After posting disappointing second quarter earnings, shares in DreamWorks Animation SKG Inc. dropped big Wednesday morning.


Net income fell 55 percent to $27.5 million (30 cents per share), compared to $61.8 million (60 cents) in the same period a year earlier.


Excluding one-time expenses, the Glendale-based animation studio posted earnings of 28 cents per share which actually beat analysts' expectations of 23 cents a share, according to Reuters Estimates.


Sales dropped 37 percent to $141 million from $223 million which also beat Wall Street's expectations of $122 million thanks in large part to the success of its latest film, "Kung Fu Panda."


However, last year's earnings were boosted by the success of blockbuster "Shrek the Third," which was released earlier in the 2007 quarter than "Kung Fu Panda" was in the latest quarter.


"Kung Fu Panda," distributed by Viacom Inc.'s Paramount Pictures, has become the studio's most successful non-sequel U.S. film, grossing $209 million domestically and $510 million worldwide, contributing $46.4 million to quarterly sales.


"Despite the difficult economy, the overall theatrical business remains very strong," Chief Executive Jeffrey Katzenberg told analysts on a conference call.


DreamWorks added that because the studio only releases two animated films per year, earnings can fluctuate drastically between film releases.


The studio also said that higher international distribution and marketing costs will take a toll on future earnings which resulted in shares in the company being downgraded by Wedbush Morgan.


Shares in DreamWorks dropped nearly 12 percent to $27.83 in early trading Wednesday.

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