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IMAX Earnings: Will a Strong Slate of Blockbusters Boost Its Results?

Danny Vena, The Motley Fool

The year has started off nicely for IMAX (NYSE: IMAX) shareholders. Expectations were high going into the company's fourth-quarter results and a combination of cost discipline and better-than-expected box office gave investors reason to rejoice, bidding the stock up nearly 9% on the day following its earnings report. That enthusiasm has continued, with shares up 36% so far in 2019.

The company has a lot to prove if it wants to continue its upward momentum. IMAX will be making its case to shareholders when it provides the financial results of its first quarter before the market open on Friday, April 26. Let's recap the fourth-quarter results and look at a few things that have happened since the last release to see if they provide insight into what investors can expect when IMAX reports earnings.

An IMAX laser camera filming in a rocky location.

Image source: IMAX.

Blockbuster results

IMAX reported revenue of $109 million, a drop of 13% year over year. While that might not seem like anything to write home about, it was significantly better than analysts' consensus estimates of $101 million. With the blockbuster success of Star Wars: The Last Jedi in the prior-year quarter, the year-over-year decline had been expected.

Investors were also pumped as IMAX continued to deliver on its promised cost discipline, with expenses falling flat year over year, per management's guidance. Cost of revenue also fell, driving gross margins to 50%, compared to 48% in the prior-year quarter. Adjusted earnings per share were in line with expectations at $0.26.

Seen on the big screen

Several recent announcements bode well for IMAX's future. Theater chain Cinemark Holdings (NYSE: CNK) expanded its agreement with the company, renewing all of its existing IMAX locations through 2026, as well as installing the IMAX Laser system at two new theaters. 

IMAX also announced that it was partnering with leading independent German cinema operator Lochmann Filmtheaterbetriebe to launch the world's largest IMAX screen in Leonberg, Germany. The new theater is scheduled to open in 2020 and feature the IMAX Laser system on a 38-meter screen. 

Finally, Disney's (NYSE: DIS) Captain Marvel, the latest offering from Marvel Studios, opened to $36.1 million in IMAX theaters worldwide, becoming its fifth biggest opening of all time and the first nonsequel film to break into the top five. In the domestic market, it grossed $14.1 million, IMAX's second biggest March opening. Captain Marvel has already topped $1 billion in box office, helping boost the industry results. The next installment from Marvel -- Avengers: Endgame -- will open on April 26, after setting new pre-sale records and crashing movie ticketing websites in the process. The movie was filmed entirely using IMAX cameras, and the highly anticipated blockbuster is expected to break records at the box office.

While the theater announcements are longer-term wins, Captain Marvel will have a direct impact on the results this quarter.  

What the quarter may hold

IMAX prefers not to play the quarterly Wall Street game of providing specific guidance, largely as its results are so highly tied to the success or failure of the movie industry at large. The company did, however, provide some broad guidance that helped fuel investor enthusiasm over the past three months.

On the conference call to discuss the results, IMAX CFO Patrick McClymont said management is expecting box office to grow "in the mid-to-high single-digit range," in 2019. There's also positive news on the margin front -- if the company achieves the box office growth it's anticipating this year, EBITDA margins could return to the peak of 40.5% it last achieved back in 2015 -- resulting in a big increase in the bottom line.

In the absence of more specific guidance from IMAX, we can use Wall Street's expectations to gauge sentiment. Analysts' consensus estimates are calling for revenue of $81.6 million, a dip of about 4%, and earnings per share of $0.18, down about 14%. The company faces tough comps due to the worldwide success of Black Panther, though Captain Marvel is giving the hero a run for his money. 

We'll know much more when the company reports earnings before the market open on Friday.

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Danny Vena owns shares of IMAX and Walt Disney and has the following options: long January 2021 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends IMAX. The Motley Fool has a disclosure policy.