What SeaWorld Entertainment Inc.s Stock Sinking Really Means

By Markets Fool.com

Anyone who has followed SeaWorld Entertainment's spectacularly sinking share price and related business turbulence knows that the company has faced a tsunami of negativity, and its stock price has gotten torpedoed as it's been slammed in the top and bottom lines. The idea that many consumers are shunning SeaWorld's shows because of animal welfare concerns signals a change in how businesses will have to view their many stakeholders -- even the silent ones.

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Source: Blackfishfilm official website

Until now, situations like SeaWorld's could certainly tarnish a company's brand and alienate some customers, but it would usually be a slow degradation among a niche crowd and difficult to notice in the numbers. SeaWorld's dramatic situation is a great example of legitimate financial risk for those companies that fail to recognize consumers' evolving concerns.

Stormy times at SeaWorld
The documentary Blackfish stirred up questions about SeaWorld's treatment of orcas (also known as killer whales), as well as the death of a trainer. For many people, it's apparently a lot more difficult to enjoy the wonder of these creatures when pondering their quality of life in small, concrete tanks, cut off from others of their kind -- some of many criticisms lobbed at the company regarding the treatment of these social animals.

As a result, SeaWorld's earnings have been subject to hit after hit. In the year ended Dec. 31, 2013, sales rose an anemic 2.6% and per-share earnings fell by 33.7%. In 2014, its sales fell by 5.6%, and per-share earnings slid 3.4% to $0.57 per share as fewer people frequented its parks.

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Last quarter, SeaWorld's situation continued to be dismal. Revenue fell 2.7%, and it reported a wider-than-expected loss. Attendance at all of SeaWorld's parks (the company also runs other attractions like Busch Gardens and Sesame Place) fell by 2.2%.

SeaWorld has been exhibiting plenty of signs of business turmoil. In January, it ousted its CEO and announced plans to lay off 311 employees.

Marketing partners like Southwest Airlines have severed their ties to the company, and some entertainers such as Willie Nelson canceled shows at the company's parks. A few short weeks ago, Mattel discontinued its SeaWorld Trainer Barbie.

SeaWorld claims that its critics have it wrong. To repair the damage, it's been incurring additional costs to get the word out and get back in consumers' good graces. It recently announced that it's spending $10 million on an ad campaign including TV, print, and digital messages to rebut critics' claims and set the record straight on its animal treatment.

SeaWorld's shares are down 32% in the last 12 months, but given the current turmoil, investors might want to think twice before considering the stock as a bottom-fisher's dream.

Even as the company defends its honor, it has still suffered costly reputational damage and the costs of the cleanup, and it may have to up the ante in terms of spending on increasing numbers of animal-friendly initiatives than it had otherwise planned as part of its business model.

In recent weeks and even days, SeaWorld has taken a beating. For example, Jane Goodall, a respected scientist known for her lifetime of work with primates, told The Huffington Post this week that SeaWorld "should be closed down."

The Los Angeles Timesrecently reported that the Division of Occupational Safety and Health at the California Department of Industrial Relations handed out $26,000 worth of citations to SeaWorld San Diego, saying that SeaWorld isn't training workers properly to work with killer whales, and several lawsuits have been filed against SeaWorld in recent weeks as well.

For SeaWorld's side of the story, it has been inviting people to "Ask SeaWorld" here. However, it's clearly got quite a battle to fight.

The changing horizon
I've long viewed animal welfare as an issue that was going to increasingly concern consumers -- and hurt some companies.

That's why I have an appreciation for the quality of some of the companies that have been way ahead of the curve in taking the opposite tact, putting compassion for animals at the heart of their businesses to begin with. The fact that other companies are trying to evolve proves out their strategic vision -- and an evolving consumer.

Take Chipotle Mexican Grillfor example, whose recent pork supply woes include the animal welfare component, since it cut off a supplier who wasn't treating its pigs in a humane manner. The upshot is that Chipotle already had high standards in place for how animals should be treated as part of its Food with Integrity mission.

Whole Foods Market has been well ahead of the curve, too. It has had an animal welfare ratings system in place for years now. Its shoppers can use it to make buying decisions according to how livestock were treated in life.

You might be surprised, but increasing numbers of companies are addressing such issues as consumers and shareholder activists demand more humane treatment for animals, although it often doesn't make big news. The Humane Society of the United States has been a major proponent of better treatment for farm animals including pigs, and has tracked and engaged with many big-name companies to sign on to improve their practices or those of their suppliers.

In the last couple months several companies have gotten on the list of those making such moves. Hilton Worldwide is transitioning to gestation crate-free pork and cage-free eggs, targeting completion of both moves by 2018. Dunkin' Donuts has vowed that it will only source gestation crate-free pork by 2022, and it's looking into the feasibility of providing only cage-free eggs.

Empathy as a competitive advantage
Even far beyond SeaWorld, there's a larger theme in animal welfare and other social and environmental concerns, too. Some practices are all about putting short-term profit motive at front and center, cutting corners and costs, and ignoring a more humane view.

These days, more consumers (and even increasing numbers of investors, as socially responsible investing and impact investing gain in popularity) are gravely disappointed if not disturbed by some of the ill effects of putting short-term, quarter-by-quarter profit over every other business concern.

Companies that treat all their stakeholders well -- even those who can't talk, like animals -- are building a competitive advantage as more people say "no more" to managements who have allowed their businesses to devolve because they focused more on numbers than empathy. In many ways, such companies ensure they will travel far more tranquil waters.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.

The article What SeaWorld Entertainment Inc.s Stock Sinking Really Means originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Alyce Lomax owns shares of Chipotle Mexican Grill and Whole Foods Market. The Motley Fool recommends Apple, Chipotle Mexican Grill, and Whole Foods Market. The Motley Fool owns shares of Apple, Chipotle Mexican Grill, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.