Lions Gate Entertainment Corp. LGF delivered first-quarter fiscal 2016 adjusted earnings of 24 cents a share that beat the Zacks Consensus Estimate of 10 cents by a wide margin but fell 22.6% year over year.
The better-than-expected adjusted earnings, which includes stock-based compensation and excludes backstopped prints and advertising expense, was backed by sturdy television production business, higher revenue from licensing of international programming, sustained momentum at EPIX pay television partnership and reduced theatrical marketing expenses.
On a reported basis, including one-items, earnings came in at 26 cents a share, declining from 30 cents earned in the year-ago quarter.
On the revenue front, Lions Gate witnessed a decline of 9% year over year to $408.9 million. The number also fell short of the Zacks Consensus Estimate of $431.1 million. Revenues were soft as the decline in Motion Pictures’ revenue more than offset strong Television Production revenue.
The dismal top-line performance was enough to raise investor concern. As a result, the company’s shares fell 3.1% during the after-market trading hours yesterday.
The company anticipates 13 wide release theatrical films during the rest of the year including The Hunger Games: Mockingjay – Part 2, Allegiant – Part 1, The Last Witch Hunter and Sicario.
The company’s filmed entertainment backlog was $1.3 billion at the end of first-quarter fiscal 2016.
The company’s adjusted EBITDA (including stock-based compensation) came in at $53.4 million, down 26% year over year.
Segmental Performance
During the reported quarter, Motion Pictures’ revenue of $275.4 million plunged 17% year over year, reflecting weak performances across Theatrical (down 45.9% to $23.1 million), Home Entertainment (down 13.4% to $115.4 million), International (down 6.5% to $84.8 million) and Television (down 17.7% to $48.4 million). Moreover, other revenue at the segment fell 43.1% year over year to $3.7 million.
The company had only one wide release, The Age of Adaline, in the Motion Picture segment in the reported quarter for which it clinched only the distribution fee as theatrical revenue, given the terms of its distribution arrangement with Lakeshore Entertainment. The decline in Home Entertainment revenue is owing to decline in theatrical slates along with lower revenue from Managed Brands. The company distributed 4 theatrical titles on home entertainment platforms this quarter compared with 5 in the prior-year quarter, including The Hunger Games: Catching Fire. Likewise, International Motion Pictures’ revenue descended on account of a fall in revenue from theatrical slates. Television revenue at Motion Pictures declined year over year primarily due to the fewer number of titles.
Television Production revenue soared 13.7% to $133.6 million, largely on the back of the strength witnessed at international revenue (up 72.7% to $59.4 million) and the home entertainment category (up 83.1% to $14.1 million). However, this surge was offset by the decrease in the domestic television category which declined 19% to $59 million.
During the quarter, international television revenue increased significantly, reflecting higher licensing revenue from the first three seasons of Orange is the New Black. On the other hand, the domestic television category suffered due to a fall in the television episodes delivered during the quarter. The increase in home entertainment category was backed by a surge in digital media revenue, consisting of revenues from Blue Mountain State (Seasons 1, 2 & 3) and Ascension along with marginal gain in packaged media revenue.
Further, management intends to add 16 original new series to the current list of programming during the fiscal year.
Financial Details
Lions Gate ended first-quarter fiscal 2016 with cash and cash equivalents of $196.6 million, film obligations and production loans of $776.4 million, and shareholders’ equity of approximately $956 million. The company generated free cash flow of $94.7 million in the reported quarter.
Lions Gate, which competes with major studios like Twenty-First Century Fox, Inc. FOXA and DreamWorks Animation SKG Inc. DWA, is a film studio engaged in the production and distribution of motion pictures for theater and straight-to-video release as well as television programming for cable and broadcast networks.
Zacks Rank
Currently, Lions Gate carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is IMAX Corporation IMAX carrying a Zacks Rank #2 (Buy).
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