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IMAX Falls on Earnings Miss, Sees Sequels Leading Future Sales Higher

By Dan Caplinger - Feb 24, 2016 at 6:32PM

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The large-screen theater company hopes that follow-ups from Disney and others will help it in 2016 and 2017.


Image: IMAX.

The key to good entertainment is giving patrons an experience they can't match elsewhere, and IMAX (IMAX 2.29%) has used its oversized screens and unique projection capabilities to deliver a movie experience that's unparalleled. Yet investors still want to see good financial results, and coming into Wednesday's fourth-quarter financial report, IMAX investors expected that the company would benefit from the blockbusters that Walt Disney (DIS 3.53%) and other movie studios have produced in recent months. IMAX's results were a bit of a disappointment on the bottom line, but the company expects that future installments of successful movie franchises will keep future results moving higher. Let's look more closely at how IMAX did and what's ahead for the company.

IMAX suffers a rare earnings miss
IMAX's fourth-quarter results failed to meet the high expectations among its investors. Sales gained 16.5% to $119.3 million, topping the 13% growth rate that most investors had thought they would see from IMAX. On the bottom line, though, 13% gains in adjusted net income to $22.5 million produced adjusted earnings of $0.39 per share, which was a nickel below the consensus forecast among those following the stock.

Looking more closely at the numbers, some of the trends that had helped IMAX in previous quarters didn't appear this time around. Revenue from sales and sales-type leases actually fell slightly from the year-ago quarter, which stood in stark contrast to the huge upticks in that key revenue source that IMAX had seen recently. The company installed two dozen new theater systems under these arrangements, but that was down from 26 in 2014's fourth quarter.

IMAX's other key segments picked up the slack with performance that was more consistent with past results. Revenue from joint revenue-sharing arrangements climbed 39% to $31.9 million, with the company installing 32 new theaters under revenue-sharing arrangements, up from 29 in last year's quarter. The quarter's expansion brought the total number of joint-venture theaters to 529, which was 78 more than at this time last year. Production and digital remastering revenues rose 25%, reflecting a 27% jump in gross box office to $288.4 million. Average box office per screen figures went up to $318,600, 9% higher than in the previous year.

IMAX CEO Richard Gelfond was happy with the company's performance. "2015 was undoubtedly a historic year for IMAX -- we delivered a record $1 billion in global box office," Gelfond said, noting that its theater network climbed above the 1,000 mark during the year and that it successfully did its IPO of its China business in Hong Kong.

What's ahead for IMAX?
IMAX also sees favorable conditions lasting well into the future. "With so many major movie franchises releasing important sequels in 2016 and 2017," Gelfond said, "we believe we're extremely well-positioned for success in the years ahead." China is an obvious focal point that the CEO noted, but he also said that Japan, the Middle East, and continental Europe have the potential to become strategically important entertainment markets for IMAX.

Among the sequels that IMAX is counting on for its success are a number of Disney releases. In 2016, Disney intends to release a new Captain America movie through its Marvel Studios division, and the more recently acquired Lucasfilm will produce the much-anticipated Rogue One spinoff from the Star Wars universe. The Pixar release Finding Dory will be a follow up to the past hit Finding Nemo. Other new Disney releases will include a new Jungle Book movie and a Marvel offering for Doctor Strange.

IMAX shareholders didn't like the earnings miss, sending the stock down more than 7% in after-hours trading following the announcement. Yet for those with a longer-term focus, IMAX still seems to be tapped into the entertainment trends of the market, and its unique theater-going experience should keep resonating with crowds around the world.

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The Walt Disney Company Stock Quote
The Walt Disney Company
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IMAX
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