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Iridian Asset Management's 4Q 2013 positions

Part 5
Iridian Asset Management's 4Q 2013 positions (Part 5 of 7)

Why Iridian started a position in SeaWorld

SeaWorld Entertainment, Inc. (SEAS), a theme park and entertainment company, is a 0.88% position started by Iridian in 4Q13. SeaWorld has a diversified portfolio of 11 destination and regional theme parks that are grouped in key markets across the U.S., many of which showcase the company’s one-of-a-kind collection of approximately 67,000 marine and terrestrial animals. In addition to its theme parks, the company has also begun to leverage its brands into media, entertainment, and consumer products.

SEASEnlarge GraphThe company last month announced preliminary revenue results for fiscal year 2013. The release said that driven by record fourth quarter total attendance at the company’s SeaWorld-branded parks in Orlando, Fla., San Diego, Calif. and San Antonio, Texas, total revenue for 2013 is expected to be approximately $1.46 billion.

SEAS hedgeEnlarge GraphSeaWorld launched its initial public offering in April last year at $27 per share and raised around $270 million. The shares are only slightly up from their listing price. A secondary offering in December saw majority owner Blackstone (BX) and other owners sell 18 million shares at $30 each. Blackstone’s stake was reduced from 63% to 43.6%. SeaWorld Entertainment was bought by Blackstone from Anheuser-Busch InBev (BUD) for $2.3 billion in 2009. Blackstone earned around $560 million selling stock in the IPO and $600 million from dividends and fees.

Last year, the company faced a backlash from animal rights activists, and saw negative press attention over a documentary called Blackfish. Blackfish focuses on the company’s treatment of killer whales, and featured the story of a SeaWorld orca who was responsible for the deaths of three employees. The company has tried to undermine the damage but the controversies continue with musical acts cancelling planned performances at the theme parks.

In 3Q13, total revenue was up 3% to $538.4 million over the same period in 2012. The increase in revenue was driven by a 6.9% increase in total revenue per capita from $56.80 in the third quarter of 2012 to $60.74 in the third quarter of 2013, partially offset by a decrease in attendance. Seaworld said the drop in attendance was due to the weather and higher admission prices. It said attendance trends improved in the third quarter compared to the second quarter reversing a negative trend earlier in the year, with a 3.6% decline versus a 9.5% decline in the second quarter. The company attributed its 3Q gains to pricing and yield management strategies.

SEAS1Enlarge Graph

SeaWorld has a high debt to equity ratio 4.05x as compared to its peers The Walt Disney Co (DIS) and Six Flags Entertainment (SIX). This might be a cause of concern if the business slows down due to macroeconomic factors. Despite the Blackfish controversy, SeaWorld said it has set a fourth-quarter attendance record and that it will soon report the highest annual revenue in its 50-year history.

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