Madagascar DVD sales boost Dreamworks net

LOS ANGELES: Dreamworks Animation reported an unexpected quarterly profit from strong DVD sales of Madagascar and savings from its new distribution partnership with Paramount Pictures.

The maker of Shrek also said that DVD sales were stabilising, allowing the company to cut reserves for returns on unsold units. Company officials told analysts last quarter that they expected to have no significant revenue drivers in the third quarter, which fell between its releases of Over the Hedge in May and Flushed Away, which opens domestically on November 3.

The Glendale, California animation company delivered a net profit of $10.5m, or 10 cents per share. In last year’s third quarter, DreamWorks posted a loss of $656,000, or 1 cent per share.

Revenue fell to $55.6m from $87.1m a year ago, compared with analysts’ estimate of $40.1m. Despite the positive results, Prudential Equity Group analyst Katherine Styponias stood by its “neutral” rating on DreamWorks’ shares, in part, on concerns that Street estimates for Flushed Away and ’07’s Shrek the Third are too high. Styponias also believed that an upcoming secondary offering of shares held by DreamWorks’ biggest investor Paul Allen “would likely put more downward pressure on the shares.”

The stock sale, announced October 11 and expected sometime before February, has cast a pall on DreamWorks shares, which traded between $20.50 and $28.80 in the past year. DreamWorks chief executive Jeffrey Katzenberg told reporters on Tuesday the share sale was “something that has been of great interest, importance and focus to our shareholders” but would have little impact on the company’s morale or operation.

DreamWorks president Lew Coleman deflected questions about whether the company would use its $536m in cash to buy back shares, saying it is not allowed to buy shares until the secondary is concluded and the holding company that held the shares is dissolved.

Madagascar and Wallace and Gromit: Curse of the Were-Rabbit were the biggest contributors to revenue during the quarter, bringing in $24.1m and $17.2m respectively. DreamWorks chief financial officer Kris Leslie said the earnings upside stemmed from the Madagascar DVD, a reduction in reserves established for store returns and for expenses related to its distributor transition, and from lower overhead.





DVD sales of library titles were stronger than expected at $8.5 million, due to growing stability in both the domestic, and to a lesser extent, the international DVD retail markets, Katzenberg said.
Leslie expected that $7.1 million in unrecouped distribution costs still remaining from last year’s overshipment of “Shrek 2” DVDs would be settled by year’s end.
The company’s latest theatrical release, “Over the Hedge,” has reached worldwide box office sales of $325 million, above the roughly $310 million that analysts estimated it needed to bring DreamWorks a profit in later quarters.
The “Hedge” DVD, released domestically on October 17, will drive revenue for the rest of the fiscal year, Leslie said.
In addition to a previously announced television partnership with Viacom Inc.-owned Nickelodeon, DreamWorks announced two new films for 2009: “Monster vs. Aliens” and “How to Train Your Dragon,” based on a book by Cressida Cowell.
DreamWorks shares were trading on Tuesday at a multiple of 14.5 times projected 2007 earnings, according to Reuters Estimates, compared with a forward price-to-earnings ratio of 18.9 for the Walt Disney Co. and 24.7 for Lionsgate. Shares of DreamWorks rose 3.7 percent to $27.44 in after-hours trade, after closing up 85 cents at $26.45 on Tuesday on the New York Stock Exchange.