DreamWorks Scores a Bee Plus

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If you're DreamWorks Animation (NYSE: DWA), the bees are bringing you money, honey, and the ogres are flashing green.

The animation studio scored another market-thumping quarter. Revenue soared 67% to hit $156.6 million. Earnings shot up nearly 70%, resulting in earnings per share of $0.28.

But don't fall into the trap of believing that the huge gains are sustainable. Crafting theatrical animation is a very lumpy business, with wide swings in any given quarter.

What you should be watching, however, is how the market was looking for DreamWorks Animation to earn just $0.23 a share on $131.9 million in revenue. Analysts factor the lumpiness into their guesstimates, so it's a big win for the studio. In fact, DreamWorks Animation has now topped market expectations in each of the past 10 quarters. Investors have to love that kind of consistency, especially in a niche that is so volatile come earnings day.

The key driver here was Bee Movie, accounting for nearly a third of the company's revenue this past quarter. The Jerry Seinfeld flick may not have been a gargantuan blockbuster at the corner multiplex last year, but it's apparently selling well on DVD. The film has moved 4.8 million copies since last month's release.

Shrek the Third is still going strong, also stepping up to account for nearly a third of the quarterly revenue mix. The film's international revenue was strong during the period. On the retail front, the third installment in the studio's flagship franchise has sold nearly 20 million DVDs. This bodes well for the Shrek stage show that opens on Broadway later this year.

Things are about to get pretty busy for DreamWorks. Over the next 12 months, the company will put out three full-length features. Kung Fu Panda in June, Madagascar: Escape 2 Africa in November, and Monsters vs. Aliens come March will keep the pipeline pumping.

This doesn't mean that investors should expect blowout results to continue. Since DreamWorks Animation begins collecting money on a film only after marketing and distribution costs have been recouped, don't expect exciting results until the final quarter of 2008. The company should have good momentum heading into 2009.

Theatrical animation is still lucrative. You no longer have the loaded slates of inferior films. It is mostly up to Disney (NYSE: DIS) and DreamWorks Animation to carry the load these days.

Between the migration from DVD to Sony's (NYSE: SNE) Blu-ray as the premium optical disc of choice and leading exhibitors like AMC and Regal (NYSE: RGC) adding IMAX (Nasdaq: IMAX) screens to boost per-ticket revenue, the fundamentals are in place for the companies making family-friendly blockbusters.

DreamWorks Animation is on that path. History shows that it's a path loaded with pitfalls, potholes, and forks, but as long as the company stays one step ahead of Wall Street it should do just fine.

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