Please ensure Javascript is enabled for purposes of website accessibility

Lionsgate Earnings: Stronger Than They Look at First Glance

By Anders Bylund – Nov 9, 2018 at 5:52PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Unique line items and equally specific year-over-year comparisons made for a tough quarter in plain GAAP terms.

Mini-major content studio Lionsgate (LGF-A -3.70%) (LGF-B -4.22%) reported earnings on Thursday night, covering the second quarter of fiscal year 2019. What looks like a terrible report in pure GAAP terms was actually a strong performance if you back out a long-awaited legal settlement and some difficult-to-beat performances in the year-ago quarter.

Lionsgate's second-quarter results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$901 million

$941 million

(4.3%)

Net income (loss)

($149 million)

$13 million

N/A

GAAP earnings (losses) per diluted share

($0.67)

$0.07

N/A

Data source: Lionsgate.

What happened with Lionsgate this quarter?

  • The drastic swing to a large net loss resulted from a $114 million legal expense, as Lionsgate settled seven class-action lawsuits related to the acquisition of Starz in 2016. The settlement was reached on Thursday, the very day of this quarterly report, and is still subject to court approvals. Until then, the balance sheet still carries a $961 million liability to account for the worst possible outcome of these lawsuits.
  • Adjusted earnings, which remove components such as stock-based compensation, restructuring charges, and one-time litigation charges, decreased from $0.29 per diluted share in the year-ago period to $0.22 per share in the reported quarter.
  • The Starz network ended this quarter with 25.1 million subscribers, a 1.3 million increase from the previous quarter and up from 24.5 million in the year-ago period. Revenue for this division increased 5% year over year, to $377 million, thanks to the rising subscriber counts.
  • Lionsgate's motion-pictures segment saw sales falling 2%, to $379 million. At the same time, strong home media and syndication sales of older releases drove the segment's profits 45% higher. Those over-performing audience favorites include the 2018 remake of Overboard and basketball comedy Uncle Drew.
  • TV production sales came in 28% below the year-ago period's result and the division's operating profits were cut in half. This segment faced off against the initial launches of several Starz original series -- Power and Ash vs. the Evil Dead -- in the same period of fiscal year 2018 (meaning calendar year 2017), making for a difficult slate of year-over-year comparisons.
A packed cinema hall with Lionsgate's logo on the screen.

Image source: Getty Images and Lionsgate.

What management had to say

Lionsgate CEO Jon Feltheimer celebrated the Starz network's strongest revenue growth in more than a decade. In the earnings call, Feltheimer said:

These results reflect everything we've been learning from our data initiatives about how to reach, engage and retain our customers as we continue to build strong and sustainable growth. Our strategy at Starz is working. With hit series Power, Outlander and American Gods, leading a robust slate of premium programming, unparalleled content availability, unique speed-to-market, and enhanced data flow, enabling us to target our programming ever more efficiently to our consumers, we have all the elements in place to continue to extend our domestic footprint, execute our international expansion and drive subscriber growth worldwide.

Looking ahead

Lionsgate is not known for detailed financial forecasts. This time, CFO Jimmy Barge simply noted that the management team "continue to feel comfortable" with their stated three-year goal of mid- to high-single-digit annual percentage growth in so-called OIBDA (operating income before depreciation and amortization) profits. For the record, adjusted OIBDA rose 19% in the second quarter, landing at $129 million.

Beyond that, the company is exploring international growth by finding cable TV partners for the Starz network. The most recent example was a fresh partnership with Virgin Media in the U.K.

The network also is riding the coattails of Amazon (AMZN -3.01%) and its Prime media services, recently launching as part of the Amazon Prime package in six European countries and several markets in the Middle East. These expansion efforts will continue for years to come.

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 Amazon. The Motley Fool owns shares of and recommends Amazon, Lions Gate Entertainment Class A, and Lions Gate Entertainment Class B. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Lions Gate Entertainment Corp. Stock Quote
Lions Gate Entertainment Corp.
LGF-A
$8.84 (-3.70%) $0.34
Lions Gate Entertainment Corp. Stock Quote
Lions Gate Entertainment Corp.
LGF-B
$8.39 (-4.22%) $0.37
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$113.78 (-3.01%) $-3.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.