during the first three months of this year.

As bad as the second quarter was for SeaWorld, the second half of the year is going to be even more of a mess. SeaWorld now sees revenue sliding 6 percent to 7 percent for all of 2014 -- with profitability falling even harder.

Desperation is starting to set in. The second quarter was the first time in the company's brief publicly traded tenure that attendance outpaced revenue growth. That's surprising given SeaWorld's annual rate increases, suggesting that SeaWorld is doing a lot of discounting and promotional activity to get guests into its theme parks.

SeaWorld Orlando and SeaWorld San Diego were the two biggest disappointments during the quarter, and even though the park operator refuses to call out "Blackfish" by name it's clear that last year's documentary is taking its toll.

Killer PR

"Blackfish," the film that took SeaWorld to task for having killer whales in captivity and placing its trainers in danger, wasn't much of a box office treat last year. It raked in just $2.1 million in ticket sales during its brief theatrical run. That translates into just hundreds of thousands of movie viewers. However, being broadcast on CNN late last year and now freely available on Netflix's (NFLX) streaming service has exposed the documentary to millions of watchers.

SeaWorld has responded to the allegations in the documentary, but it's safe to say that most people that have invested 80 minutes to catch "Blackfish" haven't bothered to take a few more minutes to hear SeaWorld's side of the story.

It may not be fair, but it's SeaWorld's reality. It's a brand mired in notoriety, and that was made clearly evident earlier this year when it was a runner up in Consumerist's 2014 Worst Company in America tourney.

Shaming Shamu

This should have been a great summer for SeaWorld. June hotel occupancy levels in Orlando -- near five of SeaWorld's parks -- hit a nine-year high this summer, and that was before Disney (DIS) kicked off its "Frozen"-themed attractions at Disney's Hollyood Studios, and Comcast (CMCSK) opened its Wizarding World of Harry Potter expansion at Universal Studios Orlando last month.

However, as SeaWorld battles the negative publicity that finds protestors occasionally picketing its parks and initiating online campaigns to convince bands to back out of SeaWorld music festivals, it's retreating instead of attacking.

SeaWorld will be embarking on cost-cutting initiatives during the second half of the year, making it less likely that it will be investing in magnetic attractions to draw guests and marketing campaigns to reshape the public's one-sided opinion of its business.

It's making a bad situation worse for the sake of capital preservation, and that's a strategy that rarely pays off in the long haul.

Motley Fool contributor Rick Munarriz owns shares of Netflix and Disney. He's a seasonal resident of Central Florida, living in Celebration when he's not in Miami. The Motley Fool recommends Netflix and Disney. The Motley Fool owns shares of Netflix. Try any of our newsletter services free for 30 days.