Dragons

Source: DreamWorks Animation.

DreamWorks Animation (NASDAQ:DWA) today posted third-quarter earnings results that seemed to please Wall Street. Or maybe a better word for investors' reaction would be "relieved." The stock is down 35% this year, but it jumped by as much as 7% in after-hours trading following DreamWorks' bottom line beat.

Dragon-fueled profits 
The company earned $12 million in quarterly profit, or $0.14 per share. That was a slight improvement over DreamWorks' $0.12-per-share profit in the prior-year period. Wall Street had a gloomier take on the business and was expecting DreamWorks to slip compared with last year by posting just $0.08 in per-share earnings. 

Sales came in as expected, with revenue climbing 17% to reach $181 million. 

That hefty sales bounce was thanks to How to Train Your Dragon 2 and its impressive ongoing run at the box office. The movie racked up solid Q3 receipts in overseas markets, particularly China. It has now passed $615 million in global revenue, making it the highest-grossing animated movie of the year, CEO Jeffrey Katzenberg noted in a press release accompanying the results. Meanwhile, over 70% of the movie's receipts have come from outside the United States. In contrast, the original Dragon film did about $500 million in worldwide box office revenue. But thanks to a more even split between domestic and international sales, that movie outperformed the sequel in the United States. The third title in the franchise is slated for a June 2017 release.

DreamWorks can't claim much progress in its diversification goals, as feature films again dominated its quarterly results. That business segment was responsible for 80% of the company's revenue, with DreamWorks' TV, consumer products, and other divisions accounting for the rest. By comparison, Disney typically gets only 15% of its revenue from feature films.

Looking ahead
That outsized reliance on a handful of blockbusters isn't expected to change in Q4, when DreamWorks releases its third film of the year, Penguins of Madagascar. With Mr. Peabody & Sherman a miss and Dragon 2 a hit, the company is basically batting 50% heading into its final outing of the year.

Wall Street has high expectations for Q4. Analysts are targeting a 46% sales jump to $300 million. Keep in mind, though, that last year's results were held back by the disappointing box office take from Turbo, and so DreamWorks has a fairly low bar to meet this time around. At the same time, investors will be looking for the company to make progress in its diversification efforts, and in its goal to drive down film production costs.

Demitrios Kalogeropoulos owns shares of Apple, Netflix, and Walt Disney. The Motley Fool recommends Apple, DreamWorks Animation, Google (A and C shares), Netflix, and Walt Disney and owns shares of Apple, Google (A and C shares), Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.