Despite poor reviews, The Da Vinci Code exceeded estimates with weekend ticket sales of $77 million in North American theatres. The weekend gross exceeded estimates in place prior to poor reviews out of Cannes. Along with a solid performance from Over The Hedge and reasonable business from other films in wide release, the year-over-year decline in the box office was limited to less than 3%, a good performance given that the final installment of Star Wars series was released on the same weekend in 2005. The weekend’s results are receiving favorable commentary in the business press which should help investor sentiment and keep intact my thesis for a strong summer box office and gains in theatre stocks, including Northlake’s long position in Regal Entertainment (RGC).
This coming weekend should see continued good business for The Da Vinci Code and Over The Hedge and a big opening for the latest X-Men film. The comparison is still tough but once Memorial Day is growth should pick up sharply as the early June opening of Cars and the July opening of Pirates of the Caribbean offer easy comparisons and hugely popular franchises. Both those films are from Disney, another long position held widely in Northlake client and personal portfolios.
Through Sunday, year-to-date, the box office is up about 5%, on a gain of 1% in ticket sales. The current quarter is running up 14%, comfortably ahead of analyst estimates for RGC’s revenues which range from up 6% to up 11%. I see estimates for RGC heading higher over the next six to eight weeks, which should be a catalyst for the shares. Investors who buy now will also receive two 30 cent dividends in the next five months, more than 3% of the current stock price.
Looking more closely at the individual films and the studios that released them…

I think it is too early call The Da Vinci Code and Over The Hedge financial successes. Da Vinci did come in above expectations but the Saturday gross fell slightly from Friday which might indicate that bad reviews are impacting word of mouth. Additionally, while the film had one of the top 15 openings of all-time, the per screen average was the slightly lower than all the films above it. Even more so than normal, the second weekend will provide a better guide for ultimate box office success. I’d guess Da Vinci will head close to $200 million in US box office, a good but not great figure. International grosses look very strong, and Sony (SNE) has little to worry about from a financial perspective.
I think Dreamworks Animation (DWA) shares could be weak this morning. Over The Hedge actually came in slightly short of the $40 million many observers expected and earned less than comparable films like Chicken Little and Madagascar. The film will do well financially but it doesn’t appear to be a blow away hit and DWA lacks catalysts as this film is the entire 2006 story.
Finally, I wonder if Time Warner (TWX) may be looking at a write-off for Poseidon. The film cost $160 million to produce according to estimates and advertising must have been well north of $20 million. The film has grossed just $37 million so far in North America and a modest $4 million overseas.