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SeaWorld (SEAS) Q3 Earnings: Disappointment in the Cards?

CKEC MTN AMC SEAS

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SeaWorld Entertainment, Inc. (SEAS - Free Report) is set to report third-quarter 2016 results on Nov 8, before the market opens.

Last quarter, it posted a negative earnings surprise of 8.7%. In fact, this Florida-based theme park and entertainment company missed earnings in three of the last four quarters with an average negative surprise of 3.65%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

SeaWorld has been witnessing a decline in total revenue per capita mostly due to lower attendance. Negative publicity, associated with captive whales and prolonged scrutiny of employee safety practices could hurt revenues in the to-be-reported quarter as well. Even promotional offerings have not been able to arrest the decline in traffic trends. Also, costs related to marketing and reputation campaigns could eat into profits in the third quarter.

In March, the company announced that it has stopped breeding killer whales. While this move might salvage its reputation among activists and receive positive feedback from people, it will have a negative impact on the company’s revenues, especially from international visitors.

Nevertheless, SeaWorld is making every possible effort to regain customer confidence. The company continues to organize consumer events to drive attendance. Moreover, management is undertaking new initiatives to stabilize and deliver improved results in California, Texas and Florida markets. Capital investments in new rides and attractions, extended hours at SeaWorld Parks and more such strategies should offset the negatives to some extent and attract customers, thereby improving attendance.

SEAWORLD ENTERT Price and EPS Surprise

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 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks ESP: The company has an Earnings ESP of -2.80%. This is because the Most Accurate estimate is $1.04, while the Zacks Consensus Estimate is pegged at $1.07.

Zacks Rank: SeaWorld Entertainment has a Zacks Rank #3. Although this increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the leisure & recreational services sector to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Vail Resorts, Inc. (MTN - Free Report) has an Earnings ESP of +4.46% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

AMC Entertainment Holdings, Inc. (AMC - Free Report) has an Earnings ESP of +3.57% and a Zacks Rank #3.

Carmike Cinemas, Inc. (CKEC - Free Report) has an Earnings ESP of +1.82% and a Zacks Rank #3.

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