AMC Shares Offer Investors a Hollywood Ending

As movie theaters work on enhancing their entertainment options to attract patrons, AMC Entertainment Holdings'  (NYSE: AMC  ) successful IPO shows movie theaters can still hold their own alongside streaming video. The company sold 18.4 million shares that started trading at $18 on Dec. 18.

By the end of the trading day, shares were up 5% to close at $18.90. This last IPO of the year rose $331 million. As it drew to a close, underwriters exercised their option to purchase an additional 2.6 million shares. This brought the total size of the IPO to more than 21 million common shares, with net proceeds of $359.1 million.

Majority shareholder Dalian Wanda Group saw its initial investment of $700 million made in 2012 rise to $1.7 billion after the stock sale. Even with the IPO, the Chinese company retains voting control. AMC plans to use the proceeds to renovate theaters and retire debt. There are also plans to purchase smaller theaters to increase the company's market share to more than its current 18%. Competing movie-theater chains have also been making their own acquisitions.

AMC is the last major theater to go public
AMC's newly minted status as a new addition to the New York Stock Exchange follows its rivals, who are also publicly traded. Movie chains, like Regal Entertainment Group (NYSE: RGC  ) , Cinemark Holdings (NYSE: CNK  ) , and Carmike Cinemas (NASDAQ: CKEC  ) have seen their market values rise in 2013.

 

Adjusted Closing Price*

Theater Operator

December 2013

January 2013

% Change

Regal Entertainment

$19.64

$14.24

38%

Cinemark Holdings

$33.10

$27.29

21%

Carmike Cinemas

$27.73

$15.95

74%

*Source: Yahoo! Finance (closing price adjusted for dividends and splits)

Regal Entertainment's revenue for the third quarter ended Sept. 26 was $813.1 million, up 17% from revenue of $692.9 million in the year-ago period. Adjusted diluted earnings per share were $0.38 versus $0.17 in the third quarter of 2012. Regal also declared a cash dividend of $0.21 per common share and intends to continue to pay a regular quarterly dividend based on available cash.

Chief executive officer Amy Miles noted on the third-quarter earnings call that the quarterly adjusted EPS number was the highest reported in almost 10 years. Success during the quarter was attributed to favorable box-office attendance, the company's recent acquisitions, and improvements in its variable costs. High expectations for this year's holiday box office should help to end Regal's fiscal year on a high note.

Cinemark operates theaters in the U.S. and throughout South America in countries like Brazil, Mexico, and Argentina. Its operations are split between these two segments. As of the end of fiscal 2012, the company's first-run U.S. theaters operate in 253 film zones, and in 230 of them, Cinemark is the only exhibitor. Unlike Regal and AMC, part of Cinemark's operating strategy is to grow its theaters in select Latin American markets.

For 2013 and beyond, Cinemark had committed to open additional theaters and invest $89 million in Latin America. Total revenue in the third quarter of 2013 was $525.8 million, up 27% from $413 million in 2012. Attendance grew 22% to 50.6 million patrons versus 41.2 million movie goers in the same period last year. A 3.7% increase in average ticket prices contributed to the increase in revenue.

Carmike Cinemas' third-quarter 2013 revenue rose 30.2% to $165 million as box office admissions increased 28.7%, and per-screen attendance rose 10.5%. For the past 15 consecutive quarters, the company had year-over-year increases in patron spending on concessions and other items. Carmike recently entered into an agreement with Imax to add additional Imax theaters to its new and existing multiplexes; the total number of Imax auditoriums will increase to 18.

Carmike is also seeking attractive acquisitions and has signed another agreement with Muvico Entertainment to acquire nine entertainment complexes and 147 screens spread across three states. The acquisition should help the company reach its expansion target of 300 theater locations and 3,000 screens.

Industry affected by more delivery channels available for movies
In the past few years, as home-entertainment systems have become more sophisticated and more customers watch movies via streaming video, theaters have been scrambling to attract moviegoers. And this means renovations and changes to theaters that include reclining seats, in-theater dining, and more variety at the concession. These upgrades can cost between $4 million and $6 million per theater.

My Foolish conclusion
For 2013, industry revenue is expected to grow by 2.8%, with profits improving since bottoming out back in 2008. IBIS World research predicts 2013-2014 revenue growth in U.S. theaters will be 2.3%, turning around the lower admissions and profits that resulted from the recession.

As the economy improves and disposable income increases, consumers are expected to spend more on entertainment in the next five years. Positive trends will be offset by competition from online video streaming, so annual growth is expected to occur slowly at a rate of 1.7% to reach $15.7 billion by 2018. All in all, these theaters should continue to see their businesses live happily ever after.

 

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