A Little Green Before "Shrek" Arrives

Now that we no longer have Pixar around as a stand-alone company to humble analysts, it's nice to see DreamWorks Animation (NYSE: DWA  ) step up to occasionally take its place. The studio behind the Shrek and Madagascar franchises had a significantly better-than-expected first quarter. Earnings per share rose from $0.12 to $0.15, while revenues soared 56% higher to $93.7 million.

Wall Street was sitting at the wrong multiplex, looking for earnings to dip to $0.07 a share on a more modest 14% top line advance.

This wasn't supposed to be a strong quarter. Shrek the Third doesn't hit the box office for another two weeks. The company's previous release, Flushed Away, was a theatrical disappointment. However, we are now starting to see the merit in the company's growing portfolio of titles.

Over the Hedge was resilient at the retail level, clearing enough DVDs to send $33.1 million to the company's top line. Older titles like Shrek 2, Madagascar, and even the box office dud Wallace & Gromit: The Curse of the Were-Rabbit brought in respectable change from home video sales, as well as domestic and international television broadcasting rights.

Things should only get better from here. Shrek the Third won't be much of a contributor initially, though you've got to love its chances. Shrek 2 reigns as the highest grossing animated film of all-time. Sorry, Disney (NYSE: DIS  ) , but it's true.

The popularity has made Shrek an easy licensing sell. Stroll down the supermarket and count the times that the grinning green ogre is staring back at you, practically begging to swan dive into your shopping cart. Between the toys, Activision (Nasdaq: ATVI  ) video games, and Kellogg's (NYSE: K  ) cereal and fruit rolls, a lot is riding on Shrek's wide shoulders. Yes, he has been able to carry the load, but with so many "can't miss" summer blockbusters on the slate, something's got to give and miss.

It shouldn't miss. Pixar's Ratatouille won't open until Shrek the Third has six weeks to itself. Live-action kid magnets won't be as kind. Spider-Man 3 opens later this week and Disney's Pirates of the Caribbean: At World's End opens a week after Shrek the Third is released. Animated fare typically appeals to a younger audience, though enough pre-teens and teens have grown up with Shrek to make the crowded multiplex slate a concern.

Still, Shrek the Third is going to make a ton of money even if it doesn't topple its predecessor at the computer-rendered throne. It's going to be a busy month at the theater. I hope you like popcorn.

DreamWorks Animation, Activision, and Disney are all Motley Fool Stock Advisor newsletter recommendations.

Longtime Fool contributor Rick Munarriz is a sucker for quality animation. Yes, he owns shares of Disney and DreamWorks Animation. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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