DreamWorks Lags on Q4 Earnings and Revs

Zacks Equity Research

DreamWorks Animation SKG Inc. (DWA) reported disappointing financial results for the fourth quarter of 2013. Both the top and the bottom line fell below the respective Zacks Consensus Estimate.

Management stated lower-than-expected home-video sales of the summer release “Turbo” as the primary reason behind this dismal performance. Owing to these negatives, in the aftermarket trade on Nasdaq, the stock price of DreamWorks was down $3.20 (9.09%) to $32.

Total revenue in the fourth quarter of 2013 was $204.3 million, down 22.8% year over year and also lagged the Zacks Consensus Estimate of $231 million.

Segment wise, Feature Film revenues were $127.9 million, Television revenues were $47.1 million, Consumer Products revenue were $12.4 million and the remaining $16.8 million was contributed by Other items.

Quarterly, GAAP net income was $17.2 million or 20 cents per share compared with a net loss of $82.7 million or 98 cents per share in the year-ago quarter.

In the reported quarter, DreamWorks incurred $13.5 million impairment charge for Turbo feature film and another $6.7 million impairment charge related to other contents. Excluding these items, fourth-quarter 2013 adjusted earnings per share of 33 cents were a penny shy of the Zacks Consensus Estimate.

Quarterly gross profit was approximately $65 million and gross margin stood at 31.8%. Operating income was a little over $20.7 million and the operating margin came in at 10.2%.

DreamWorks is trying to expand beyond the home video segment. The company has entered into an online streaming agreement with Netflix Inc. (NFLX), created publishing and television operations and licensing its animation characters to theme-parks.

During 2013, DreamWorks generated $27 million cash from operations compared with $28.4 million in 2012. Free cash flow, in 2013 was a negative $12.4 million against a negative $33.3 million in 2012.

At the end of 2013, the company had $95.5 million of cash and cash equivalents and no outstanding debt against $59.3 million of cash and cash equivalents and no outstanding debt at the end of 2012.

Other Stocks to Consider

DreamWorks currently has a Zacks Rank #1 (Strong Buy). Other stocks in the Movie industry which are also doing well include Lions Gate Entertainment Corp. (LGF) and News Corp. (NWSA). Both these stocks carry a Zacks Rank #2 (Buy).

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