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Here's How Lions Gate Entertainment Corp. Boosted Q4 Earnings Despite Lower Sales

By Anders Bylund - May 25, 2018 at 3:23PM

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Facing off against difficult year-over-year comparisons, the entertainment producer delivered strong bottom-line results thanks to much higher TV-based profits.

Mini-major movie and TV studio Lions Gate Entertainment (LGF-A -0.71%) (LGF-B -0.65%) reported fourth-quarter results on Thursday evening. The quarter was never expected to measure up to the year-ago period, which included huge contributions from an Oscar-winning hit movie, but the results still exceeded management's own expectations.

Here's a closer look at Lions Gate's fourth quarter.

Lions Gate's fourth-quarter results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$1.04 billion

$1.26 billion

(17%)

Net income

$91.3 million

$61.6 million

48%

GAAP earnings per share (diluted)

$0.41

$0.28

46%

Data source: Lions Gate Entertainment. GAAP = generally accepted accounting principles.

What happened with Lions Gate this quarter?

As expected, Lions Gate experienced lower fourth-quarter revenue due to a smaller theatrical release effort and a lack of blockbusters that could match up with the year-ago period's smash hit, La La Land. On the upside, the timing of production and delivery schedules lifted Lions Gate's TV production sales.

  • Motion pictures sales fell 35% lower year over year while television production revenue rose 4% and the Starz-based media networks segment's top line came in 6% lower.
  • The TV production division also led the way in terms of segment-level operating profits with an 80% year-over-year increase. Here, motion picture profits fell 44% lower and media network income decreased by 8%.
  • Lions Gate's handful of streaming video platforms more than doubled its revenue to a still-petite $2.9 million but continued to be a drag on the bottom line. Streaming services recorded a $7.7 million operating loss, compared to a $10.6 million loss in the fourth quarter of 2017.
Smiling young couple snuggling up on the counch. The woman is wielding a TV remote.

Image source: Getty Images.

What management had to say

In a prepared statement, Lions Gate CEO Jon Feltheimer noted that the fourth quarter and full year exceeded management's financial expectations.

"We enter fiscal 2019 well positioned to continue growing our worldwide content platform, deepening our key talent relationships, and rolling out Starz as a truly global consumer brand," Feltheimer said.

Getting that ball rolling, Lions Gate also announced the launch of STARZPLAY-branded channels on the British and German versions of Amazon Prime Video.

"The launch of STARZPLAY on Amazon in the UK and Germany marks a significant expansion of the STARZ platform into the global market, providing an exciting opportunity for us to build on the success of our relationship with Amazon Prime Video Channels," said Starz CEO Chris Albrecht in another official statement.

This effort will continue as Lions Gate plans to roll out STARZPLAY in 15 Amazon territories overseas in the next three years.

Looking ahead

Management reaffirmed its three-year plan of growing an adjusted operating profit metric known as operating income before depreciation and amortization by mid to high single digits every year.

The international rollout of STARZ-branded services will continue beyond Amazon Prime, including a Hulu partnership planned to take a bow in October. The upcoming film slate remains focused on a smaller quantity of highly targeted titles, including ace director Sam Raimi's Kingkiller Chronicles, which also involves Lin-Manuel Miranda's creative guidance.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of AMZN. The Motley Fool owns shares of and recommends AMZN and Lions Gate Entertainment (Class A and Class B shares). The Motley Fool has a disclosure policy.

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