Movie theater and exhibitor stocks have had a rough few years. Several factors have weighed on the sector, including fears of slowing demand due the popularity of streaming, growing interest in subscription movie passes cutting into profits, and an overall decline in ticket sales.
Not all exhibitor stocks should be lumped together, however, and IMAX (NYSE:IMAX) may well be a case of throwing out the baby with the bath water.
IMAX is scheduled to report the results of its 2018 second quarter on July 25 after the market closes. Let's take a quick look at how the company did last quarter and review a few things investors should be on the lookout for.
A look back
For the first quarter, IMAX delivered revenue of $85 million, up 23% year over year, and soaring past analysts' consensus estimates of $79.3 million. Lower expenses resulted in improving margins, allowing the company to produce adjusted net income of $13.4 million, up 244% compared to the prior year quarter. This resulted in adjusted earnings per share of $0.21, up from just $0.06 in the year-ago quarter, and nearly doubling analysts' expectations of $0.11.
What to watch
IMAX doesn't provide a quarterly forecast and only provides broad guidance for the full year. For the current quarter, analysts are expecting revenue of $98.92 million, an increase of 12.7% year over year, while adjusted earnings per share is expected to clock in at $0.26, up 73% compared to the year-ago quarter.
This optimism is likely well placed, considering the movie slate that hit theaters earlier this year. Disney's Black Panther was concluding its successful run on the big screen as the quarter began, only to be outdone by Avengers: Infinity War, which scored monster results following its record-breaking debut in late April. The superhero flick has become one of the most successful films of all-time, becoming just the fourth movie in history to achieve $2 billion in ticket sales.
This helped lead the overall box office to record results for the second quarter, on the heels of the second-best first quarter ever. This should have a positive impact on IMAX's results.
Another key metric to watch is the company's backlog of theater installations. IMAX has a growing list of exhibitors waiting for IMAX systems to be installed in their theaters. Some are direct sales, while others represent joint-revenue sharing agreements where IMAX supplies the equipment for an ongoing cut of the ticket sales. The backlog at the end of last quarter was 529 systems. Look for this number to have increased.
IMAX's business is beholden to a strong slate of movies, but the company has made several announcements to emphasize the strength of its brand in recent months, and investors should watch for updates concerning these developments.
The Kingdom of Saudi Arabia has recently opened its doors to movie theaters for the first time in 35 years, and IMAX signed an agreement to open a minimum of four theaters in the Kingdom in collaboration with Vox, the largest movie exhibitor in the Middle East.
In an agreement with European exhibitor Les Cinemas Pathe Gaumont's, the company will install an additional 20 IMAX laser systems across France, the Netherlands, and Switzerland under a joint-revenue sharing agreement.
Finally, the company signed an agreement with AMC Theaters to be part of the company's Stubs A-list rewards program, which will allow movie-goers to see up to three movies per week for a subscription price of $19.95 per month. The agreement stipulates that AMC will ensure that there "is no reduction in IMAX's overall economics." IMAX believes that incremental attendance will result in increased revenue.
IMAX started the year with a stellar quarter and evidence suggests that the company's strong performance should have continued over the past three months.
Danny Vena owns shares of AMC Entertainment Holdings, IMAX, and Walt Disney and has the following options: long January 2019 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends IMAX and Walt Disney. The Motley Fool has a disclosure policy.