AMC Theaters Shows Signs of Life on a Strong Movie Slate

Last year was a tough one for investors in AMC Entertainment Holdings (AMC 8.23%). A weak summer movie slate, concerns about a shorter exhibition window, and the advent of online streaming conspired to put pressure on the entire movie theater industry, but AMC caught the brunt of it. The company had a debt-heavy balance sheet that was the result of a couple of massive acquisitions. That, combined with general industry malaise, helped cause AMC to lose more than half of its value.

Going into the company's first-quarter financial results, investors were hoping that the recent demand for several high-profile movies would translate into a better financial picture for the world's largest movie theater chain -- and the initial results look promising.

Is AMC off life support? Image source: AMC.

It's all about the box office

Data from AMC First-Quarter Financial Release. Chart by author.

For the just-completed first quarter, AMC generated revenue of $1.38 billion, up 8% year over year and exceeding analysts' consensus estimates calling for revenue of $1.35 billion. Operating income nearly doubled to $110 million, producing net income $17.7 million. Earnings per diluted share also doubled to $0.14, besting analysts' expectations for $0.09.

Interest expense accounted for most of the difference between operating and net income, coming in at $72 million, payment on AMC's more than $4.2 billion in debt. 

Growth in each segment

AMC produced first-quarter records in each of its three revenue categories, though it's important to note that much of the revenue growth was the result of its acquisition of Nordic Cinema Group.

Data from AMC First-Quarter Financial Release. Chart by author.

AMC reported that the cost of the average ticket increased to $9.62 worldwide, up 9.8% compared to the prior-year quarter, though attendance numbers fell by 2.6%. Both U.S. and international concessions increased, with domestic food and beverage sales up 3.5% year over year to $5.04 per patron, while international concessions grew to $3.24 per patron, up 19.5% compared to the prior-year quarter.

AMC said that it had purchased approximately 50% of the shares under its current authorization of $100 million, buying 3.2 million shares at an average share price of $14.86. The company also declared a dividend of $0.20 per share payable on June 25 to shareholders of record on June 11, 2018.

"We are truly heartened by AMC's start to 2018 and couldn't be more excited about the prospects for the year after the record-breaking success of Avengers: Infinity War early in the second quarter," said Adam Aron, president and CEO of AMC. "AMC's strategy is working."

Aron went on to say theatergoers would venture out for great movies. "With record-setting movies like It, Star Wars: The Last Jedi, Black Panther, and most recently, Avengers: Infinity War, it is clear and unmistakable that movie fans overwhelmingly flock to theatres when tempted by great cinematic storytellers."

Looking ahead

AMC is optimistic about the coming year, as the company has been working on a number of fronts to encourage patrons to visit its theaters. These initiatives include premium food and beverage concessions, installation of the company's "sought-after signature recliner seats," and additional premium large-format screens. AMC believes that combining these amenities with a strong movie slate this year will spell success for the company.

Analysts' consensus estimates for the upcoming second quarter are for revenue of $1.37 billion, which would represent year-over-year growth of 14.3%. Analysts are currently expecting a loss per share of $0.09.

It will still be several more quarters before we know for sure if AMC's initiatives will bear fruit over the longer term. For now, however, the company is riding a strong slate of Hollywood blockbusters to better results.