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Costs Hit Lions Gate's 4Q

Zacks Equity Research

Lions Gate Entertainment Corp. (LGF) posted a loss of 17 cents a share, down 51 cents from the year-ago quarter, when the company reported earnings of 34 cents.

The disappointing result was the outcome of higher marketing costs related to films slated to release in 2013 and expenses related to the acquisition of Summit Entertainment.

However, excluding the one time expenses, the company reported earnings of 21 cents a share. The Zacks Consensus Estimate for the quarter was 18 cents.

Total revenue in the quarter jumped 71% year over year to $645.2 million, driven by strong theatrical and home entertainment revenues from ‘The Hunger Games'  and ‘The Twilight Saga: Breaking Dawn - Part 1 coupled with a rise in television and library revenues. Moreover, the reported revenue surpassed the Zacks Consensus Estimate of $616 million.

During the quarter, the company reported adjusted EBITDA of $30 million compared with $67.9 million in the fourth quarter of 2011.

For Fiscal 2012, the company reported a loss of 30 cents per share compared with a loss of 23 cents in the prior year.  Revenue came in at $1.59 billion from $1.58 billion in the prior year.

Segments Details

Motion Pictures revenue decreased 3% year over year to $1.19 billion in fiscal 2012. Within Motion Picture, theatrical revenue inched up 2% to $208.9 million, reflecting fewer theatrical releases compared with the prior year.

International Film revenue declined 11% to $112.9 million due to less number of titles. Television revenue decreased 14% to $119.9 million. However, Lions Gate UK revenue increased 28% to $101.5 million.

Mandate Pictures revenue jumped 43% to $55.4 million, reflecting strong revenues from A Very Harold & Kumar 3D Christmas, Young Adult and 50/50.

Television Production revenue increased 13% to $397.3 million, reflecting strong digital media revenue.

Home Entertainment revenue for both motion pictures and television inched down 1% to $683.5 million as the prior-year results were boosted by strong theatrical titles.

Other Financial Details

Lions Gate ended the quarter with cash and cash equivalents of $64.3 million with film obligations and production loans of $561.2 million and shareholders’ equity of $89.8 million.  The company generated a free cash flow of $56.2 million during the quarter.

Lions Gate acquired Summit Entertainment which further expands its filmed entertainment library while boosting its feature film and home entertainment offerings.

Moreover, the company’s production and distribution capacity is largely benefitted with the integration of Summit's film operations. In addition, it will also facilitate Lions Gate to emerge as a leading international sales group by broadening its global reach.

The company’s filmed entertainment backlog increased to $1 billion, reflecting strong future revenues, which is encouraging.

Lions Gate is a film studio engaged in the production and distribution of motion pictures for theater and straight-to-video release and also television programming for cable and broadcast networks. The company has a strong track record of producing small and mid-budget specialty films.

In order 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).

Currently,  Lions Gate retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

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