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October 29, 2007

Box Office Strength Flows Through Regal's Results

Not much to say about Regal Entertainment's third quarter earnings report. Given the well-chronicled strength in the box office, Regal produced very good results as anticipated. Occasionally, Regal and theatre operators are unable to translate box office strength to earnings. This was not the case in the third quarter for Regal.

The company is optimistic that earnings and box office strength will continue in the fourth quarter even thought the box office is performing poorly in October. The big releases this year are all in November and December. Last year's holiday product generally performed poorly so comparisons are easy. For example, in 2006, weekly box office totals were in the $125-150 million range until early November. Blockbuster releases during holiday periods led to several weeks of over $200 million and one of over $300 million for the rest of the year. In other words, if comparisons are favorable for the holiday films the lagging box office so far in the fourth quarter can quickly turn to positive comparisons.

I looked over a few analyst models and the consensus estimates. Box office admissions revenue in the fourth quarter is forecast to be flat to down slightly and overall revenue growth, which includes concessions and in theatre advertising, is expected to be flat to up slightly. I think the bar is set appropriately low such that current box office weakness will not be an issue for the stock....

....Thus, with the shares yielding 5.5% and excess cash on the balance sheet that could be used for a special dividend or accretive acquisition, I think the shares till remain an attractive defensive holding. Since Northlake's initial purchase in spring 2006, the Regal has risen more than 5% and the company has paid $3.50 in dividend driving the total return on the shares to over 20%. There is more than one way to make money in stock and in the current uncertain economic environment the downside protection offered by Regal's dividends is very comforting.

Posted by Steve Birenberg at October 29, 2007 09:23 AM in RGC