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May 06, 2008

Dreamworks: Good Results Ahead of Kung Fu Panda

Dreamworks Animation reported better than expected 1Q08 earnings with EPS of 28 cents and revenues of $156.6 million ahead of consensus of 24 cents and $135 million, respectively. The shares will probably lift a bit but the next major move in the stock will be associated with the June 6th release of Kung Fu Panda. Panda will debut at Cannes in two weeks which should give an early indication at least from a critical perspective.

Upside in the quarter came from solid DVD sales for Shrek 3 and Bee Movies and greater contribution form older titles. Flushed Away and Wallace and Gromit in particular look better than expected. Library revenue also may be ahead of expectations. Strength from older releases is good news for DWA shareholders as it suggests a higher base level of earnings power....

....In response to a question, management stated that negotiations with theatres on 3D installations has not made much progress in the last thirty days. This could hurt DWA earnings power in 2009 if there are not thousands of screens available for Monsters vs. Aliens, the company's first film produced in 3D, set for release in theatres on March 27th, 2009.

There was little very else that was covered in either the press release or the conference call. I view DWA as a trading stock based on its movie releases not a buy and hold investment. However, if Kung Fu Panda is a major hit (greater than $250 million in box office), the trade off the film's box office could prove greater and more sustainable than usual.

Posted by Steve Birenberg at May 6, 2008 09:21 AM in DWA