Why Is Lions Gate (LGF.A) Down 11.8% Since Last Earnings Report?

A month has gone by since the last earnings report for Lions Gate Entertainment (LGF.A). Shares have lost about 11.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lions Gate due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Lionsgate Q4 Earnings In Line With Estimates, Up Y/Y

Lionsgate reported fourth-quarter fiscal 2020 adjusted earnings of 21 cents per share, which came in line with the Zacks Consensus Estimate and improved 90.9% on a year-over-year basis.

Revenues increased 3.3% year over year to $944.3 million but missed the consensus mark by 0.2%.

Markedly, the company reported a charge of $50.5 million during the quarter, owing to the global coronavirus pandemic. This includes development charges pertaining to changes in financial expectations and feasibility of project completions, as well as costs related to the halt in production of film and television projects.

Segment Details

Motion Picture (41.6% of revenues) revenues increased 10% year over year to $393.3 million on strong home entertainment performance of Knives Out and other titles. The only theatrical release in the quarter was I Still Believe, which was quickly launched in an exclusive premium video-on-demand window to mitigate loss in theatrical revenues due to coronavirus.

Moreover, the Motion Picture segment raked in a profit of $101.2 million compared with $20.9 million in the year-ago quarter.

Television Production (27.3% of revenues) revenues declined 5.4% year over year to $258 million. The decline was partly offset by strong library sales. Segment loss was $21.5 million, up 10.2% year over year.

The Media Networks segment (37.9% of revenues), formed after the acquisition of Starz, reported revenues of $358 million, down 1.1% year over year. Segment profit declined 71.9% to $25.5 million due to the ongoing investments in STARZPLAY’s international expansion.

Starz Networks revenues declined 4.8% year over year to $337.7 million. STARZPLAY International revenues in the quarter were $9.3 million compared with $1.2 million in the year-ago quarter. Streaming services revenues surged 83.3% year over year to $11 million.

At the end of the quarter, Starz had 24.6 million total global subscribers (from Starz, STARZPLAY Arabia and PANTAYA), up 4.4 million year over year.  Global OTT subscribers reached 10.6 million.

Total Media Networks domestic subscribers improved 3.7 million year over year to 22.8 million.

Operating Details

Adjusted OIBDA increased 21.8% year over year to $125.8 million in the reported quarter.

Direct operating expenses, as a percentage of revenues, expanded 140 basis points (bps) on a year-over-year basis to 59.7%.

Moreover, distribution and marketing expenses, as a percentage of revenues, contracted 190 bps on a year-over-year basis to 23%.

General & administrative expenses, as a percentage of revenues, were almost flat year over year at 12%.

Operating loss was $12 million in the reported quarter compared with operating loss of $34 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2020, cash and cash equivalents were $318.2 million compared with $195.5 million as of Dec 31, 2019.

Moreover, as of Mar 31, 2020, total film obligations and production loans amounted to $353.7 million compared with $$286.8 million as of Dec 31, 2019.

Net cash flow from operating activities was $180.3 million at the end of the reported quarter, compared with $215.9 million in the previous quarter.

Adjusted free cash flow was $175 million compared with free cash flow of $88.4 million in the previous quarter.

Outlook

Due to coronavirus induced uncertainties prevailing in the market, Lionsgate did not provide any specific forecast for fiscal 2021 adjusted OIBDA.

Nevertheless, the company expects Media Networks OTT subscribers to be in the range of 13 million to 15 million in fiscal 2021.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

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