Will Soft Sales Keep Hurting SeaWorld (SEAS) Q2 Earnings?

SeaWorld Entertainment, Inc. (NYSE:SEAS) is set to report second-quarter 2016 results on Aug 4, before the market opens.

Last quarter, it posted a positive earnings surprise of 6.67%. However, this Florida-based theme park and entertainment company has missed earnings in three of the last four quarters with an average negative surprise of 12.72%.

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 second quarter.

On Mar 17, the company announced that it has stopped breeding killer whales. While this move might salvage its reputation among activists, it will have a negative impact on the company’s revenues, especially from international visitors.

Nevertheless, SeaWorld Entertainment is making every possible effort to regain customer confidence. In order to clear its stance, the amusement and theme park company came up with an advertising campaign stressed on its efficiency and contribution toward the protection and care of killer whales. The company also continues to organize consumer events to drive attendance. These initiatives should offset the negatives to some extent and attract customers, thereby improving attendance.

Earnings Whispers

Our proven model does not conclusively show that SeaWorld Entertainment is likely to beat earnings this quarter. That 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. That is not the case here, as you will see below.

Zacks ESP: The company has an Earnings ESP of -17.39%. This is because the Most Accurate estimate is pegged at 19 cents, while the Zacks Consensus Estimate stands higher at 23 cents.

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

Eros International Plc (NYSE:EROS) , with an Earnings ESP of +7.14% and a Zacks Rank #3.

Red Lion Hotels Corporation (NYSE:RLH) , with an Earnings ESP of +100.00% and a Zacks Rank #3.

Time Warner Inc. (NYSE:TWX) , with an Earnings ESP of +0.87% and a Zacks Rank #3.