Los Angeles Business Journal

DreamWorks Shares Slide on Disappointing Quarter, Outlook

By Deborah Crowe Originally published February 29, 2012 at midnight, updated February 29, 2012 at 10:57 a.m.

DreamWorks Animation SKG Inc. shares fell nearly 11 percent Wednesday morning after the film studio reported fourth quarter profit below Wall Street’s expectations, and warned that higher costs on its next two releases could affect this year’s results.

The Glendale company, which did not have a theatrical release in the quarter, late Tuesday reported net income of $24.3 million (29 cents a share), compared with $85.2 million (99 cents) in the same period a year earlier. Revenue fell 21 percent to $219 million.

Analysts surveyed by FactSet on average expected earnings of 32 cents a share on revenue of $206 million.

In a conference call with analysts, DreamWorks executives said that "Madagascar 3" which is set to hit theaters in June, and "Rise of the Guardians," which is due in November, would cost more than normal because of scheduling changes, longer production times and other factors.

Chief Executive Jeffrey Katzenberg said the last quarter revealed "challenges for the industry as a whole" including a slide in DVD sales. Home video sales have suffered industry-wide as cost-conscious consumers opt to rent new releases via Internet download or services such as Redbox and Netflix.

Home video sales of "Kung Fu Panda 2" DVDs in the final weeks of the quarter were fewer than "Shrek Forever After" at about the same point a year earlier, the company said, but have since picked up. Katzenberg pointed out that the just-released “Puss in Boots” was the top selling DVD title for the week ended Feb. 26, and was exceeding the company’s expectations.

“In addition to their success at the box office, ‘Kung Fu Pans 2’ and ‘Puss in Boots’ were among the best reviewed films of 2011,” Katzenberg said during the call. “And I could not be more proud that both movies received Academy Award nominations for best animated feature films.”

The Johnny Depp film "Rango," from Paramount's Nickelodeon Movies, ended up winning the Oscar in that category.

An analyst at Goldman Sachs on Wednesday downgraded DreamWorks shares to “sell” based on both the DVD sales figures and the higher production costs outlook.

Shares were down $2.10, or 11 percent, to $17.55 in midday trading Wednesday on the Nasdaq.