IMAX Is Set Up for Box-Office Gold

Last year was a horrible one at the box office by nearly ever account. Domestic box office fell 3.7%, the second largest decline since 1991, and despite rising ticket prices, the top film of the year, Harry Potter and the Deathly Hallows Part 2, was still only the 15th highest grossing movie of all time. Beyond that, I would challenge even the biggest movie buff to recount a memorable blockbuster during 2011.

Despite it all, IMAX (NYSE: IMAX  ) managed to expand its theater count by 137 screens during to the year and managed to squeeze out a $15.5 million profit. Turn the page to 2012, and the movie slate is filled with blockbusters and amazing earnings potential for movie companies.

I've pulled the domestic box office for the top three IMAX movies for 2011 and 2012. Remember that we're only six months into 2012, and we have yet to see the year's most anticipated release, The Dark Knight Rises, which will probably compete with Disney's (NYSE: DIS  ) Marvel's The Avengers for top box office of the year.

Film

2011

Film

2012

Harry Potter and the Deathly Hallows Part 2 $381.0 million Marvel's The Avengers $611.1 million
Transformers: Dark of the Moon $352.4 million The Hunger Games $404.4 million
The Twilight Saga: Breaking Dawn Part 1 $281.3 million Dr. Seuss' The Lorax $213.5 million
Total $1,014.7 million   $1,229.0 million

Source: Box Office Mojo.

Through just six months, the top three films of the year have already beaten out the top three from last year, and The Amazing Spider-Man from Sony (NYSE: SNE  ) is already No. 8 for the year in less than a week in theaters and will soon overtake The Lorax. The film has already generated $24 million in box office globally and $14.3 million in six days domestically, more than 10% of the domestic box office.

The surprise winner so far this year has been Lions Gate's (NYSE: LGF  ) The Hunger Games, which came into the year with high hopes, though few would have thought it would surpass Harry Potter's take last year -- an astounding statistic. The Dark Knight Rises is the closest thing the industry has to a sure thing and will more than likely surpass all of these films, another huge win for IMAX later this month because it includes about 30 minutes of action shot with IMAX cameras.

What it means for investors
The reason this is a big deal for investors is the nature of IMAX's agreements with studios and theaters. The company takes on the cost of converting each film to IMAX format and generates revenue from each ticket sold in an IMAX theater. As the theater network has expanded, so has the company's revenue opportunity, without a large increase in cost for each film. This means that as box office expands, more of each dollar in revenue goes straight to the bottom line. Over the next five years, IMAX expects this to push total margin from 48% in 2011 to 69%, in a model shared with analysts.

That is big news this year, because according to the company, worldwide gross IMAX box office increased 62.2% in the second quarter to $174.7 million and rose 74.4% in the first half of the year to $296.4 million. This should translate to strong second-quarter earnings when results are released.

IMAX won't be the only one benefiting from the improved film lineup in 2012. RealD (NYSE: RLD  ) will also benefit from blockbusters and the 3-D action film in a similar way to IMAX. The 3-D specialist's results are also leveraged by box-office results, and blockbusters should have a strong impact on results this year.

Foolish bottom line
Analysts are expecting earnings per share to triple from a year ago to $0.22 in the second quarter, and I think even that may underestimate IMAX's growth. The company is raking in box office internationally, and the strong performance of IMAX releases this year will push results significantly higher. The only question left is how much cash IMAX will pocket from this year's incredible box-office performance. We'll find out in the next few weeks.

IMAX is now generating more than half of its revenue overseas in an effort to dominate the premium movie market worldwide. They're not the only ones on pace for global domination in their industry. For three more picks, check out our report on three more American companies set to dominate the world. It's free.

Fool contributor Travis Hoium owns shares of IMAX and Disney. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Walt Disney and has sold shares of SONY short. Motley Fool newsletter services have recommended buying shares of IMAX and Walt Disney. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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