Drawn to DreamWorks

Just weeks before Over The Hedge sets the tone for DreamWorks Animation (NYSE: DWA  ) with its May 19 release, the computer animation studio announced its March-quarter results. Revenue fell to $60 million, and earnings clocked in at $0.12 a share for the period. It was well short of the $0.44 per share that the company had earned on $167 million in revenue a year earlier, but movie studios tend to produce lumpy results like this.

The market knows this. In fact, Wall Street was expecting DreamWorks Animation to merely break even for the period. The retail disappointment of the Wallace & Gromit movie was more than offset by the buoyant DVD sales of Madagascar. Even though Wallace & Gromit: The Curse of the Were-Rabbit only moved 3.3 million net units, Madagascar has been able to clear an estimated 17.5 million copies.

No one is buying into DreamWorks Animation in pursuit of consistently growing results. Release schedules fluctuate, and the difference between a hit or a miss is huge, as it plays its way through the revenue-generating channels of ticket sales, merchandising, DVDs, and televised broadcasts.

DreamWorks Animation has had a rocky run since going public. Things went well in 2004, but the company stumbled last year. Like Pixar (Nasdaq: PIXR  ) , the high-margin potential of successful feature animation has led David Gardner to single out both companies to Motley Fool Stock Advisor subscribers.

The one problem that both companies face at the moment is the glut of computer-animated fare. Disney's (NYSE: DIS  ) The Wild tanked last month. News Corp.'s (NYSE: NWS  ) Ice Age: The Meltdown was a hit a month earlier, but it was a sequel to the top-grossing animated film of 2002. In February, it was Doogal's turn to fizzle for the Weinstein brothers, taking in a pathetic $7.4 million at the multiplex.

Into this crowded environment, DreamWorks Animation will release Over The Hedge this month, and Pixar will follow three weeks later with Cars. Other rendered releases over the summer include Monster House and Ant Bully. Things were a lot easier when it was mostly just Pixar and DreamWorks Animation hogging the release dates. Now it seems as if there's a new animated flick hitting the big screen on a monthly basis.

Cars should do spectacularly well. Pixar's pedigree and hit streak command that kind of respect. I haven't been too impressed with the Over The Hedge trailers, and I can't see it coming anywhere close to the success that DreamWorks had with Shrek and Madagascar. Even Shark Tale should be a tough DreamWorks Animation title for the new release to match up to.

During yesterday's conference call, a couple of analysts asked about the timing of the film's European release in early July, relative to the important soccer season abroad. It seems that DreamWorks Animation isn't catching much of a lull there, either.

This doesn't mean that one should bail on DreamWorks Animation if it falls short. The Shrek and Madagascar franchises will serve the company well for years with planned sequels. This month's film will be the first under its new distribution deal with Viacom (NYSE: VIA  ) , and one can only imagine that the next DreamWorks hit -- and there will be one, maybe even this one -- will be helped plenty by having the parent company of Nickelodeon and the Paramount theme parks lending a promotional hand.

But for now, I'd be cautious. This film will have to open strong and score quickly before Cars drives it off the road come early June.

DreamWorks and Pixar are both Stock Advisor picks. Take the newsletter that goes straight to the top of David and Tom Gardner's wish list for a 30-day free test-drive.

Longtime Fool contributor Rick Munarriz loves the art of animated filmmaking. Yes, he owns shares of Pixar and Disney. The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 513280, ~/Articles/ArticleHandler.aspx, 9/22/2014 8:34:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement