DreamWorks Animation Hit By Unexpected Losses

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May 02, 2015

DreamWorks Animation Inc. (DWA, Financial) reported a worse-than-expected operating loss of $35.3 million or 64 cents per share, in the quarter ended March 31, 2015. The animation company, known for successful movie franchises such as Shrek, Madagascar, and Kung Fu Panda, is in the middle of massive restructuring and had to account for related charges of $31.9 million or a per share loss of $0.37. The charges break-up includes $6.1 million towards employee termination packages and other employee expenses; $9.3 million to pay for accelerated depreciation and amortization charges from closing down the Redwood City studio in California and $16.5 million went towards costs associated with cutting down its feature films slate for the year from three films to two. Excluding these charges, adjusted operating loss stood at $3.4 million and adjusted net loss came to about $54.8 million or 64 cents per share. This figure was up from $42.9 million or 51 cents per share, last year.

"While 2015 is a transitional year for us, the worldwide box office performance of Home serves as early evidence that the changes we're making in the core feature animation business are working," said Jeffrey Katzenberg, Chief Executive Officer of DreamWorks Animation, in the company statement. "In addition, last Friday, our television series All Hail King Julien won the Emmy Award for Outstanding Children's Animated Program." Katzenberg added, "This recognition highlights the extraordinary talent and high quality of their work being done at the studio today and we couldn't be prouder."

Thanks in big part to Home’s domestic and international box office draw of $154 million and about $154 million, respectively, DreamWorks posted first quarter revenue earnings of $166.5 million, up by 13.1% from the same quarter last year. The How to Train Your Dragon franchise was the next biggest earner bringing in $41.4 million from theatre and home entertainment sales worldwide. Each of the company’s four operating segments posted an increase in revenue.

Diversification expenses

The company is also caught up with diversifying its business due to intense competition from rivals Universal Studios, owned by Comcast Corp. (CMCSA, Financial). Selling and administrative expenses climbed by almost 87%, chiefly due to expenses from expanding its television channel, Awesomeness TV, and marketing a new television series. The new TV channel is aimed at young adults and teens and recently inked a deal with Google Inc.’s (GOOG, Financial) YouTube to release two feature films, starting later this year.

Market reactions

Analysts, polled by Thomson Reuters, had predicted a loss of 45 cents per share, on the back of revenue of $164.5 million earned. The company’s Class A common stock fell by 2.29% during trading hours on Thursday to close at $26.06. But after-hours trading saw a further 2.15% fall to $25.50. Overall, shares fell by almost 5% to an after-hours low of $24.

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Shares have fallen by almost 62% this year posting a 52 week High/Low of $ 28.98 / $ 18.16. With an earnings per share of $-3.63, DreamWorks’ shares carry a ‘Bullish’ community sentiment. Four out of nine analysts polled, by Zacks Investment Research, give the stock a ‘Sell’ rating while the next highest vote goes to ‘Hold’.