Earnings Preview: Lions Gate

Zacks

Lions Gate Entertainment Corporation (LGF), which produces and distributes motion pictures for theatrical and straight-to-video release, and television programming for cable and broadcast networks, will release its fourth-quarter 2012 financial results on Wednesday, May 30, 2012.

The Zacks Consensus Estimate for fourth-quarter 2012 stands at 19 cents, with broker estimates within the consensus ranging between a high of 48 cents and a low of 7 cents. The estimate reflects a decline of 26.9% from 26 cents reported in the comparable prior-year period.

The Zacks Consensus revenue estimate for the quarter is pegged at $616 million, reflecting an increase of 63.4% from $376.9 million reported in the comparable prior-year period.

The revenue estimate reflects the company’s growth potential given the recently-announced multiyear Output agreement with Nordisk Film. The deal is an extension of a prior agreement between Nordisk and Summit, which Lions Gate recently acquired. Nordisk will now distribute titles of both Summit Entertainment and Lions Gate in Scandinavia. The agreement is expected to maximize return and build a diversified portfolio for future growth.

Last Quarter Synopsis

Lions Gate reported a loss of one cent per share, improving from the year-ago loss of 4 cents. However, the reported loss was substantially worse than the Zacks Consensus Estimate of earnings of 9 cents per share.

As per the company, a notable rise in equity interest income facilitated Lions Gate to narrow down the losses.

Total revenue in the quarter plummeted 23.6% year over year to $323 million, reflecting a lack of theatrical releases in the quarter. Moreover, reported revenue also lagged the Zacks Consensus Revenue Estimate of $362 million.

(Refer the article: Lions Gate's Loss Narrows)

Zacks Agreement & Magnitude

Out of the 8 analysts providing estimates for fourth-quarter 2012, none made any revisions in the last 7 days, although 3 analysts raised estimates in the last 30 days. As a result, the Zacks Consensus Estimate went to 19 cents from 15 cents 30 days ago.

The company recently released its ‘Hunger Games’ franchise, which is expected to be accretive for the company’s top line. The upward revision was mainly based on above average 'Hunger Games' performance and solid TV results.

Looking at the company’s performance, we expect LGF to post better-than-expected earnings results in the coming quarters on the back of its new launch and acquisition.

Mixed Earnings Surprise History

Over the last four quarters, Lions Gate has beaten the Zacks Consensus Estimate by an average of 54.2%. The earnings surprise has topped the Zacks Consensus Estimate in the range of high 250% and a low of negative 111.1%.

Conclusion

The company’s production and distribution capacity will be supplemented by the integration of Summit's film operations. In addition, it will also help Lions Gate to emerge as a leading international sales group by broadening its global reach.

Lions Gate’s crown jewel is its library of approximately 13,000 motion picture titles, television episodes and programs. Therefore, the acquisition will not only build on its distribution capabilities, but will also expand its stock of feature film and home entertainment offerings.

To grab its share of box office receipts, Lions Gate competes with other major studios, such as Fox Entertainment Group, Paramount Motion Pictures Group and Time Warner Inc. (TWX).

Lions Gate retains a Zacks #3 Rank that translates into a Hold rating over the next 1-3 months, reflecting the strategic endeavors undertaken by the company to put itself on the right path.

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