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Lionsgate (LGF.A) Q1 Earnings Miss Estimates, Revenues Up Y/Y

Zacks Equity Research

Lionsgate LGF.A reported first-quarter fiscal 2020 adjusted loss of 2 cents per share while the Zacks Consensus Estimate was of earnings of a cent. The company had reported earnings of 18 cents in the year-ago quarter.

Revenues increased 3.3% year over year to $963.6 million and beat the consensus mark of $949 million.

Average Revenues per User (ARPU) improved sequentially in the reported quarter, driven by an increase in MVPD ARPU and over-the-top (OTT) subscriber mix.

Lionsgate’s shares closed at $13.01 on Aug 9, up 2.8% following the results. The stock has lost 19.2% year to date against the industry’s growth of 4.4%.

Year-to-date Performance



Segment Details

Motion Pictures (41.3% of revenues) revenues increased 8.9% year over year to $397.8 million. The growth was driven by robust box-office collections of John Wick: Chapter 3 – Parabellum.

However, the Motion Pictures segment logged profit of $7.6 million, down 85.3% from the year-ago quarter.

Notably, Lionsgate Entertainment World indoor theme park recently opened in China.

Television Production (29% of revenues) revenues were flat year over year at $279.8 million. Segment profits totaled $25 million, up 60.3% year over year.

The Television Production division is set to launch series on Apple AAPL, ABC, Starz, AT&T’s T upcoming HBO Max, Turner, OWN, NBC, and Pop.

The Media Networks segment (38.6% of revenues), formed after the acquisition of Starz, reported revenues of $372.4 million, up 4.9% year over year, driven by  OTT subscriber growth. However, segment profit declined 31.5% to $60.6 million due to the ongoing investments in STARZPLAY.

Starz Networks revenues increased 3.4% year over year to $362.9 million. STARZPLAY International revenues in the fiscal first quarter were $3.1 million compared with $0.1 million in the year-ago quarter. Streaming services revenues surged 73% year over year to $6.4 million.

At the end of the quarter, Starz had 26.5 million total global subscribers, up 2.6 million year over year.

Total domestic subscribers were 24.4 million, up 500K year over year but down 300K sequentially. Starz domestic OTT subscribers grew 400K sequentially to 4.4 million.

Management stated that 23% of Starz’s domestic revenues in the quarter came from OTT subscribers compared with 14% in the year-ago quarter.

International subscribers increased 6% sequentially. STARZPLAY International was launched in 26 additional countries during the quarter and is now live in 45 countries.

Operating Details

Adjusted OIBDA plunged 42.4% year over year to $67.3 million in the reported quarter.

Direct operating expenses, as a percentage of revenues, increased 210 basis points (bps) on a year-over-year basis to 58.9%.

Moreover, distribution and marketing expenses, as a percentage of revenues, surged 420 bps on a year-over-year basis to 26%.

However, general & administrative expenses, as a percentage of revenues, declined 120 bps on a year-over-year basis to 10.6%.

Operating loss was $3.2 million in the reported quarter against the operating income of $38.2 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jun 30, 2019, cash and cash equivalents were $196 million compared with $184.3 million as of Mar 31, 2019.

Moreover, as of Jun 30, 2019, total film obligations and production loans amounted to $614.9 million compared with $655.7 million as of Mar 31, 2019.

Net cash flow from operating activities was $37.3 million at the end of the reported quarter, much lower than $171.8 million in the year-ago quarter.

Adjusted free cash flow was $24 million compared with the free cash flow of $150.8 million in the previous quarter.

Guidance

For fiscal 2020, Lionsgate still expects adjusted OIBDA of $650-$700 million, prior to investments related to STARZPLAY International (approaching $150 million).

Zacks Rank & Another Key Pick

Currently, Lionsgate carries a Zacks Rank #2 (Buy).

Weight Watchers International WW sports a Zacks Rank #1 (Strong Buy) and is a stock worth considering in the broader consumer discretionary sector, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Weight Watchers is pegged at 15%.

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