DreamWorks Animation
Revenue was $87.1 million, well above the $43.4 million analysts expected -- but compared to the year-ago quarter, was down 63.9%. A year ago, Shrek2, the biggest-grossing animated film in history (and the sixth-biggest worldwide grossing film of all time) was filling the cash coffers. (All box office numbers including yearly and all-time rankings are compliments of Box Office Mojo's website.)
Earnings, which analysts expected to come in at break-even (yup, $0.00), fell a penny short of that. That one cent loss was helped by an $8 million charge for taxes and a write-off of $3.9 million for film inventory of Wallace & Gromit: The Curse of the Were-Rabbit.
In last August's conference call, DreamWorks Animation had warned there might be a Wallace & Gromit write-off if the movie didn't earn at least $170 million. Still showing in movie theaters, the film has earned $161.2 million and will likely surpass the $170 million mark. But the company attributes poor domestic performance, where the film has grossed $53.2 million (33% of the total take), for the write-off.
The big financial risk of films is certainly shown by Wallace & Gromit -- a film my friends and I have raved about to anyone who will listen. Even with the poor U.S. showing, it's still No.38 on this year's box office tally (and it could climb another three places by grossing another $4 million). That's hardly a failure, although it didn't break through the magic $100 million level, at least not domestically.
The bottom line, though, is that films require a lot of money to make and market. Then consider the fact that companies the likes of Stock Advisor pick Pixar
Contrast Wallace & Gromit with Madagascar, which registered 74.2% of this quarter's total sales. Madagascar, a film that has captured $520.9 million worldwide, is No. 6 in this year's domestic box office and No. 3 internationally. It sits at No. 34 all-time, right behind Disney
Is it another franchise for DreamWorks? Well, until the sequel arrives in 2008, it's just conjecture. But for comparison's sake, the original Shrek movies grossed $485 million ($35.9 million less than Madagascar). Shrek2, with its built-in audience that had to watch the DVD and/or video over-and-over -- yes, there were adults in that group, too -- helped propel Shrek2 to a worldwide gross of $920.7 million.
Analysts expect fourth-quarter earnings of $0.45 a share, bolstered by the release of the Madagascar DVD. Hopefully, this time there won't be the higher-than-expected DVD returns that partially deflated the earnings from the Shrek2 DVD release.
Those looking at the balance sheet will see net cash (cash and short-term investments minus debt) of $316.6 million. That's strong. Analysts predict 16% annual earnings growth for the next five years. That's strong, too, pricing in expectations for DVD sales on existing films and a blockbuster or two. Looking near term, the company has to wade through 2006 where earnings are expected to hit $0.70.
At $0.70 a share, the stock trades for 35.2 times forward earnings. Not exactly cheap. To justify that valuation, investors have to be looking to 2007 and 2008.
DreamWorks Animation and Pixar are Motley Fool Stock Advisor recommendations. Click here for a 30-day free trial to the best of Tom and David Gardner's picks.
Fool contributor W.D. Crotty owns shares in Disney. Click here to see the Motley Fool's disclosure policy.
