Lions Gate's Numbers Ain't Lyin'

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With many companies reporting big drops in profits during this earnings season, it's nice to see movie and television producer Lions Gate Entertainment (NYSE: LGF  ) weigh in with strong results. Maybe there's something to be said for the idea that entertainment is recession-proof after all.

The folks who are paid to know everything about this company predicted that it would post a $0.05-per-share loss on revenues of just over $330 million. In reality, though, Lions Gate came through with a profit of $0.30 per diluted share on $387.7 million in sales during its first quarter, which ended June 30.

Lions Gate is moving quickly with plans on a number of fronts. Along with Paramount, it agreed to allow DivX (Nasdaq: DIVX  ) to showcase several of its titles online. Lions Gate will distribute its DVDs through Coinstar's (Nasdaq: CSTR  ) Redbox.

There's also the ongoing squabble with Carl Icahn over his lack of representation on the company's board of directors. The activist shareholder has been lobbying the company for multiple seats on its 12-member board for quite some time, but to no avail. Right now, the mogul owns about 17% of the company, having bought more shares recently in a possible attempt to pressure management into making concessions.

The big growth drivers for the quarter were film revenue -- especially from Mandate Pictures, which it acquired in 2007 -- and its TV production business.

Entertainment value
Sales attributable to the Mandate Pictures subsidiary jumped sixfold, because of contributions from hits like Sam Raimi's Drag Me to Hell. With its subsidiaries, Lions Gate has established itself as a leader in independent film production, and from Rambo to Hostel to Bratz, its works have always covered a wide array of movie genres.

Television revenue more than doubled on series licensing from its Lionsgate Television subsidiary, which produces shows like Mad Men, Weeds, and Nurse Jackie. Its acquisition of TV Guide earlier this year, as well as its joint venture with ISH Entertainment, also helped. Additionally, in conjunction with Liberty Media (Nasdaq: LCAPA  ) , Lions Gate is co-producing the second season of the popular television series Crash, which will air this fall on Starz.

Decision time
What sets Lions Gate apart from companies like DreamWorks (Nasdaq: DWA  ) , Time Warner (NYSE: TWX  ) , and Walt Disney (NYSE: DIS  ) is the fact that it's a publicly traded, pure-play movie and television media company. It hasn't matured and gone the way of near-conglomerate Time Warner, and it's not entrenched in kiddie entertainment like DreamWorks and Disney. But unlike privately held Paramount, you can buy shares of Lions Gate.

If Lions Gate continues on this path, it could be one of the better investment turnaround stories of this year. By the time Rambo V comes out in 2011, I expect Lions Gate's shares will be much less affordable.

Read more about media stocks:

Fool contributor Chris Jones owns no shares of any company mentioned in this article. Walt Disney and DreamWorks Animation are Motley Fool Stock Advisor recommendations. Walt Disney is also an Inside Value selection. Try any of our Foolish newsletter services free for 30 days. One time, The Motley Fool's disclosure policy tricked Tom G into sticking his tongue out onto a frozen flagpole ... hilarity ensued.

Read/Post Comments (3) | Recommend This Article (15)

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.

  • Report this Comment On August 11, 2009, at 10:44 PM, esxokm wrote:

    It was indeed an interesting quarter for LGF. My one question: what about the cash flow? This is an area that must be carefully considered.

  • Report this Comment On August 12, 2009, at 12:41 PM, Jonesicus wrote:

    Great point, esxokm, and thank you for your insight. That's one topic I definitely would have addressed if I'd had more words to work with on this take.

    Investors should know that LGF's operating cash flow deficit was nearly $153 million for the three months. Its sale of the 49% stake in TV Guide to One Equity Partners (a private equity arm of JPMorgan Chase & Co), and Allen Shapiro (former chief executive officer of Dick Clark Productions) helped to balance things out a bit on the financing side, but still, that's quite a number, and the TV Guide stake proceeds were a one-time deal.

    Its "Investment in films and television programs" line-item seems to be the culprit. And perhaps that's one of the primary sources of Icahn's fervor over board representation. Could the activist investor make a difference? If so, I hope management will seriously consider his concessions because shareholders recognize that smooth operating on a free cash flow deficit is difficult.

    Thanks again for your input, and I hope you'll keep reading and contributing to our community.

    Fool on,

    Chris Jones

  • Report this Comment On August 12, 2009, at 1:10 PM, DWhiteYokle wrote:

    If Rupert Murdoch gets his way, I think we will all be in for some great entertainment. Paying a premium price for anything means you are going to be getting a premium product. It's called logic. So, for Redbox to try and rent movies for deflated prices is only going to make the content and the overall product quality deflated. The same can be said of health care. If everyone wants to keep the same, old, boring system that we have, that's fine. But, for someone with type-3 diabetes and gout, I think spending a little more in the short-run will prove that the long-run benefits will be worth the cost. As for Redbox v. News Corp., I wonder why anyone would want to watch a movie on the day it is released anyway? Don't you want to wait until they've had time to get some feedback and do the proper editing? Great article!

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